28 July Investment and Marc Kent

As the economy plunges ever deeper into the worst recession in 35 years, one segment of the wine industry seems sufficiently unperturbed by trading conditions to be debating the issue of investment grade wine. This is not the first time this high-end nirvana has been discussed. Cape producers look enviously at their counterparts in Bordeaux and calculate the cash flow benefits of selling a sizeable chunk of the crop into a futures market. They forget that this structure – developed over centuries – comes with a particular set of circumstances. For all the advantages of early sales, there are margin losses to middlemen, and a pipeline which needs to have been filled before there’s any benefit in emptying it at the consumer end of the trade.

Ryan Mostert is the winemaker for a very successful Swartland brand called Silwervis, which has been doing very well selling small volumes into a niche market. This year the cellar has released a premium shiraz called Terracura, spicy, intriguing, fine and not overly peppery. It has all the trappings of a cult wine in the making. One of the Silwervis shareholders is Roland Peens, whose day job involves selling ultra-premium wines – local and imported. Peens is in the unusual position of being a broker as well as a brand-owner. He believes that there is potential for a real investment market in South Africa – but only if the established names keep their volumes small. He bases this view on his own experience – which has seen tiny quantities of select vinous collectables sell for significantly more than their release prices.

He may be right if you consider the performance of the top wines from a cellar such as Eben Sadie’s, and which have shown a 10% – 15% compounded annual growth. However, the volumes are very restricted, and are unlikely to increase significantly, given Sadie’s old vine site-specific focus. It’s hard to think of many other possible players. We simply don’t have enough wines with a long-established reputation. Almost all of those which come to mind are cult products (several of which are one-vintage wonders) whose price is fuelled by rarity. To complicate things further, we don’t have the same set-up the Bordeaux trade enjoys: there’s no developed secondary market, there are very few suitable long-term storage locations, our industry is too dynamic for the fashion wines of today to deliver any certainties in the future.

The one person who could be a game-changer here is Marc Kent, who graduated as a winemaker in the same cohort as Sadie and who runs what is undoubtedly South Africa’s most successful wine enterprise. Starting out twenty years ago with Boekenhoutskloof, Kent has developed and grown brands – all of them very successful – that occupy every segment of the market. I chatted to him at The Wolftrap Steakhouse Awards (which he sponsors). He is as comfortable putting R40 bottles of the Wolftrap onto the table as he is offering Porcupine Ridge (a notch up in terms of price), The Chocolate Block, Boekenhoutskloof itself and the (current) jewel in the crown, Porseleinberg. Potentially both Boekenhoutskloof and Porseleinberg could breathe life into an investment market. They sell in volumes of more than a few hundred cases, they come with a real pedigree, and, in the case of the former, there’s as much of a track record as an investor would need.

Kent however is more interested in growing his business than in creating an investment wine environment. As the Porseleinberg vineyards acquire some age, there’s a real likelihood of the volumes increasing – not significantly, but enough for Kent to price his wines circumspectly. Without a guarantee of year-on-year price inflation, speculators are disinclined to take a punt – at least until production plateaus. Some might argue that Kent should play his part in giving the investment market a chance to take off. However, serious commentators recognise that if we are ever to have a genuine secondary trading environment, transparency must be the first requirement.

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