Wine Investment in South Africa - Cape Wine Academy

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Abstract Wine Investment in South Africa ‘the acquisition of wine for gain….as a means of making money or financing consumption’ (Robinson, et al, 1994 ) It is seventeen years since Micheal Fridjhon stated in Wine Magazine that the South African market was too small to provide opportunities for wine investment ( Fridjhon,1994 ). Asked whether that is still the case in 2011, Fridjhon replied that it is; ‘There is insufficient demand, lack of agreement on what would be the icons, concerns over quality of storage and no real transactional environment’ ( Fridjhon, 2011 ) This report will consider whether the situation has really not changed. Despite the small potential market for investment there have been attempts to establish a trading platform in South Africa and the basis of an en primeur system, yet many schemes have perished and at present, only one winery is offering wine futures ( Kanonkop; but some others are offering a variation on this ) and only a few businesses offer investment purchases together with storage and trade. Only two specialised wine auctions exist in SA and one of those is not open to the public ( Nederberg auction ) and the other ( CWG auction ) is dominated by trade buyers leaving little opportunity for the individual investor. In the meantime, Europe, America and Asia have established themselves as the centres of the wine trade and demand seems as strong as ever. Fortunes have been made and are being made from trading wine. Prices are outpacing other forms of investment. Presently, wine investment in SA involves purchasing foreign wines, mainly Bordeaux and storing them abroad or with a merchant in SA. Few, if any SA wines are considered investible and there is no real market to trade purchases here; sales will be through the merchants who will demand a fee for the service. There is little opportunity for an individual to trade wines themselves, firstly as a licence is required to do so and secondly as there isn’t a marketplace to advertise such sales. Anyone reading copious amounts of newsprint and market reports could assume that investors are making serious profits. So too are the producers, auction houses, storage facilities, importers, fund managers, merchants; and from each the governments are reaping the rewards via Duties and Taxes. Is South Africa missing an opportunity iii
Contents Acknowledgements………………………………………………………………………………………..ii Abstract……………………………………………………………………………………………………...iii List of Tables….…………………………………………………………………………………………….vi List of Figures………………………………………………………………………………………………vi Section 1 Chapter 1 1.1 Introduction………………………………………………………………………….1 1.2 Scope of Assignment………..……………………………………….…………….2 1.3 Contribution of Assignment……………………………………………….……….2 1.4 Outline of Assignment……………………………………………………….……..3 1.5 Key Findings…………………………………………………………………….…..3 1.6 Key Message…………………………………………………………………….….4 Chapter 2 Investment history 2.1 The international background to wine trading and investment…………….…..4 2.2 Wine futures……………………………………………………………...…...….…5 Chapter 3 Investment growth 3.1 The growth of investment in wine…………………………………………….…..7 3.2 The 2008 onward economic recession…………………………………….….…8 Chapter 4 Investment methods for SA investors 4.1 Types of wine investment…………………………………………………….…..12 4.2 Summary of investment methods……………………………………….…….…23 Chapter 5 Investment trends 5.1 New trading hubs…………………………………………………………….……25 5.2 ‘Parkerisation’………………………………………………………………….…..25 5.3 Corporate and On-Trade buyers…………………………………………….…..26 Chapter 6 Investment risks 6.1 Investment risk / Caveat Emptor…………………………………………….…..27 6.1.1 Buying en primeur………………………………………………………………...27 6.1.2 Securing a release price……………………………………………………….…28 6.1.3 In Bond ‘hidden costs’………………………………………………………….…28 6.1.4 Vintage dependency……………………………………………….……..….…...29 6.1.5 Return risk volatility…………………………………………………………….…30 iv
Page 1 and 2: Wine Investment in South Africa Dav
Page 3: Acknowledgements The following all
Page 7 and 8: List of Tables Table 1 Key investme
Page 9 and 10: 1.2 Scope of Assignment Wine invest
Page 11 and 12: The barriers that seem to exist whi
Page 13 and 14: meet future market demand. The 1855
Page 15 and 16: after seller’s premium ) giving t
Page 17 and 18: Hence the growth of dozens of inves
Page 19 and 20: Table 5 above shows an even more im
Page 21 and 22: Thus 1 case brokered personally or
Page 23 and 24: would avoid the need for the invest
Page 25 and 26: For the top châteaux, returns have
Page 27 and 28: ‘bargain’ prices. This requires
Page 29 and 30: Ratcliffe, though, believes that,
Page 31 and 32: 2e) buying through an investment co
Page 33 and 34: worldwide and hugely increased the
Page 35 and 36: 6.1.2 Securing a release price High
Page 37 and 38: Other vintages should be considered
Page 39 and 40: Indices Level MOM YTD 1yr 5yr Liv-e
Page 41 and 42: may be legally more deserving than
Page 43 and 44: Even with the best intentions, wine
Page 45 and 46: Ullages (Level of Wine) For Bordeau
Page 47 and 48: Section 2 Chapter 7 7.1 South Afric
Page 49 and 50: people distrust wines of age and do
Page 51 and 52: 8.2.3 Domestic recognition of SA fi
Page 53 and 54: ‘It would be depressing indeed to
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some top producers do not enter the
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found in numerous bottle shops - an
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cR50,000 in SA or an underground ce
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The need for investment from abroad
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Krige is selling previous vintages
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‘South Africa may not have as muc
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found an even more serious lack of
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important to establish to the world
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cases the CWG wines achieved higher
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ecession. Table 16 below shows wine
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seeing négociants make huge profit
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wine market. De Toren’s will be m
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For this reason, savvy investors mi
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Section 4 Summary and conclusions T
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References 90pluswines. (2011) http
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Goode,J. (2009) http://www.wineanor
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Norman, R. MW (2011) Chenin Challen
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Van Rensburg, A. (2011) The Big 5 S
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Appendices Appendix A Interview wit
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CT has still got 2/3rds of the fore
Page 95 and 96:
We were one of the first to offer e
Page 97 and 98:
There is no way forward for SA wine
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Wine Investment in South Africa - Cape Wine Academy

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