Fiduciary Magazine

Archive for the ‘Wine’ Category

Very interesting from the Wall St. Journal. (No I don’t pay for a subscription.)

Sounds like Wine critics are no better than the equity analysts touting stocks, according to the author.

That brings to mind a question: Is Gary Vaynerchuck a talented wine critic or just entertaining? I think he’s both. What say ye?

Gary is one of the best internet entrepreneurs I’ve seen. His passion is wine and he’s turned it into an amazing business. I just learned he’ll be in the SoCal area later this month.

In a country where the harsh Baijiu spirit is often the alcohol of choice, Shanghai had been a dismal place for wine lovers. Five years ago, only a handful of top restaurants even offered wine lists with imported vintages.

But, as in the rest of China, things are changing fast and wine bars have cropped up all over Shanghai in recent years. These new venues have attracted the city’s large foreign population and introduced wine to status-conscious locals with money to spend.

I love when I come across a cool topic and it covers two categories…

Famed Wine expert Natalie MacLean has an awesome app for your iPhone or BlackBerry called Mobile Matcher.

This app will give you over 380,000 meal/wine pairing recommendations!

As her site says, “You’ll find matches for every dish, from appetizers and cheeses, to main courses and desserts. Never get stuck in a liquor store or restaurant wondering which bottle to choose again. It’s like having a sommelier and a bartender in your pocket.”

SYDNEY — Just a few years ago, Australia was being hailed as the great international success story of the wine business, challenging the dominance of France, Italy and Spain. From 1999 to 2007, foreign sales grew more than threefold, making Australia the world’s fourth-largest exporter.

But even as its star appeared to be rising, the Australian wine industry was sliding, selling a greater volume of wine at increasingly lower prices. Last year, the average price per liter of Australian wine sold overseas was about 25 percent lower than it was a decade ago, a level many say is unsustainable.

The industry is also facing increased competition from lower-cost rivals and changing consumer tastes. Last year, exports fell 9 percent by volume, the first such drop in a decade. Many vintners are hanging by a thread.

“The industry is in crisis — anything less than that is avoiding reality,” said Jeremy Oliver, an Australian winemaker and critic. “It is interesting that nobody really saw this coming.”

The reversal of fortune is prompting tough questions about what went wrong, and stimulating efforts by the industry to reinvent itself. Some vintners say Australian wine needs an image makeover; others are shifting their sights to the relatively undeveloped Asian market.

Australians have been making wine almost since the first convict settlers arrived in 1788. With a few exceptions, local winemakers toiled in relative obscurity until the late 1980s, when some entrepreneurs and government officials spotted an opportunity in the growing demand for wine in Britain and the United States. Encouraged by tax incentives, investors planted vines and opened wineries at breakneck speed.

Australia took the British market by storm, surpassing Italy and France as the country’s top seller in 2004. What many suppliers did not foresee was the extent to which their sales in Britain would be dominated by a few large supermarkets, which would use their influence to push down prices, especially as competition increased from newcomers like Chile, Argentina and South Africa.

About 85 percent of Australian wine sales in Britain are made through supermarkets. Though the volume of Australian wine sold to Britain has more than doubled in the past decade, the price per liter has fallen from 4.36 Australian dollars in 1999 to 2.95 dollars, or $2.36, in the year that ended March 31.

“Australia can’t even bottle air and make money selling at that price,” Mr. Oliver said. “It’s not sustainable for Australia to be trying to produce the world’s cheapest wine; we’re totally unsuited to it.”

Producers in several of Australia’s major wine regions have seen irrigation costs soar in recent years because of a prolonged drought. Australia’s higher labor costs and its distance from major markets have also made it harder for the country to compete globally.

In the United States, where Australian wine imports have fallen 4 percent by volume and 25 percent by value from their peak in 2007, the industry’s troubles are more complicated.

