Greg Sherwood MW: Is buying wine as an investment coming to an end?

With Christmas just around the corner, many South Africans will be focused on mostly things starting with a “B”… beaches, braaivleis, boerewors and beer. For the sophisticates out there, perhaps the opportunity to wind down, enjoy the family and kids, read a good book and maybe enjoy a genteel Boxing Day cricket test match on tv with a chilled glass of white or rosé wine in your hand is your idea of bliss. Up here in the northern hemisphere, many, most… if not all will simply be glad to see the back of 2024.

The wider wine trade has certainly been a challenging place to work over the past year with numerous headwinds forcing the entire industry into stagnation and inertia, a situation certainly not conducive to continued growth, innovation and job creation. But of course, one could argue that economic upturns and downturns are cyclical and are as much part of a wider economic picture as technological change and evolution is. It’s simply how you react to it.

The Bordelais will point to the catastrophic 1970s when times were so challenging that not even the Grand Cru Classé first growths had enough money to buy new French oak barrels for their latest harvest, or indeed, even as recently as the early 1990s, when their brace of five-star vintages of 1989 and 1990 entered the market in 1991-1992 just as Europe and the world was experiencing yet another economic downturn, high interest rates, currency instability, and a mini property crash in the UK that left many home owners living in negative equity for years to follow.

Those in other professions listening to us in the wine trade whinge will be quick to point out that the fine wine trade has also experienced one of its longest and most successful bull runs over most of the past two decades, with rising demand and consumption in the USA, the stratospheric rise of the Asian tigers and China in particular, and the ongoing price rises across almost all mainstream fine wine product categories, with Burgundy leading the way followed closely by Bordeaux, Italy and Californian wines.

But something this time around just feels different, and lately, I have been listening closely to the commentary coming out of the bigger fine wine brokers and traditional fine wine merchants to try and get a better sense of steer on what exactly has gone wrong (or is going wrong) and what we can expect in 2025 and beyond.

Many, predictably, not wanting to talk the fine wine market down further, point to a decade of free money, i.e. interest rates in Europe and America at close to 0%, or in some cases, as occurred in Europe, negative interest rates imposed on banks looking to stockpile cash instead of prioritising further investment. This is undisputed, and while this free money with low interest rates undoubtedly spurred bullish investors and speculators to shift large amounts of capital into fine wine as well as other alternative investments, it doesn’t explain the whole picture.

It is when you combine the advent of the pure fine investor / speculator together with the rising demand exacerbated by the free spending behaviour of the genuine fine wine collectors and connoisseurs out there in the market, that demand can become strained, secondary market speculation becomes rife, and inevitably, producers succumb to the lure of further price rises to not only try and cool the unprecedented demand but also capitalise and directly benefit financially themselves.

Where we are now, is that the wider fine wine market finds itself in a predicament where money is no longer cheap and interest rates are rising again, inflation too is rising and eating away at the value of your investments, or in some cases, creating more incentives to channel excess cash back into financial instruments and away from the alternative investments of fine wine, art and collectable antiques.

This is simply the pendulum swinging back the other way as it always eventually does. But in the interim, two decades of unprecedented price rises have pushed many of the world’s great fine wine brands well and truly out of the reach of the next generation of aspiring collectors and connoisseurs, creating an awkward disconnect for the continuity of the fine wine market and its longer-term sustainability.

On top of this phenomenon, the ageing consumer demographic that has been buying voraciously, collecting and drinking these fine wines over the past two to three decades, is reaching or has already reached, a saturation point where they no longer need to buy as much, if any, new releases, and if they are still buying, their purchases are greatly reined in by the excessive price rises that they themselves have indirectly benefited from.

For me, it is not so much the endless ex-cellar price rises that have been the straw to break the camel’s back, but their indirect and unintended consequence of turning new aspiring fine wine drinkers away from these traditional product categories in favour of others like Beaujolais, Rioja, Australia and South African wines. Or in many cases, which is more concerning, new potential consumers have simply left the fine wine category altogether choosing abstinence.

Much of the commentary I have been hearing from the fine wine brokers and merchants reinforces my description of this new landscape we suddenly find ourselves in. Even the language of the fine wine brokers has evolved of late, many exorcising any use of terms such as “fine wine investment”, “fine wine speculation”, or “fine wine financial returns” in favour of “client-based management”, “serving collectors and connoisseurs”, “making sure we get the best wines into our clients’ cellars”, “it’s all about the client”, etc. You get the picture.

The fine wine narrative has moved starkly and abruptly away from financially motivated speak a la Goldman Sachs or Merrill Lynch to “fulfilling clients’ personal drinking preferences” and “building relationships to understand our clients drinking requirements better.” Wine has suddenly returned to being a product we drink with friends, enjoy with colleagues and explore with fine cuisine. The “experiential” fine wine sales pitch is back.

Some fine wine merchants and brokers are, to be fair, reporting moderate successes in engaging with a new twenty to thirty-something audience, which quite interestingly focuses strongly on younger professional women, described as a “regular and growing client base” by one successful London broker I spoke to. Drinking and experiencing the top fine wines also seems to be a key motivator with this younger generation who are not looking to build up large collections or store wines for 20+ years.

As always, the power of third-party recommendations or, more specifically, direct referral business, continues to feature close to the top of most merchants’ client development strategies. Thankfully, as we move forward into 2025, another silver lining might just be the greater accessibility of many of the top fine wine brand names now that the short-term speculators and investors have taken an extended holiday from the market.

So, as long as the speculators stay away, I personally can see no other logical outcome other than prices across great swathes of new-release fine wine softening and back vintages physically in the market also falling to more realistic levels. Whichever way you look at it, the drinker will be the real winner in 2025. That’s surely got to be enough to cheer up the most pensive of wine merchant this Christmas!

• Greg Sherwood was born in Pretoria, South Africa, and as the son of a career diplomat, spent his first 21 years traveling the globe with his parents. With a Business Management and Marketing degree from Webster University, St. Louis, Missouri, USA, Sherwood began his working career as a commodity trader. In 2000, he decided to make more of a long-held interest in wine taking a position at Handford Wines in South Kensington, London, working his way up to the position of Senior Wine Buyer over 22 years. Sherwood currently consults to a number of top fine wine merchants in London while always keeping one eye firmly on the South African wine industry. He qualified as the 303rd Master of Wine in 2007.