Economics of fine wine

SUPPLY Currently, 90% of all investment grade wine comes from Bordeaux, and even then only a very small fraction of the region's more than 8'000 producers who make 60m cases of wine per year, is considered investment grade. Production is limited by Appellation Contrôlée law as well as by the quality objectives of the winemakers. Consequently, only about 500,000 cases per annum are produced by the most sought-after chateaux (by contrast, the largest Californian wineries produce this volume in two days). Finally, the already small stock is further depleted as mature wines are consumed. Supply is scarce. 

Source: OIV. Copyright Wine Wealth GmbH
Source: OIV. Copyright Wine Wealth GmbH

DEMAND Fine wine has seen rising demand as consumers become more knowledgeable and quality conscious and want to drink less but better wine. New consumers from Asia, Latin America and Eastern Europe have entered the market due to rising wealth, changing consumption patterns and greater access and awareness. According to the International Organisation of Wine (OIV), Asia today consumes close to 8% of world wine output, compared with less than 2% in 1989. In China, the wine market has grown by 28% in the last year alone, according to Wine Intelligence, and Hong Kong as the main hub has seen imports rise from $200mln in 2007 to $1.2bln in 2011 (HK Ministry of Commerce). Meanwhile, the Merrill Lynch/Cap Gemini World Wealth Report projects that wealth among Asia’s super-rich is expected to rise by close to 9% annually until 2018. These factors contribute to continued strong demand for investment grade wine.

 

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