What are the benefits of wine as an alternative investment, and how can you get started? Roland Peens of Strauss & Co recently discussed the ins and outs of wine investment with Gugulethu Mfuphi – Host of KayaBizz on Kaya FM. Listen to the fascinating interview below, or read the full transcript.
Transcript:
Gugulethu Mfuphi:
We’re joined on the line by Roland Peens, Director and Business Development Manager at Wine Cellar. Roland, such a pleasure to have you with us today. You have all my attention because bubbles happen to be something that we like.
Roland Peens:
Thanks for having me on. It’s nice to talk about Champagne, better to drink it, but talking about it is also fascinating. I love Champagne. I’ve been lucky enough to travel there many times and I’ve always been fascinated by the big brands and the very small ones. And that specific article pointed to the fact that Champagne has been such a gross investment over the last three or four years, and why is that really? Well, there’s been a broad inflow of cash into alternative assets. That’s number one. I think people looking to diversify their portfolios, especially after the last three or four years. Wine has got incredibly low volatility as an asset class. It’s uncorrelated to your mainstream assets. It’s a lot more liquid than it ever has been. Excuse the pun. It can now be traded on many exchanges around the world. And it does; it’s traded like a stock market product.
Gugulethu Mfuphi:
And maybe you need to explain that part Roland, because someone might be thinking, hold on, I’ll just go to my local bottle store, buy a couple of bottles of Champagne and that will increase value. That’s not what we’re talking about here. What we’re actually talking about is an index fund which actually tracks the performance and investment. It’s called what, the Liv-ex Champagne 50 Index Tracker? So much like an exchange traded fund that actually holds the investments into these Champagne businesses specifically, right?
Roland Peens:
Yes, so that just tracks the prices of a basket of wines. There aren’t any funds that I’m aware of yet that offer that kind of opportunity. So most of that high-level investment into super premium investment wines, which are mostly held within Europe, they would be through private managers. So you would go to a company and they’d buy and store them on your behalf, or you do it yourself. That’d be one way of doing it in the international wine market. But locally it’s growing, we’ve found at Strauss & Co Fine Wines, and that allows a channel to liquify your investments and there’s a lot more liquidity at the moment, and there’s been price discovery, and we’ve got many clients who are now putting extra money into South African wines, not only international wines. And personally, I put a fair portion of my own investment into South African wine.
Gugulethu Mfuphi:
Tell us how, Roland, so we can also get into the money bag.
Roland Peens:
Yeah, so I mean these are not speculative investments that will shoot up over by 100% in three weeks. These are long-term, slow investments and there are storage fees that you have to pay. We have the largest commercial storage operation in Cape Town where you store your wine at the correct temperature. So there are some fees attached to it. But wine, you know, you buy it and you put it away and even just the inflationary growth on these products is amazing. And if you look at the luxury category of goods around the world, they’ve been performing brilliantly over the last five years as there’s been more and more high-net-worth individuals and they want to buy the best, and wine fits into that very much. So you know, LVMH’s owner is the number one richest man in the world and that’s really because of Champagne luxury and luxury marketing. Definitely.
Gugulethu Mfuphi:
I’m glad you mentioned it because it tells us a lot more about the luxury goods space and how it has been performing and how it’s actually accumulated wealth for some of these leading families. But Roland I’m also keen to talk about, as you say, this is a long-term investment. You might recall just coming out of the pandemic, there was a significant shortage of Champagne that was mentioned among other luxury drinks and I’m keen to understand. Does that that ever play a factor in the value of luxury wines or luxury Champagnes as an investment?
Roland Peens:
Well we followed this during the pandemic of course and in the first six months the prices shot up and in specific categories, especially that the US market enjoyed. So you’d see this huge spike in certain wines during COVID. But generally it was quite flat and even slightly increased over that period. So it was definitely less volatile. But long-term, we’ve seen long-term growth on 40, 50-year wines. And the great thing about fine wine is the longer it matures, the less there is in the market and therefore the bigger the demand and the lower supply. That’s Economics 101, which means the prices effectively continue to go up.
Gugulethu Mfuphi:
That’s quite intriguing and I think you might be getting a lot of calls by the end of this evening because a lot of us might be interested just to further understand some of the dynamics that take place.
