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B. G., Opalesque Geneva: Many investors don't realise how big the wine market is, says Nicolas Mandiharat, co-founder of WineChain, in a recent webinar. This is surprising since it is one of the biggest - and one of the oldest - consumer markets.
Indeed, the global wine market size is expected to grow from US$409bn in 2022 to $583bn by 2032, at a compound annual growth rate (CAGR) of 5.7%, according to a research report published by Spherical Insights & Consulting. Statista, another research firm, says revenue in the worldwide wine market amounts to $333bn in 2023 and expects the market to grow annually by 5.52% (CAGR 2023-2027).
While the wine market is one of the biggest consumer markets, it is also highly fragmented because nobody has more than 1% of the market, whether it's on the production side or the distribution side, Mandiharat explains. There isn't another consumer market of that size which is that fragmented. There are almost a hundred thousand wineries in the world and a billion consumers.
The fine wine market is a luxury market
The fine wine market (wine bottles worth more than $60) not only operates as a luxury market but is also very different from the usual wine market. The B2B fine wine market's annual release is worth $20bn. The fine wine trading volume in the B2B market is worth $50bn. It represents a small share of the total volume, but a bigger share of the value.
The important thing about this market is that there is a lot of trading going on. This means a lot of middlemen and a lot of asset moves. "On top of the annual release of the winemakers to, mostly the B2B market, there is a lot of trading among importers, merchants, distributors, retailers, restaurants, etc., all year long from previous vintages. This means, of course, increases in price," he adds.
The problem of double scarcity
In general, fine wine has done very well, particularly in the past decades. The Liv-ex Fine Wine 1000, an index launched in 2014 that tracks 1,000 wines across the world, went up 19% over the last five years. There is a reason for that, Mandiharat says. It's down to supply and demand.
For a start, supply is very sensitive to double scarcity: scarcity by nature and scarcity by human design, combined. "You could say like it's a little bit like gold and art - or if you compare this to other luxury products like watches or bags where there is scarcity designed by marketing and humans," he says.
On top of scarcity by design, there is scarcity by nature. Over the past five years, for instance, production in most of the top-producing regions in the world has stabilised or diminished because of climate change. That scarcity is also caused by winemakers occupying most of the right "terroir" (soil) which is good for growing great wines.
One does not only need good soil to grow wine, one also needs the winemakers to make it happen. Fine wine needs more than science. "There is a limit to the humans who are capable of doing it. It's the artistic touch." So, even though the quality of wines improves over time, the volume of production of top wines does not grow.
The entire world is craving more top wines
Meanwhile, there is more demand. The entire world is craving more top wines, which is particularly true for younger generations. "One of the very surprising figures is that the average basket for millennials for buying a bottle in the US and elsewhere in the world is higher than for boomers," Mandiharat says. "Why is that? It's because they drink less, but they're ready to put more money in a bottle. They'd rather drink once a week or twice a week, but get the best bottles. And so there is a craving for quality in the world and for luxury products in general, but for wine in particular, while there is no additional offer." The market is constantly growing with new markets.
Right now, India is starting to grow a lot in fine wines in the wake of China, which started doing so some years ago and has the potential to grow more in future. Asia Pacific is predicted to experience the quickest market growth, but Europe (the dominant market) and the US are very resilient as the top markets because the younger generation wants the top wines.
"So the mechanics of luxury are working very well for wine," Mandiharat says. "This is obviously because scarcity is going up."
He expects the forces which create scarcity will remain, particularly climate change forces which will hamper crops. Meanwhile, the market will continue to grow in the luxury part.
WineChain is a new wine NFT marketplace where the world's most coveted wineries use blockchain technology to sell their wines directly to wine lovers.
Webinar
You can replay Opalesque's recent webinar, Tech Innovation in Fine Wine is Captivating Consumers, Investors, and the World's Leading Winemakers, here: www.opalesque.com/webinar/#pastwebinar
Related article:
04.Sep.2023 Opalesque Exclusive: Here is a disruptive way to invest in fine wines
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