HOW TO INVEST IN SOUTH AFRICAN WINE
Wine futures, sometimes called en primeur, enable anyone to buy the most highly sought-after Bordeaux wines one to two years before they are bottled and released on to the market. The term en primeur means “newly produced and made available”.
In Europe it’s a fully fledged market and, during spring, thousands of wine professionals flock to Bordeaux for the opening of the futures campaign. It’s a big event with over 150 of the top estates welcoming different wine professionals from all over the world to sample the most recent vintage, and buy at the (possibly) lowest price.
The South African market is not quite as sophisticated. In Johannesburg, a similar event was held last month, albeit on a much smaller scale, where 23 wine makers from Stellenbosch showed off their Cabernet Sauvignons, including Kanonkop, Waterford and Kleine Zalze, to name but a few. Wine futures may be here to stay, but things haven’t always been this easy.
A CHEQUERED HISTORY
Several years ago, wine estate Kanonkop attempted to offer investors the opportunity to buy wine futures. As part of the deal, it kept the wines in a temperaturecontrolled environment at the estate until such time as the investor wanted to sell.
The concept flopped, but not because of a lack of interest. “Our biggest problem was having to warehouse the wines after the release date, and the administration of the system,” admitted Johann Krige, co-owner of Kanonkop. It was difficult to get hold of the investors as some of them had moved on, either locally or abroad. They hadn’t contacted the estate to change their contact details and in some cases may even have passed away.
However, with a fine wine merchant – The Wine Cellar – now on board, there is hope that a secondary market will be created, one where it will act as a broker between the wine estates, professional wine buyers and others.
There are advantages all around as wine makers get to sell their wine before they even release them, have them stored with The Wine Cellar, while the investor gets to buy wine at discounted prices and potentially profit too.
HOW TO BUY WINE FUTURES
Roland Peens, director of The Wine Cellar Fine Wine Merchants, explains that the company will introduce an online platform this year where investors will be able to see their order online and trade. He hopes in the future to create an index that will be managed and run by a bank.
For now, you can buy and sell wines by contacting The Wine Cellar directly. If you buy the right wine at the right time you could get a discount of 10% or more. “An analysis of the 23 wines at the tasting shows that, on average, each Cabernet increases by 9.5% each year, well above inflation. The Delaire and Waterford have been far higher recently and we believe these wines are being ‘repositioned’ in the market owing to severe demand,” says Peens.
While some wines may go up in price as soon as they are released, Peens advises investors to be cautious and hold on to them for a few years because wine futures are not a short-term investment. While you could strike it lucky with the right case early on, it’s likely your wines will get more expensive over time as the market consumes the wine and fewer bottles of that vintage become available. Of course, wine, like any other investment, can go up as well as down.
Brokerage and storage fees apply, which would again make it necessary for the investor to retain the wine for a few years to ensure they make enough of a return. The Wine Cellar currently charges a 20% brokerage fee.
However, Peens concedes that the commission structure is too high and that he will reduce this dramatically when the trading platform launches.
Finding a buyer can also be difficult. Wine futures are not currently a regulated industry, so the Financial Services Board can’t step in if things go sour and you want your money back because you can’t sell the wine.
There are risks involved, so you have to ensure that you are willing to part with your money or hang on to the bottles if the market isn’t favourable at the time you wish to sell. While The Wine Cellar boasts a large database of potential buyers, Peens admits it can’t make any promises. “We don’t guarantee that we will sell the wine. That is where people have become unstuck in the past.”
However, the industry appears to be positive about the value of South Africa’s wine and that a broker has entered the industry. “Not so sure that it will be an immediate success, but if there is a wine broker that could make it work, then it’s The Wine Cellar.
“Top-end South African wines are underpriced if these are compared like for like to the world’s best wines. I am convinced that South Africans will realise this sooner than later and that buying forward could unlock immense value,” says Krige.