What Is the Impact of COVID-19 on the Fine Wine Market?

The global pandemic has wreaked havoc everywhere it’s been. Tens of millions of people have been plunged into poverty, mental health issues are on the up and the stock market has been in freefall since March 2020. Travel is basically a no-go. Traditional places of social gathering such as pubs, bars, and restaurants have more or less shut their doors since the pandemic began. This closure has not only forced people to stay in but has created economic distress in the whole hospitality industry, including the spirit and wine markets. The list goes on – and it does not look like recovery is imminent any time soon. 

However, it is not all doom and gloom – surprisingly, some assets have thrived during lockdown. Jeff Bezos of Amazon made a staggering US$90.1 billion in between March and October 2020, while delivery companies the world oversaw a vast increase in their services. And a left of centre investment market also gained a strong following during 2020. Sales of fine wine online went through the roof during 2020, with many peer-to-peer companies reporting better than ever sales. This was not only due to housebound drinkers, but also to savvy investors who chose to release their capital from the uncertain stock market and instead put their funds into something they love and that wouldn’t lose them money – such as fine wine. 

The Fine Wine Market Broadened & Diversified During the COVID-19 Crisis

Nielsen data research reports that sales of fine wine online was up almost 30% in March 2020 alone, while the annual average is likely to be twice that amount. For those who follow the wine news, this is no great scoop. Fine wine has long been heralded as an asset that retains its value during economic uncertainty, due to its literal liquidity and covetable nature. The math is simple: if you have a great bottle in your portfolio, the very physicality of it will always be of interest to serious collectors and/or drinkers. They want it, you have it. Simple. 

Data research from Liv-Ex shows that not only sales of traditional fine wines soared during the first ten months of the Covid-19 pandemic, but there was a much increased demand in diversifying one’s fine wine portfolio. Sales of Champagne were vastly increased, while Italy nearly doubled its market share. Buyers also began to look beyond the big hitters such as traditional First Growths and Grand Crus, while diversification was up more than ever before with sales of New World wines as well as German and Portuguese vintages. 

This upturn was not entirely expected: remember that even without Covid-19, 2020 was a year that was always going to be very shaky for the fine wine market. Amid Brexit uncertainty, 25% US tariffs, conflict in Hong Kong and a US presidential election, the jury was out on how fine wine would perform, without adding a global pandemic into the mix. However, the noticeable consumer trend towards the end of the year was that investors had turned to looking for fine wine online for their assets. Presumably this trend is down to two things: enforced spare time at home and the increased availability of wine market apps. In fact, Covid-19 has proved so beneficial to the fine wine market that Liv-Ex has called it “a catalyst for change”. 

The Fine Wine Market Is Remaining Stable During the COVID-19 Crisis

Uncertainty is nothing new for the financial markets. From the infamous crash of 1929 right up to a global recession in 2008, traditional investors are comfortable with the thrilling highs and swooning lows of the stock exchange. Yet, in these times of modern turmoil, you would be a fool not to diversify your portfolio with a passion asset such as fine wine. Even superstar investor Warren Buffet agrees, claiming that “you should always have at least one percent of your portfolio invested in wine”.

Buffet’s endorsement corresponds with the global trend. Since the glory days of autumn 2018, which saw the Liv-ex 1,000 index reach record-breaking heights, fine wine has been considered one of the best alternative investments there is. While stock, gold, bonds and other traditional commodities plummeted at the beginning of the Covid-19 crisis, the Liv-Ex Investible Wine index reported a drop of just 2-3%. This slight dip was quickly made up in the latter half of the year. From June to December, the market reported only growth figures and by the end of 2020, certain vintages were up by 20% – considerably more in some cases. Liv-Ex also reported that despite Covid-19, the total exposure of the fine wine market grew by 44% in 2020, up US$45million year on year to a staggering US$113million. Additionally,at year end, the bid-offer ratio (the total value of bids divided by the total value of offers) stood at 0.62. Traditionally, a bid-offer ratio of 0.5 or higher is considered positive.

Proof of this resistance has been well documented in the wine news. The research centre Bordeaux Economic published a paper at the end of 2020 stating that the reasons for the fine wine market stability are clear. “The income elasticity of wine demand is larger than [the supply], and especially high in China and the U.S., the main markets for fine wines. Fine wine, like all luxury goods, therefore shows a very high-income elasticity by nature”. Thus we are back to that old chestnut: supply vs. demand. In times of crises’ demand is high – people naturally preferring to invest in something physical with a low-risk factor – while supply is noticeably lower. In short, it’s a seller’s, or rather cellar’s, market.

Fine Wine Online Sales Boom During the COVID-19 Crisis

So why has the wine market managed to remain stable while the rest of Rome is burning? Well, the answer is twofold. On the one hand, passion assets and alternative investments have long been championed as being low-risk, high-return assets, with fine wine being one of the most reliable. On the other, the fine wine market lends itself particularly well to online sales. New technology such as Vindome has brought fine wine online in a revolutionary manner, proving that the need for a third-party broker is not as relevant as in other sectors. Additionally, wine buffs and investors alike have adapted phenomenally well to the various dot coms and apps, even attending wine tasting events and vertical tastings virtually. 

The wineries themselves were forced to adapt as it became clear that Covid-19 would change everything for the foreseeable future. Those with strong mailing lists began to market far more creatively, offering tasting sessions via Zoom. Evidently, this opened the client base much wider as no longer was physical location a priority. 

The proof of how well the fine wine market has adapted to the pandemic is in the pudding.  Investors, hobby sommeliers and wine buffs spent a whopping US$61million on fine wine online during 2020. Online trades were up a massive 40% in the secondary (ie peer to peer) market, three times the amount for 2019. 

Quite honestly, this comes as little surprise. As fine wine moves towards a younger audience, it is only natural that the technology should follow. Today it is as easy to purchase a bottle of vintage Dom Perignon as it is to order a pizza. Wine investment apps such as Vindome are available for free download from both the App Store and Google Play, meaning you can become a fine wine investor from the comfort of your armchair while watching TV. Storage and insurance are not a problem either, as Vindome offers both of these options,as well as a doorstep delivery service. And if you want to educate yourself on one of the 300plus wines they have on their live market then surely their wine guides will do the trick. Even if you’re not in the investment market, you can always use the knowledge to show off next time you’re out for dinner. Once we’re out of lockdown, of course. 

If you’d also like to take advantage of the boom of online fine wine trading, don’t hesitate to check the possibilities of Vindome – our easy-to-use wine investment app.

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