From the late 1990s, top-end Australian wines rode a wave of enthusiasm led by the influential critic Robert Parker, who extolled Shiraz from South Australia State. His high marks made those wines fly off shelves, with little extra marketing, said Chuck Hayward, owner of The Jug Shop in San Francisco, which specializes in Australian vintages.

But that wave soon turned into what Mr. Hayward described as “a perfect storm of laziness” in which no one — neither wine media nor importers nor the top U.S. sommeliers — felt the need to learn much about Australia besides South Australian Shiraz. And while wineries were making so much money peddling South Australian Shiraz that they, too, failed to educate consumers about other regions or varieties.

Thus, at the upper end of the market, Australia became identified by “one grape and one region,” Mr. Hayward said — a strategy doomed to fail when that variety inevitably fell from fashion.

At the bottom end of the market, some have blamed the runaway success of Yellow Tail, with its distinctive wallaby logo, and of hoards of “critter label” imitators, for giving consumers the impression that Australian wine is a mass-market commodity. Others say it is glib to dismiss Yellow Tail, which is extremely successful in its niche, but they concede that the emphasis on low-cost, high-volume exports has damaged the rest of the sector.

“That generic reputation has created a problem for the country because partly we are dependent on heavy growth in the low end of the market,” said Kym Anderson, a wine economist at the University of Adelaide. “Whereas there is a lot of very high quality wine here that struggles to find markets in the U.S. because people aren’t very familiar with those particular labels.”

These troubles have been compounded by a recent rise in the Australian dollar, which went from about 50 U.S. cents to the Australian dollar in 2002 to near parity last year, erasing profit margins on many wines.

While Australian wine sales at home grow about 4 percent each year, the industry’s problems overseas have brought an era of downsizing. The Winemakers’ Federation of Australia recently predicted that the industry would have to reduce the amount of wine it produced by as much as 20 percent to stay profitable, meaning many wineries would close or consolidate, vines would be ripped out and jobs would be lost.

“In the early long term, our vision for the Australian wine industry is a smaller industry at higher quality,” said Lawrie Stanford, the manager of information and analysis with Wine Australia, the government body that helps direct Australia’s overseas wine marketing. “We’ve done the volume growth, and we overdid it a bit — the industry is recognizing that. What we’re doing now is pulling back a bit.”

The biggest challenge there, according to the British wine writer Andrew Jefford, will be to convince consumers that Australia can offer more than just the “cheap and cheerful” wines they have grown accustomed to seeing.

That will require new efforts to educate consumers about Australian wine regions and a push by winemakers to accentuate those differences, Mr. Jefford said.

Wine Australia says it will shift the marketing focus away from what it calls “brand champions” — recognizable labels that sell at rock-bottom prices — toward smaller producers that highlight the differences among regions and varieties. The result, officials hope, will be fewer Australian bottles in the bargain bin and more labels pitched at the $20 price point.

In the Asian market, Australian brands are still novel and “don’t have the baggage” they have in Britain and the United States, according to Mr. Oliver, who recently introduced a Chinese-language book about Australian wine.

Wine exports to China have risen from 502,000 liters in 2000 to 19 million liters in the year to March 31. And the average price per liter in China was 4.23 Australian dollars last year, compared with 2.91 dollars in Britain and 3.22 dollars in the United States. In Japan and Singapore, the average price per liter was more than 5 dollars.

Many winemakers are keeping these figures in mind as they move to reposition the industry.

“Our focus is on the longer term,” Mr. Stanford said. “There’s always going to be another growth phase. Where is it going to come from? Well, these things are hard to predict, but you can be pretty sure that a strong prospect for a new growth phase is going to come from China.”

I’ve seen tons of things on red wine and resveratrol. The Science Times of the NYT just ran an article on alcohol and health.

“The moderate drinkers tend to do everything right — they exercise, they don’t smoke, they eat right and they drink moderately,” said Kaye Middleton Fillmore, a retired sociologist from the University of California, San Francisco, who has criticized the research. “It’s very hard to disentangle all of that, and that’s a real problem.”