Roland Peens:
Well, one needs to get involved in wine, learn about wine. There’s lots on the internet; there’s lots of wines out there to try with your friends. Go down to winecellar.co.za to read more about fine wine and investment, and there’s a lot more media happening out there these days, but getting together and drinking wine, you know, what’s the worst thing that can happen?
Gugulethu Mfuphi:
Definitely, exactly. Just as long as we all go to bed afterwards hey – no fighting. But if you’ve just joined the conversation, we’re speaking to Roland Peens, who’s a director and business development manager at Wine Cellar. And as you’ve heard, we’re really talking about wine as an alternative form of investment, the alternative to alternatives, and really providing growth and a long-term strategy. I’m also keen to know, Roland, because this is an investment, if one does need to have any kind of insurance through theft, through leakages, through the likes, you know. Are these some of the considerations that someone who’s keen like myself to invest in wines to actually buy?
Roland Peens:
I think if you’ve got a large asset, like any large asset, you would want to mitigate any risks and unlike an ETF, which is just a piece of data in a computer somewhere, wine is a physical product and it can break. So yes I would insure it. The insurance is extensive so that’s worth looking around for the best insurance from all of the service providers. With last year’s riot in KZN, unfortunately the premiums have gone up quite a lot. So that’s one more thing to consider. So yes, insurance is important. And then of course storage – you need to store it at the right conditions around 13 to 16 degrees, constant storage, and that can, with insurance, can add perhaps 2% on to your investment every year.
Gugulethu Mfuphi:
Sure, okay, makes sense. So we’re going here prepared and fully understanding this. I’m on your website at the moment, winecellar.co.za. I’m clicking on wine investment and I’m seeing the various opportunities and investment portfolios that you have around, and I guess the obvious question many South Africans will be asking in this current economic climate is: how much do I need to get started?
Roland Peens:
Sure, so most of the super-premium and premium wines, the wines that you want to invest in, they start at around 350, 400, 500 Rand and it would make sense to buy at least six bottles so they remain in their original case. You might sell three in five years’ time or ten years’ time and drink three, or you might sell all six in ten years’ time. But I would buy in six. So that’s a minimum stand of say 3,000 Rand. And if you could do that every couple of months and buy certain cases of wine as they were to appear on the market, then quite quickly you’d build up a portfolio which would be growing. We think at around 18% per annum, which is pretty incredible. That’s the price performance on our investment portfolios over the last five years.
Gugulethu Mfuphi:
100% got you. I think it really raises a critical point as well in terms of, as you said, the long-term growth, long-term investment, and even leaving this to some of your beneficiaries. Have you found that generationally not only is wine and luxury goods a great investment form for generations to build wealth? What’s your experience been?
Roland Peens:
Yeah, I think a lot of the, let’s call it more senior collectors, who are looking to offload their wines, I think they’ve just got too much and they’ve realized the prices have just gone so high. We are currently brokering a cellar which is worth around 90 million Rand. And the average bottle is 30,000 Rand a bottle. And it’s very difficult to sit down and drink a bottle of wine for 30,000 Rand unless you’re ultra, ultra wealthy. So, you know, a lot of foresight or maybe just an appetite for fine wine decades ago could yield incredible returns. Some of these wines have gone up thousands of percent. And of course, then you add the depreciation of the Rand which has been consistently 5-6 percent over the last 30 or 40 years. So a great Rand hedge as well as further returns on that, and the South African wines too have a Rand hedge to them because most of the top wines often are exported anyway, and therefore they don’t have the risk of the total South African economy.
Gugulethu Mfuphi:
I find this so fascinating and what you’re also educating us on is that there is a market; there is demand. And as you’ve mentioned this is quite a liquid asset and does provide a lot of flexibility in terms of that. Just to close off with, I guess some investors might be thinking: hold on but this is a beverage – at some point it goes off. You’ve mentioned the potential losses in terms of leakage and the likes, but is there ever such a thing as having a bottle of wine or Champagne for too long and it losing its intrinsic value?
Roland Peens:
Generally the top wines never really get to a point that they’re undrinkable, but some wines can last for a 100 years or even 150 years and really they just turn into a different type of wine over that period.
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