The Fine Wine & Rare Whisky Markets: 2023 Reflections & 2024 Outlook Perspectives
12 January 2024
- For fine wine, after such a strong run (especially for Champagne (+69%) and Burgundy (+58%)) across 2021-2022, a settling of activity and prices was to be expected in 2023, certainly looking at historical trends. However, the year saw an activity decline far beyond our initial expectations and this meaningfully impacted prices, especially in the second half. Champagne, young Bordeaux and certain Burgundy pockets were most affected. The market overall was down 12% across 2023.
- We saw rare whisky, on the other hand, continue its upwards trajectory, albeit at a slightly slower pace, seeing prices on average higher by 13%. Activity at Bordeaux Index was broadly similar to 2022, in contrast to the materially lower volumes in fine wine. Strong performers in Scotch included Springbank, Balvenie and Dalmore, while Macallan performed better in cask than it did in the top bottlings. Japanese whisky saw a particularly quiet year, perhaps unsurprisingly after being high focus in recent times.
- Looking ahead to 2024 in the fine wine market, we note that November and December seemed more stable and with more interesting demand pockets than we saw during Q3. Historical trends support market prices likely having reached a bottom point and this is our base case. If prices have settled at this level, the question becomes when things will turn upwards, something we think lies beyond Q1. In the meantime, there are and will be scope for opportunistic trading, something we would highlight as most interesting in young-middle aged Champagne, certain top Burgundies and oversold key Bordeaux wines.
- We see the trajectory of rare whisky in 2024 most likely as “more of the same” – though higher activity could see upside certainly from the pace of price gains in 2023. Some (certainly not all) Macallan bottlings look good value to us after underperformance and given Macallan casks are performing well; meanwhile, the much-heralded re-opening of Port Ellen will likely increase market focus on “ghost” distilleries. Activity in Japanese whisky is harder to predict, given 2021-2022 were frenzied at times but 2023 much quieter.
- Risks to the upside/downside in 2024 – particularly for wine – intuitively centre on macro considerations, especially interest rates. Despite wine’s low correlation with other assets, one must conclude that the interest rates environment, and especially the pace of rate rises, was very relevant in 2023; this trajectory seems in recent months to look rather different and perhaps this is cause for optimism. At the same time, it must be remembered that a key driver of fine wine and rare whisky prices is the ever-increasing global penetration of these assets, the pace of which may be very loosely linked to interest rates, but that is ultimately an ongoing and underpinning demand tailwind.
Reflections on the Fine Wine & Rare Whisky Markets in 2023
The second half of 2021 and most of 2022 was characterised by frenzied activity in the fine wine market – in particular the Champagne and Burgundy segments, which over that period saw prices increase by 69% and 58% respectively. Demand was entirely global in nature, rather than skewed particularly to one geography – equally, buying was fuelled by a healthy combination of end consumers and investors.
Activity was already slowing significantly by Q4 2022, perhaps most markedly in Asia and the US. Notably, the shift in demand dynamics seemed primarily to relate to decreased discretionary spending, something which it is naturally tempting to link with a higher interest rate environment (though more on that later); certainly we observed little selling by any clients, whether overdone collector-buying or investor profit-taking.
Going into early 2023, the market was primarily characterised by significantly lower activity, rather than any real weakness in prices. Demand was there for Burgundy 2021 (a helpfully “short” vintage) and new Champagne releases but less so for secondary market trading; certainly there was no tailwind whatsoever from a somewhat keenly anticipated China post-Covid reopening.
Prices during the first 4-5 months of the year drifted slightly, reflecting the lower activity. Indeed it was interesting to observe – definitely more clearly than ever before – the consequences of a still-inefficient wine market in this context. Specifically, the many small merchants (especially if specialists to one or two regions) were quick to discount stock positions where the decreased activity and their limited distribution networks led to very static “books”, while even some larger merchants/traders followed such pricing sooner than one might expect. It is worth noting on this topic that Bordeaux Index’s LiveTrade online platform – being relaunched in the coming weeks with a full range of global wines – is designed to address this very issue by enabling all merchants to sell to (and buy from) a far broader global client base via integrated electronic trading; certainly if ever there was a year highlighting the need for such centralised trading, it was 2023.
The Bordeaux En Primeur campaign was disappointing in pricing just not being at levels which engaged buyers. Flagging wine collectors – in a market where, as already highlighted, new releases were actually the most positive element – were given little cause to enter the fray. Indeed, we then observed a decline in trading engagement with Bordeaux as a region, especially younger vintages, arising from the En Primeur campaign and continuing across the remainder of the year. As we are always keen to highlight to châteaux, En Primeur release prices are a great opportunity to drive focus on the region including the “back vintages” – an area of course of ever increasing importance for those in Bordeaux given the stock retained long after initial release.
There is little doubt that there was a negative progression during the summer and beyond – ultimately a further decline in activity being the most prominent factor, but also price softening gathering pace such that the movements began to look particularly meaningful in some cases. Worst affected were young Champagnes (Cristal 2012/13, Taittinger Comtes 2008, Philipponnat Goisses 2008), young Bordeaux (Lafite 2018, La Mission 2018 and just about every 2019, with several falling by 20%+, being the natural wines to sell due to their attractive EP entry prices) and perhaps certain elements of Burgundy, although the latter was harder to judge given limited trading in the blue-chip names.
