Next time you
need to celebrate, pop open the Champagne--or perhaps, don't. The
bubbly might provide a much more valuable experience if you keep the
cork in the bottle and sell it at auction.
Why? While
global equity markets have been tanking in the wake of the subprime
crisis, the price of a case of high-end bubbly is surging.
The
London-based Liv-ex Champagne 25 Index, which tracks the price of 25
of the world's most sought-after Champagnes, rose by 27% in the 12
months ending in June. That's against the 8% rise in the Liv-ex 100
Index of top wines (mainly Bordeaux), and the 14.8% drop in the FTSE
100 during that period.
Twelve months
ago, a case of Krug 1996 would have set you back just under $3,000 on
the auction market, but now it's worth $4,713.40. Louis Roederer
Cristal 1989 is now worth 39.1% more than a year ago, bringing in
$6,417.90 a case.
Behind
The Numbers
It's a simple case of demand outstripping supply. People are quick to
glug Champagne as soon as they buy it, according to Justin Gibbs, the
director of the London International Vintners Exchange, an electronic
marketplace for trading in fine wine. While top Bordeaux reds are
typically laid down for 20 years, Champagne is ready to drink as soon
as it lines store shelves--and often is.
People tend to
drink Champagne quickly," says Gibbs. As a result, a vintage can
become scarce within a couple of years of being released by the
producer. As the supply of the highest-quality Champagnes declines,
the price quickly rises.
So a small
surge in demand, such as someone looking for merely a case or two for
a wedding, can drive the price up dramatically on what few cases
remain after the initial release.
There's the "bling" factor, too, which is adding to the
appeal and driving up the price of the finest Champagnes.
"Champagne
is what is drunk in the casinos of the world, on the yachts of Russian
oligarchs and by footballers' wives, so there is an element of flash
money about it," says Gibbs.
Bordeaux
Stays Strong
Driven by this demand, the price of Champagnes such as Krug,
Dom Perignon and Louis Roederer Cristal have soared over the past
year, overtaking the big names of Bordeaux as an investment, at least
for the time being.
While Bordeaux
prices skyrocketed from the strong vintage in 2005 and then held
steady on the 2006 wines, the 2007 vintage is considered a weak one,
so some interest has waned--and turned to Champagne instead.
Still, it's
not enough to lure leading wine funds away from their traditional
staple investment of Bordeaux red.
"Historically,
claret [the British term for Bordeaux red wine] has performed much
better than Champagne, and we would expect that to continue,"
says Will Beck of London-based Wine Asset Managers, which does not
currently invest in Champagne.
"It just
so happens that claret is taking a breather after an incredible
performance in the two previous years, while Champagne has enjoyed a
relatively good year in terms of performance." Wine Asset
Managers' Fine Wine Fund, available to individual investors, has
returned 46% since it was established in 2006.
Scarce
Supplies
While Champagne valuations may be driven up by consumption, the price
of fine Bordeaux red is driven only in part by the scarcity of supply.
Château Lafite Rothschild, for example, produces around 17,000 cases
a year; while it is expensive, it costs significantly less than the
wine of Château Petrus, which produces no more than 2,500 cases each
year.
The figures on
Champagne production are harder to come by because the houses are less
forthcoming with information. This is one reason asset managers such
as Beck are more comfortable investing in Bordeaux red, since the châteaus
that produce them are open about their production figures.
"There is
a lot more transparency about claret," Beck says, "and we
can work with a finite production figure for each year."
What
wines are you investing in or collecting? Add your thoughts in the
Reader Comments section below.
Peter Lunzer,
a wine adviser at the London-based Wine Investment Fund, agrees
that--for the moment, at least--Champagne, which is only just
beginning to emerge as an investment vehicle, is a more risky
alternative to claret.
"One of
the reasons we invest in Bordeaux," he says, "is that unlike
with Champagne, there is a lot of international data on how prices
have fluctuated over the years."
However, some say the tide may be changing.
"There
are a group of investors who feel that there is only one way that
Champagne prices are headed, and that is up," says Geoffrey Troy
of New York Wine Warehouse, the North American auction partner for
wines at Christie's. "We are beginning to see a number of serious
wine collectors who are buying serious amounts of Champagne as an
investment."
