Having only recently been considered a fine wine investment, Champagne has seen consolidating prices despite some volatility surrounding other major regions for the past few months.
Increased market share and the appetite generated by landmark celebrations are also positives for the Champagne market next year.
While some inexpensive Champagne brands have posted disappointing results due to weak French demand, the likes of super-premium Champagne brands reported their Asian and U.S. sales accelerated in 2018.
In particular, China, Hong Kong and Russia also saw strong increases in demand for Champagne last year. According to industry publication The Drinks Business, exports to Hong Kong rose by 14% in value and by 12% in volume. Shipments to China rose by 12% in value to 40.9 million euros and by 10% in volume to almost 2.2 million bottles.
For many years, it had been traditionally common to see Champagne lovers drink maison names due to a strong brand awareness and restaurant presence. With the investment Champagne market becoming more mature, Grandes Marques is no longer the sole focus of wine investors. They have gradually turned their attention to other categories such as rosé Champagnes and grower Champagnes as tastes have become more sophisticated.
Grower Champagne is attracting investors who have traditionally invested only in big names. Many grower Champagnes remain popular amongst drinkers and collectors, with the likes of Ulysse Collin, Jacquesson and Cédric Bouchard all increasing in price exponentially.
With niche knowledge, it is possible to look beyond the Grandes Marques for Champagne investors. With the aim to generate more interesting investment ideas, we conducted in-depth analysis of the region, and the results revealed some important insights, which support our overweight stance on Champagne.
Our research on the Champagne market revealed several interesting facts, including the following trends:
- Over the last five years, Champagne is the second-best-performing region of Liv-ex 1000, with a total return of 47%
- With portfolio resilience crucial at a time of broader market uncertainty, Champagne plays a defensive role with steady returns and low volatility
- We have witnessed a positive picture for Champagne this year, with special mention to rosé Champagne
- Salon, which remains the No. 1 Champagne brand, led the gain in the region, while other investment-grade Champagne also performed favorably
- Prices of back vintages tend to appreciate over time irrespective of vintage variation or quality
- Earlier this year, excitement was generated around the release of Champagne 2008, which is considered to be one of the region’s best-ever vintages by several wine critics.
Champagne Market Overview
Stepping into 2020, we expect to see a continuation of the increasing appetite for Champagne, but investors should be prepared to see a rise of rosé Champagne and grower Champagne as well.
The celebratory nature of Champagne, combined with strong restaurant presence and better production capacity, makes it a unique offering in the fine wine market. With Champagne enjoying consistent returns and growing popularity, the number of unique Champagne(s) trading on Liv-ex — the global platform for the fine wine market — has multiplied.
More recently, discussions seem to have become more constructive between Champagne and the rest of the major wine regions, which could suggest the possibility of exploring new opportunities.
With muted growth of the broader market continuing to weigh on risk appetite, Champagne plays an important role in building portfolio resilience with steady returns and low volatility.
Furthermore, recent years of increased global appeal have seen Champagne establish itself as a key player in the secondary market for fine wine. Champagne’s secondary market trade share has steadily risen in recent years, and the number of unique Champagne(s) trading has multiplied.
In particular, Champagne’s average share has risen from 6.4% in 2017 to 10% this year, peaking in June when the region hit a monthly high of 19.3%. Looking closely at the year-on-year performance of Bordeaux and Champagne, we find that return divergence has become evident in the recent two years.
As shown below, the pace of yearly gain in Bordeaux slowed markedly from 26.7% in 2016 to 5.34% in 2017.
From 2018 to 2019, Bordeaux continued to drop further and has been in negative territory throughout the last two years. In contrast, Champagne, which has long been characterized by regular and steady gains, has delivered positive returns.
Combined with improved trade share, Champagne’s recent performance has proven to have relatively low correlation with that of Bordeaux.
With most investors still holding Bordeaux-concentrated portfolios, this defensive characteristic makes Champagne a natural choice to build a more diversified portfolio. In addition, wide dispersion of vintage performance among the producers may also provide an opportunity to generate excess returns.
Investing well starts with understanding trends. From a retail perspective, The Drinks Business published sparkling wines U.K. sales data covering 2014–18. It is interesting to highlight that sales growth differed by wine categories, with the sales of premium sparkling wine brands slowing.
However, the super-premium category demonstrates the most volume growth, approximately at +47.4% CAGR (2014–18). This has supported our positive views on Champagne, and careful guidance on producer selection is important.
Within Champagne, rosé Champagne is another category to watch. Now considered an attractive asset to be included in an investment portfolio, rosé Champagne(s) have shown great potential in recent years.
Data released by The Drinks Business also supports our optimism for the category. In particular, the total value of rosé Champagne sales increased in the U.K. on trade. Although commanding a higher price both on release and on the secondary market, rosé Champagne of selected producers has generated overperformance in recent years.
Our optimism for the Champagne region is driven by its long-term stability and higher risk-adjusted returns when compared with other regions of the market.
We think that the current environment of the wine market calls for a more balanced portfolio, and the merits of diversification found in Champagne are supporting our view for a long-term 10% allocation to Champagne with a tactical overweight stance.
P.S. Is wine a part of your investment portfolio? If not, it should be — it’s hard to find an unconventional asset that’s performed better or shown its value over a longer period of time. Although most investors haven’t given Champagne a hard look, that’s starting to change as the bubbly gains in popularity. If you’d like to see how Champagne fits into your investment collection, there’s no better place to start than with our partners at Cult Wines.