The nadir seemed to us to be across September and October, with the market feeling somewhat more balanced in November and December. However, the improvement was very much a settling of negative momentum rather than any meaningful improvement.
Overall we saw the fine wine market as being down 12% in 2023, giving a longer-term performance context of Last 2 Years at 0% and Last 3 Years at +18%. This headline figure masks the underlying strength of Champagne and Burgundy during that period: for example, there is no grand marque Champagne which is up less than 20% over the last 3 years.
The story of the wine market last year was clearly one of a drop-off in discretionary spending (and “retail” investment), both in the ultra-luxury/UHNW and luxury/HNW segments. Some observers might therefore expect a corresponding challenging trajectory in the rare whisky space.
However, this was for the most part not what Bordeaux Index – today one of the largest traders in the rare whisky space – observed in its activity. In fact, trading volumes were similar comparing 2023 to 2022 (whereas wine trading volumes saw a significant decline).
Bordeaux Index’s activity concentrates mainly on the old and rare Scotch and Japanese parts of the whisky market, across bottles and casks. This exhibits particularly high rarity even compared to the smallest-production regions in the wine market (Burgundy and Northern Rhone, for example) and consequently tends to see more of a “must-have” dynamic to high-quality assets which in practice seems to be more resilient to buyers cutting discretionary spending (at the same time the buyers may on average be more insulated from tougher environments). Meanwhile, those approaching the space as an alternative investment are looking at long-term historical returns of 15-20% vs. wine at c.10% (both compounded figures) and naturally a higher rates environment impacts comparative returns more drastically for wine in that context.
We did observe a sharpening of focus at the higher end of the rare whisky spectrum, with perhaps greater indifference towards the <£500/bottle type price/bottle segment and especially bottles with more of a “novelty” context in that area (e.g. special cask finishes, branding heavy/age-statement-lite). We continue to see the higher value/ultra-rare space as the most dynamic in an investment context, especially in casks.
‘Winners’ in 2023 therefore tended to be top distilleries, with Springbank, Balvenie and Dalmore seeing particularly strong price progression in our activity. Macallan performed well in casks, but continued to exhibit more nuanced dynamics in bottles, partly due to prices of new releases somewhat testing market limits. Japanese whisky was overall quieter than in 2022, albeit that year had seen a particularly outsized level of demand and price expansion for a segment which generally sees activity ebb and flow more than Scotch does.
Overall we observed rare whisky market prices (using a composite of high value Scotch whisky bottles) as being 12% higher in 2023, although as ever in this space, there is significant divergence in both directions around the average performance.
Perspectives on the Outlook for Fine Wine & Rare Whisky in 2024
As we move into 2024, assessing a 12-month outlook is perhaps harder than ever before. Market sentiment itself is reasonably neutral and there remains ultimately limited selling from collectors or investors. However, activity remains materially depressed – not to the same extent as in Q3, but we are certainly far from the levels of 2022 trading volumes.
Price movements across 2023 primarily comprised a downwards drift, sometimes exacerbated (especially during Q3 when activity was so light) by merchants undercutting prices to reduce stock positions, as described above. This trajectory largely flattened in November/December and this was not particularly a surprise to us, for prices had started to test the boundaries of historical downwards movements, as the chart below shows – historically large upwards movements have been followed by softer periods up to a low teens % decrease, which is where we now sit. Our base case expectation is for limited or no further price softness, but with more uncertainty around the timing and pace of a resumption of upwards price action.
Fine Wine Market Price History, Last 20 Years
Commenting on the fine wine market requires consideration of the underlying components, given Bordeaux and Burgundy for example have relatively little in common. We would summarise our regional views as follows:
- Bordeaux is a region challenged by the overhang from the 2022 vintage En Primeur campaign last year and certainly some concerns within the market around the 2023 vintage En Primeur campaign to come. This dynamic can be seen from the substantial underperformance of younger vintages (especially 2018, 2019 and 2020). However, there are clear opportunities: older wines have also drifted and are simply too cheap especially given the relative lack of supply some now exhibit – indeed, we are already seeing increased trading to take advantage of this; meanwhile the best wines from those more recent vintages merit opportunistic focus, albeit with some acceptance of a more symmetrical risk profile.
- Burgundy has not seen a “bubble” burst. Market trading is very thin but for the most part top quality names and wines are not too far below the levels seen in 2022, providing sellers are not in a hurry. Rousseau and Leroy in particular had moved up very quickly and so some selling in these names is more flexible price-wise (as the sales are still very profitable), but we are seeing almost zero activity at genuinely depressed prices. Early signs also suggest that Burgundy’s 2022 vintage is engaging clients and seeing good demand. We are overall constructive on Burgundy for 2024 and see rewards to be gained from opportunistic activity given the comments above. However, we have said it before and must say it again: we are very wary of most producers below the top 25 blue-chip type names, for whom pricing is artificially inflated by allocation-tying and demand in the marketplace is very low.
