Producing wine is a complex task. There are so many little details that go into every bottle of wine on your shelf. That’s why it can be a bit tricky to determine what makes one bottle skyrocket in value, while another similar vintage sits around for years with little price appreciation.
Of course, it’s easy enough to parrot the time-old saying “supply and demand”. And it’s true – the wine market is more or less at the mercy of this economic concept. But to really catch a glimpse of what makes a bottle a winner for investors, we must dive deeper. So, without further ado, let’s explore what determines the price of a vintage and the factors that influence that price over time.
Top production factors that influence wine prices
Quality and rarity of grapes used
Grapes are critical to the wine-making process – they play a vital role in shaping each vintage’s flavour profile. Although you can technically use green grapes from the supermarket to make your own wine, the end result will probably be a bit blech.
There are over 10,000 types of wine grapes, but only some varieties have a greater capacity to age. For example, Barolo is produced using the Nebbiolo grape in northern Italy’s Piedmont region, and is often referred to as the “King of Wine”. Full-bodied, complex, and featuring both high acidity and tannins, it ages gracefully.
On the other side, 99% of all wines produced are only intended to last five years. So finding a vintage that can run a marathon already makes it scarcer than the vast majority of bottles on the market.
Wine aging and drinking window
The flavour of some wines barely change at all over time. But in other instances, aging can make a big difference to a vintage’s quality, depth and price.
Wines are known to have “peak” drinking windows. This is when the notes you can taste from each sip are at their most intricate.
Higher-tier Merlots and Cab Sauvs can take up to 20 years to reach their most delicate flavour profile. So holding onto certain vintages for two decades not only makes them more desirable to drink – they also become significantly rarer.
Caption: Sourced from Britannica
Seasonal weather
Wine grapes can be a fickle beast. They don’t like the cold, too much (or too little) rain, or the heat waves that are becoming more prominent due to climate change. Frost, fire and pests can almost completely wipe out a vintage, causing scarcity – and by extension, wine costs – to skyrocket for that particular vintage.
By the same token, perfect growing conditions tend to lead to rich, flavourful wines with an excellent balance between acidity and tannins. While the helpful environment results in a greater supply of wine, demand can quickly follow suit thanks to the vintage’s high quality.
Vineyard location (Provenance)
The location of some vineyards automatically makes wine more expensive based off status alone – think Champagne or Burgundy.
Additionally, the regional ranking of a wine will indicate its quality and value – the higher the awarded classification; the higher the prices.
The world’s most famous wine regions are revered among wine connoisseurs because they simply are the best wine-growing provinces in the world. The “Goldilocks” combination of high-nutrient soil, perfect altitude and agreeable environmental conditions can be hard to come across. So having access to these locations immediately lifts the demand, scarcity and value of wine produced there.
Caption: Sourced from Wine-searcher
Take this for example: The soil nutrients in Burgundy contain such depth that a bottle from one area might taste different from another produced just ten metres away – even when using the same grapes.
So your really top-tier provenances remain excellent investment choices for one simple reason: they’re consistently in high demand.
Yield
Each season’s yield is a vital cog in how a bottle of wine is priced. It follows pretty basic supply and demand principles – smaller yields lead to more expensive vintages, while bigger harvests may be a bit cheaper.
Generally, tighter yields mean being pickier with the grapes being used, resulting in concentrated, high-flavour bottles of wine. So not only are such products scarcer than your everyday drinking wine, they are often much tastier too.
This can have a flow-on effect years down the track – not everybody that buys a top-scoring vintage plans to hold it as an investment for the next decade. Some (many) will drink it, while some bottles may get lost along the line.
So as the years pass, high-quality, low-yield vintages will continue to become rarer and rarer. Eventually, demand may outpace supply, causing the bottle(s) to leap in value.
Critic reviews
The wine industry can sometimes be mocked for its snobbery, but the reality is critics play a huge role in dictating which vintages are a long-lasting success, and which fall by the wayside.
Scores from the world’s leading critics are almost always going to have greater and more sustained demand than those with less critical acclaim.
While the wines are still developing in barrels, they usually get a “pre-score”, or a barrel score. When they are bottled and released, vintages are often reviewed again to set an “in-bottle score”. Every time a critic re-tastes a specific wine, the new score is published and becomes the new benchmark score from that judge.
Sticking to critic-approved vintages is a good strategy when rifling through investment-grade wines.
The bottle
There are two key factors here that can influence the value of an investment wine over time:
- Condition. This one is simple. Just like any other collectible investment, wine bottles with scratches, tear marks on the label and dents in the cap are going to be less valuable than mint-condition alternatives. Additionally, wine in original wooden cases (OWC) and presentation boxes will command higher prices. The condition of a wine bottle can also signal if the wine is authentic – watch out for replicas! – and if it’s been stored correctly. Incorrectly stored wine can impact its development and therefore its quality.
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Special release labels/bottles. Most wine bottles look the same, but occasionally big-name producers come out with a special release label that can add value. For example, Lafite Rothschild adds a small engraving on its bottle in notable years. The most recent instance was the 2018 bottle that commemorated 150 years of ownership by the Rothschild family.
Other macroeconomic factors
There are several factors outside the producer’s control that can significantly impact the price of wine.
Supply and demand
Supply and demand form the basis of pretty much every market – and fine wine is no exception. The supply shock caused by COVID-19 is a perfect example of how these metrics can influence the price of a bottle. 2020’s initial shutdown of bars, pubs and restaurants ground wine sales to a halt – and the price of your average bottle dropped as a result.
Caption: Each of Liv-ex’s three main indices show a slight dip in price around 2020. Source: Liv-ex.
But as the world steadily re-opened in 2021, wine producers were faced with a new dilemma. Demand continued to grow, but distribution lines were still reeling from the effects of COVID-19. There was less wine being produced, but just as many people wanting to drink it.
The result? A huge bump in the price of wine between 2021 and 2022.
And as the supply chain edges toward recovering in 2023, the prices of wine have corrected somewhat.
Government tariffs and taxes
Each government has its own legislation when it comes to pricing wine. Wine imported from other regions may incur a tariff as governments attempt to stimulate the nation’s domestic market. For example, European wines purchased in the USA can have a 20%+ premium attached to their price compared to buying the same bottle in France. This caused demand for top-tier Bordeaux and Burgundy vintages to slide, and their respective regional markets followed suit.
Why is wine’s price uncorrelated to other economic factors?
We know that every market is influenced by supply and demand. So why does wine have such a low correlation to market factors compared to popular assets like real estate and the stock market?
Even though these markets share the same principles, the metrics that underpin their price movements are worlds apart. For example, house values can be heavily dictated by population growth, occupancy rates and interest rates. The stock market is also at the mercy of these factors – high interest rates mean less innovation, tighter discretionary spending and can affect company earnings reports.
On the flip side, interest and unemployment rates, for instance, have only a marginal effect on wine production. And even if production costs surge as a result of inflation, the broader public’s appetite for wine is relatively untouched.
Instead, it's the wide range of environmental factors that make or break the wine market.
Summary
The vintage wine market often behaves much like any other. It has cycles of intense price rises, and periods of decline. Where the wine market differs is the underlying cause for these cycles. Bad weather for growing grapes won’t do much to hurt the stock price of Amazon. But for a bottle of vintage Pinot? It could make all the difference.
Understanding what can influence the value of wine is an important step for investors to make better-informed decisions when trying to pick a successful vintage – or have a glass of one!
