Unlike traditional investments such as bonds, stock, or real estate, wine does not pay interests or dividends. Yet fine wine has become an investment of its own class in the portfolio of high-net-worth-individuals – those wealthy enough to attend auctions where cases of wine from famed chateaux are sold for several hundred or even thousand euros per bottle. Global investment funds specialized in wine have even sprung up. After all, vintage wine belongs to the class of so-called “real” assets, like commodities and land, and these tangible assets have become more attractive to investors following the financial crisis. First growths chateaux in Bordeaux and wines rated as extraordinary by Robert Parker deliver the best trade off in terms of portfolio expected returns, variance, skewness and kurtosis for most investor preference settings considered. By the way, Wine investment is both business and pleasure. Collectors buy more wine than they intend to drink and sell the excess at a later date to fund subsequent purchases. It’s a high-risk game because, unless they are extremely knowledgeable (and lucky), it may be that they can’t sell their wine with the profit they need in order to stock up again from the proceeds.
Investing in fine wines – without buying bottles – is possible if the investor is ready to build up a portfolio including wine caps (see list below). There are a handful of Wine and Spirit Companies listed on U.S. Exchanges and abroad. Global wine consumption continues to rise and interest in participating in the sector has also grown. The Director General of the OIV, Jean-Marie Aurand reported on April 11st, 2017 that The size of the global area under vines remained at 7.5 mha in 2016, with China’s vineyard surface area continuing to increase (+17 kha), confirming its place as the country with the 2nd biggest vineyard surface area. World wine production declined by 3% compared with the previous year, falling to 267 mhl in 2016 while Wine consumption stood at 242 mhl in 2016, having stabilised after the 2008 economic crisis.
From the wine producer side, the Robert Mondavi Winery that went public in 1993 had demonstrated how transforming a family-run company into a publicly-traded corporation was a daunting task.
In 2013 Wine Spectator reported that Mondavi snatched up brands such as Byron and Arrowood and attempted to expand globally with wineries in Chile, Italy, Australia and France. Mondavi struggled to convince both the wine world and Wall Street of its value, and stocks plummeted amidst attempts to keep up with competition in both the higher and lower ends of the market. A major replanting of vineyards devastated by phylloxera cost the company millions, and the Mondavi family frequently disagreed and bickered with regard to the direction of the company. By June 2003, Mondavi’s stock price had fallen by more than 30 percent. Shortly thereafter, Mondavi sold to Constellation for $1.3 billion.
Twice the size of Mondavi’s offering, Beringer’s 4.5 million shares became the largest public offering for a California winery in 1997. Beringer followed a similar strategy as Mondavi. At the time of its IPO, the company ranked as one of the top sellers of premium wines in the United States, having spent the past few years acquiring brands such as Chateau St. Jean and Stags’ Leap Winery. Beringer sought to take advantage of its high profile as one of the leading producers of Napa wine, and grow to be a global wine brand. Consolidation forced Beringer to reconsider their strategies and they eventually agreed to sell the company to Foster’s Brewing Group for $1.5 billion.
On the other side, Brown Forman Corp. that is selling well known wine brands including Robert Mondavi, Clos du Bois, Kim Crawford, Meiomi, Mark West, Franciscan Estate, Ruffino and The Prisoner continues to cash in on strong demand for beer and spirits. On Apr 6, Constellation Brands reported its fiscal fourth quarter 2017 and full year 2017 results. It beat the Zacks Consensus Estimate by 11 cents, reporting $1.48 versus the consensus of $1.37. Net sales rose 5% in Q4 with organic net sales growth on a constant sales currency basis of 7%. Beer sales rose 11% with a 10% increase in organic net sales primarily due to volume growth and favorable pricing. Not only was 2017 a record year for earnings, the company is equally as bullish about fiscal 2018.
Since the tech companies that went public in the US between 2012 and 2016, including Facebook Inc., Fitbit Inc. and Twilio Inc. into the Brown Forman capital, the Brown family and related persons controlthe company by holding most of the Class A stock, which has voting rights, as opposed to the Class B, which has no voting rights. As a consequence supervoting shares are not new to the stock market. When Facebook did its IPO in 2012, Class B shares held by Zuckerberg and the early investors have 10 votes per share, while Class A shares sold to the public have one vote per share. Snap has three classes of shares. Supervoting shares have been around for more than a century and begun to proliferate in the 1920s. In 1940, the NYSE limited the use of multiple classes of stock. But the advent of corporate raiders in the 1980s led to a resurgence in supervoting shares, as companies sought to protect themselves from unwanted takeovers. For its IPO, Snap told the dozens of investment bankers that it wanted it includes only nonvoting shares, just like Brown Forman and its Class B stocks. Snap got orders for more than 10 times as many shares as the number that were for sale in the IPO (WSJ, April 4, 2017).
Publicly Traded Wine and Spirit Companies
Wine and Spirits: Large-Cap Stocks
Brown Forman Corporation (BF.A) (Jack Daniel’s Tennessee Whiskey, Southern Comfort)
Constellation Brands Inc. (STZ) (Beer, wine and spirits)
Diageo Plc. (DEO) (United Kingdom: Johnnie Walker, Crown Royal, Captain Morgan, Baileys and Guinness)
Wine and Spirits: Small-Cap Stocks
Vina Concha Y Toro (VCO) (Wine)
Wine and Spirits: Micro-Cap Stocks
Castle Brands, Inc. (ROX) (Focus on rum, tequila, vodka and whiskey)
China New Borun Corporation (BORN) (China: Corn-Based Alcohol)
Truett-Hurst, Inc. (THST) (Wine)