- Champagne is an interesting case, for ultimately the very strong price momentum across 2021-2022 was driven by broader global consumption – with a brand focus ideally suited to Champagne – post Covid and also by the wines being fundamentally undervalued to begin with. The names which had risen the most (Krug, Cristal), have seen the largest reversals and we simply see this as over-done. It is a region for which ongoing consumption expansion and price progression is well-underpinned on a long-term basis and in that context we see the current pricing levels as a buying opportunity.
- Italy (Tuscany) saw a particularly quiet year in 2023 following its breakout performance in previous years. This to us is easily understandable in terms of the wines looking often unattractive relative value vs. Bordeaux, which is the most obvious comparator – in simplest terms, Tuscany has changed price context entirely while Bordeaux hasn’t and therefore the “gap” is much smaller. We envisage another quiet year for this segment unless there is a sharp pickup in brand-driven global demand.
- Other Regions (US, Rhone, Italy (Piedmont)) for the most part continued to struggle for focus in the core fine wine market in 2023. The question of “when will it change?” for any given region is even harder to answer in an environment like this than it would usually be. This should not be confused with a lack of broader relevance, however – there is much to like for fine wine collectors in these regions, but that is simply a separate point to market trading relevance.
The rare whisky market is ultimately in much better shape than the fine wine market, certainly as observed in our trading activity. Our base case question for 2024 is around how much price momentum the market can exhibit (especially with increasing activity), rather than around a broader direction / reversal of prices. Looking at the sub-segments more specifically:
- In Scotch, we expect the ongoing progressive new release pricing to achieve sustainable gains for top quality old and rare liquid (as long as they are sufficiently distinctive offerings). Dalmore and Balvenie should see more positive momentum in this context, for example. We believe that top Macallan bottlings/sets (e.g. Red, Lalique) are now trading too cheaply – especially given recent headlines around old Macallan records – and see potential in this segment in the coming year. There will be much fanfare in 2024 around the re-opening of Port Ellen, which could have interesting implications for market focus on “ghost” distilleries more broadly.
- The aged Scotch cask space was especially positive for Springbank in 2023 but we also saw good progression for Macallan and other core Speyside whiskies (e.g. Glendronach). This segment remains a very interesting activity for Bordeaux Index, offering compelling investment opportunities, and we certainly expect this to continue to be the case in 2024. As ever, we see younger casks (<7 years) as providing noteworthy but much longer-term investment opportunities while older, higher-value casks – our core specialist activity – offers much more dynamic potential.
- 2021-2022 was a key period for Japanese whisky and 2023 much quieter on this front. Karuizawa saw depleted activity but reasonably uneventful price activity, while Yamazaki drifted slightly on much lower market engagement. We are very much constructive on this smaller but important segment but it is as yet unclear how active the market will be during 2024.
Final Outlook Considerations
Upside and downside risks to the above perspectives – though probably more specifically for fine wine – centre around the macro environment and in particular discretionary spending, luxury consumption and alternative investment activity.
Wine is well known to have low correlation with more traditional assets, but it is hard to look beyond – in this market cycle – a connection between the sharp upswing in interest rates and the quieter market activity and associated price consequences.
We regularly highlight the much greater-than-widely-understood consumption volumes for these ultimately expensive assets and there being a healthy balance between the consumption and investment dynamics for them. However, the growth in demand which has been so positive for fine wine in recent years was no doubt partially aided by low interest rates, via the implied cost of increased spending/consumption, and also a search for yield in investment activity including a hard asset focus.
However, the contribution of interest rates to the wine market’s challenges in 2023 was probably linked as much or more to the pace of rate increases (and perceived risk around future path of rates) than the outright rate levels themselves. Either way, in recent months across a number of economies there seems a much more balanced profile on this front and this is likely cause for optimism around when we will see the inflexion point for fine wine.
We sometimes receive questions around the path for wine prices if current rate levels represent a normalised long-term outlook. We broadly see this as confusing (i) rising rates having contributed to lower demand in the wine market for a year; and (ii) wine performance being intrinsically linked/correlated with interest rates. The former certainly has truth to it; the latter finds little support in a broader historical context.
Indeed – and this is of critical importance - we often caution against overlooking a key demand factor which is the ongoing greater penetration of fine wine (and of course rare whisky) into all geographies, something which if anything will pick up pace over the coming decade through changing demographics (wealthy younger, more curious buyers) and also more varied, broader and more sophisticated distribution.
This observation is – on the face of it – more skewed to collecting/consumption, but really applies to wine/whisky as investment assets too. To give just one topical example, the last time Bitcoin rocketed upwards, we saw greatly renewed focus on wine and whisky given their alternative/hard asset context, partly because Crypto (confusedly thought of by many as a hard asset…) became a catalyst for investors – both “retail” and institutional – to look further afield than their core asset classes.
Also in 2024 Outlook: watch out for the upcoming re-launch of Bordeaux Index’s market-leading online trading platform, LiveTrade, which will greatly increase the universe of tradeable wines and also introduce whisky as a tradeable asset.
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