This article points out something that happens in investment research all the time: causation or causality. Warren Buffett is rich because he is lucky, not necessarily smart. Popular wisdom concludes that “because he is enormously wealthy, it must be b/c he’s made prescient investment decisions.”

As the song goes, “It Ain’t necessarily So…”

Moderate drinkers might live longer b/c they spend xyz amount of time doing light aerobic activity for example and they “happen to drink in moderation.”

“People are increasingly more sensitive to healthy lifestyles and the government is using taxes and awareness campaigns to crack down on the effects of drinking.”

This flies in the face of the 60 Minutes episode about the benefits of resveratrol.

As an investment, wine has outperformed the market and delivered handsome returns. What you need to know about liquid assets.

Is fine wine really a good investment?

It might be. But before you pull the trigger — or, I suppose, cork — on this, make sure you read the label closely. A bottle of claret is not the Holy Grail.

The facts, to date, look pretty impressive. If you had invested $100,000 eight years ago in compiling a typical cellar of the finest wines in the world, your investment today would probably be worth about $230,000. That’s a return of about 11% a year.

That’s based on the Liv-Ex 100, an index of top wines (most of them Bordeaux) tracked by Liv-Ex, a firm based in London.

The same amount invested in Wall Street over that period, largely because of last year’s market mayhem, would be worth about $109,000. An intermediate government bond portfolio would be worth about $150,000.

Furthermore if you had invested in wine over this period you would have made your money with far fewer sleepless nights than the investor in shares. During the bear market of 2000-03 the biggest decline in the Liv-Ex 100 was about 7%. During the recent financial crisis it fared worse, but its worst drop was still only about 20%. That was a lot better than most other investments. Nor is wine’s recent performance a one-off. Several academic studies have found fine wines have produced good investment performance during other periods in recent decades.

Since its launch in early 2003 the Vintage Wine Fund, a British fund that invests in wine, has reported a 22% return. The first five-year partnership set up by The Wine Fund doubled investors’ money before dissolving, with happy timing, near the peak last August.

Bullish points for wine: Outstanding wine is scarce and it has value to drinkers. There’s only so much capital chasing it. Pension funds and U.S. mutual funds aren’t bidding up prices. Furthermore, it is something of an “uncorrelated” asset, meaning it won’t necessarily rise and fall in line with everything else.

But before you jump in, here are some caveats to bear in mind.

* The past isn’t the future. Just because wine has outperformed over the past decade does not mean it “outperforms” as a general rule, let alone that it will in the future. Recent outperformance either means it was undervalued before, or it is overvalued now. One factor that drove prices much higher this decade was a flood of buying from newly rich Asian investors. This is akin to the Japanese “art boom” in the late 1980s. Who knows whether it will last?
* While wine fared much better than many other assets during the financial crisis, it wasn’t immune. And panicked and forced sellers still drove down prices and made it hard for anyone else to sell at a reasonable price.
* Wine is liquid, but the market isn’t. You can sell your stock portfolio in seconds. It may take months to sell a portfolio of wine.
* The costs can kill your returns. Shipping and storage is expensive. And professional funds often charge hefty fees, including a big slice of the profits.
* Look out for “shrinkage” in your portfolio too. The two people I’ve known who tried investing in wine never made a penny out of it. They kept drinking it.
* You really need to know what you are doing. That’s true of any market, but probably more in wines, where expertise can be developed over decades, than in many others. The really smart money in the wine market is going to cream the dumb money.
* Finally, investors in fine wine who take comfort to think they are buying something “real” should think twice. Consumers may put a high price on what they enjoy. But then again, they may just say they enjoy what has a high price. A hilarious study of more than 6,000 blind tastings published by the American Association of Wine Economists last year found that people in general did not prefer more expensive wines. If anything, they tended to prefer the cheaper bottles. Prices for 2008 Bordeaux just jumped maybe 30% simply because uber-critic Robert Parker said he liked it. Ridiculous.

Brett Arends