20 January Investment grade

While South Africa struggles with the prospect of a ratings downgrade, the wine industry aspires to investment grade status. Despite the hype of glowing international reviews, few, if any, Cape wines are regarded as blue chip. In the past this was explained away by lack of international recognition. However, since it is clear that we are no longer regarded as some kind of vinous backwater, what is holding us back? With the major wine writers of Europe and America constantly praising our wines, why is it that punters in those countries are not filling their cellars with them – both for current enjoyment but also for the prospect of profits to be made on speculating against their future value?

Karen MacNeil, author of The Wine Bible and a highly regarded American wine writer and wine educator, recently wrote that only one percent of the world’s wine is considered investment grade. She believes that such wines must come from a prestigious property, have proven age-ability (25 years is the number she puts to this), have a documented history of price appreciation, must be available in sufficient quantities to be traded – and must already have high scores from the world’s major wine critics.

It is easy to pick holes in her argument – for example, the Burgundy price boom has largely been driven by shortage of supply, with many of the most sought-after wines available in quantities of less than 1000 cases worldwide. It’s also easy to put up counter-examples: wines like Le Pin came onto the world scene literally from nowhere: an influential Pomerol producer buys a couple of hectares of old vines planning to incorporate them into his existing estate, and then decides instead to create a new wine brand – which to everyone’s astonishment (including his distributors and agents) becomes an extraordinary investment success within a few years. No history of 25 years of age-ability, no track record of any kind.

Nevertheless, it is clear that at least some of her criteria are valid and apply to most wines with investment potential – and this in turn poses the key question, which is how does a producer manage to get a property or brand onto this circuit? As for critical recognition – there’s a bit of a chicken-and-egg situation here: the critics follow the wines the punters want to buy, and until they have been following them for years, how are they able to assert their age-worthiness?

So where does this leave South Africa? We have a couple of high profile producers who release a special cuvée in most vintages. Most began by pricing small volumes at attention-grabbing prices, and then increased availabilities without significantly raising the selling prices. This strategy has worked well for those who have been successful in persuading wine drinkers that the wine was and remains good enough to justify its positioning statement. However, this doesn’t work for potential investors/speculators since the year-on-year increases are hardly spectacular enough to warrant the risk.

Do we have any producers that can arguably comply with Ms. MacNeil’s criteria? A few come to mind, though none are an automatic shoe-in. Kanonkop, with a history of bottled wine going back almost 50 years and the closest thing to “first growth” status in the eyes of critics, is probably closest, though the upward price movement is still not strong enough to tempt speculators. Klein Constantia’s Vin de Constance could stake a claim: there’s an international reputation, certain age-worthiness and an increasingly marked upward price movement. Finally, there’s Vilafonte, a relative newcomer but one which seems to be doing everything right. Controlled volumes from a specific site, mature stocks to prove age-ability, a solid upwards price trend and a strong international market presence. Phil Freese and Zelma Long – the international partners in Vilafonte – come from California. Both were involved in the launch of Opus One – now one of America’s icon investible brands. Perhaps they’re showing the Cape’s producers a way into the ultra-premium market.

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