Fine wine comment: Drinking to the investors

Jeff Stanton, non executive Chairman of London City Bond, the UK’s only dedicated logistics provider to the wines and spirits market, argues that a continued thirst for investment in wine could provide a welcome boost for supply chain providers in the drinks sector. In particular, a recent LCB survey shows that over half of respondents are planning to continue investing in fine wine during 2010.

While the storm clouds have gathered over the drinks industry during the downturn, including the logistics sector that serves it, some light is breaking through in the form of continued interest in wine as an investment.

London City Bond has recently conducted a study among 259 fine wine investors from across the world. Entitled the Real Value Of Liquid Assets, it reveals that more than half of respondents (54%) are planning to continue investing in fine wine in the coming year and 39% are committed to maintaining their current portfolio.

This is not surprising when you consider the study’s finding that more than half (53%) of those that have sold wine in the last year received an average return on investment of over 25%, with 13.5% reporting profits of 50% to 100% and 10% enjoying returns of 100% plus. Certainly a better return than the stock market or your bank can offer right now.

Furthermore, the study identified gains that fine wine investors have enjoyed over the years from purchase to sale, reinforcing the excellent return on investment that can be achieved. Of those respondents who provided details of their returns, circa 15% achieved gains of 500% or more on their cases of wine and a further 38% revealed returns of between 200% to 499%. The best return on investment was 2,000%.

The popularity of wine as an investment was recently highlighted in The Times newspaper. It reported that Schroders’ Alan Brown has been a collector of fine wines for many years and that recently he had been buying into red Bordeaux, which accounts for 90% of the wine investment market.

The Liv-ex 100 index, which tracks the prices of the most sought-after wines, was also up 14.7% on the year to date and up 12.2% year-on-year as of November 2009.

The continued popularity of investing in wine is a much welcome boost for the logistics providers that serve the marketplace, particularly in the current challenging economic environment, which has seen a decrease in consumer demand for drinks, as evidenced by the recent demise of First Quench Retailing. This has in turn led to falling stockholding levels in bonded warehouses run by logistics providers.

However, wine investors will only provide a boost to logistics providers if their rigorous storage requirements are met. Our study showed that robust security was seen as the most important storage requirement for investors. And they are right to be concerned. Just recently, masked thieves stole a reported quarter of a million pounds of drinks, including Champagne and wine, from a warehouse.

The study also showed that risk insurance cover was seen by investors as a key requirement, followed by good value and online account facilities.

Get it right for the wine investors and then the drinks might just be on the logistics providers.

Jeff Stanton, 07.01.2010