Wine Investment Friday

This newsletter is designed to bridge the gap between trade and the investor. Each week we aim to help investors better understand the nuances of why some cases appreciate and some standstill. We will unpick the characteristics that construct financial potential to help your money work smarter. 


This week we are analysing a case of:

Penfolds, Grange, 1998


We are looking at why this case actually constitutes one of the most common mistakes found in the modern portfolio.


Beneath the Label: 

During the expansion of wine investment in the “00’s, if you wanted to diversify a portfolio with some new world wine, Penfolds was a frontrunner for inclusion. At the time it was cheap relative to its old-world counterparts and with a string of big Parker scores, the estate had an aura of being both up and coming and exotic.  

Critic Score: 98+ Points – Parker
The bombastic style of the wine played to Parker’s palate.  

Region Rating: S. Australia – 95TE
A top score by any regions standards.

Drinking Window: 2009 – 2039
These wines at 15% alcohol and 97% Shiraz are muscular and capable of big age. 

Production Volume: 9,000 cases
For comparison, this is slightly below the average Bdx production but it is certainly not to be considered as niche or rare out of the gate. 

Summary:
At the time of release, this was a great case to include in a portfolio for the purposes of diversification. It was relatively unknown and of extremely high quality, in a time when the powerful style of the wine was all the rage. It was an aligning of stars that saw Grange grow in popularity and price in equal measure. 


“By many accounts, the most renowned and world-famous wine produced in Australia”

Parker


Money Matters:

Brand Power: 84/100, rank 42nd in JF Tobias Brand Power Metric
The brand has grown in size and global reach. However, this combined with Penfolds commercial decision to produce numerous lower quality iterations, the brand has suffered from dilution. 

Liquidity: 60%
It is an item that can be sold quickly thanks to high levels of price transparency, but normally a good spread beneath the market. The market prices for these wines are now quite significant for an Aussie Shiraz. 

Inter-Trade Price Volatility: 6.8%
The chart is a perfect image to show the development of top Grange. Released cheap, gained excitement and the price rose, then as the price begins to represent quality a subsequent plateau. 

Price History: 

Summary:
Clearly, Penfolds back at the turn of the millennia was a smart diversifying tool. A start-up like Estate with lots of upside from a wine whose quality was well beyond its relatively humble pricing. As the brand has proliferated around the world this key dynamic has become less and less potent. A combination of the wine no longer being seen as a new boy from Aus, and the Estate carving off a larger piece of the pie with raised release prices. 


Position for Profit: 

The best way to illustrate both the price ceiling and the elevated release prices is to look at the prices of the very best aged Penfolds against those tipped for greatness.

2016 – 99 points – £4,140
2013 – 100 points – £3,800
2008 – 100 points – £4,800
2002 – 98+ points – £4,056
1998 – 98+ points – £4,200

It is clear that despite holding perfect scores the upside is likely to be capped beneath £5,000. A suggestion as to why, may be that wine tastes and trends have moved away from these big powerful wines in favour of refinement. The boombastic Parker years are certainly behind us and it feels as though the wine world has overcompensated in an attempt to move back to equilibrium to the detriment of quality wines such as these.

In summary, we would suggest avoiding these cases if you are building a portfolio. Equally, if you are holding cases of Grange it may be worth considering redistributing the capital. 

The Author

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Jake Leighton