Champagne: the next “commodity” bull market
Auction sales of vintage fizz suggest there may be a bubble in bubbly.
This year has seen record prices for commodities ranging from oil to soya beans and platinum. The story is the oldest in market economics: demand is far outweighing supply, and the race is on to identifying the next raw material to enjoy a price surge.
Step forward champagne. It may not, strictly speaking, be a commodity but it’s a staple of everyday life for any self-respecting oligarch or footballer’s wife. It is also subject to same sort of supply/demand imbalance affecting commodities.
The area of land from which champagne can be produced is capped at about 33,000 hectares. Only sparkling wine produced from grapes grown in this area can qualify as champagne – and the CIVC, the champagne producers’ association, retains a legal team to prosecute misuse of the name on products ranging from other wines to bubble bath and dog food.
While more efficient production methods can eke out a few extra cases of wine per hectare, the supply of champagne is effectively limited. Moves to extend the growing area will take years to bear fruit, literally.
At the same time, demand for bubbly has been growing fast, particularly outside France.
Champagne production was up 5% last year, according to the CIVC, but exports grew at double the rate of domestic consumption.
Markets such as India and China remain largely untapped. Exports to China grew by a third last year, but at 650,000 bottles remain a fraction of the 39m bottles sent to the UK, the biggest export market.
For producers, the trick is to balance affordability with exclusivity; to keep fuelling overall demand while prompting consumers to choose more expensive wines.
The result has been a greater focus on promoting prestige cuvees and vintage champagne.
Until recently the latter was neglected. The ethos of champagne production is to deliver consistent quality by carefully blending grapes harvested in different years.
Because vintage champagne is made using only grapes from a single year, it can vary hugely in character and quality. Only recently have champagne producers embraced the idea of vintage – indeed, it was only in the 1970s that some of the top houses, such as Krug, started storing vintage wines systematically.
Each house decides whether or not to declare a vintage in a given year (some are more choosy than others), and the fact that, unlike top clarets, champagne is generally bought for immediate consumption rather than to be laid down, means supplies of top vintages are further reduced.
Combined, these factors making a compelling case for a bull market in champagne.
For investment purposes, only vintages from Louis Roederer Cristal, Dom Perignon and Krug are worth buying, according to Liv-Ex, the electronic wine market. Its champagne index delivered an average compound return of 15% a year over the five years to July, the last date at which it was available, and performed particularly strongly in the last two years.
Evidence from fine wine auctions suggests collectors and investors are increasingly scenting value in vintage champagne. Top quality wines – scored 96 or more out of 100 by the critics – tend to be about half the price of similar quality first growth clarets.
Of the top 10 champagne prices achieved at auction by Sotheby’s, six were in the past 12 months. The most expensive single bottle of fizz sold by the auction house was a Methuselah of 1990 Louis Roederer Cristal that fetched £10,580 in September.
Pre-sale estimates for many champagne lots were smashed in the past year. Two cases of 1979 Cristal brut estimated to fetch no more than £1,200 were sold for nearly £8,000 last April.
Champagne accounts for only 1% of portfolios held by professional wine investors, according to Liv-Ex. So while the consumption of bubbly generally is linked closely to the health of the global economy, prices of vintage should prove fairly resilient to a downturn.
The commodities bull market may be over-stretched in places, but it seems too soon to call a bubble in bubbly.
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