Understanding supply and demand

Fine wine has a particularly attractive supply and demand dynamic. The production of investment-grade wine is inherently limited meaning supply declines steadily over time as bottles are consumed. On the other hand, and almost unique to fine wine, quality improves over time. The result is increasing demand, while supply is concurrently decreasing; an economist’s dream.

This structural imbalance creates a natural upward pressure on prices.

Behind the scenes, however, there exists an additional range of factors that determine the long-term value of fine wine, we have explored the top 6 below.

1. Brand power and Reputation

Every wine type is consumed over time, regardless of value, but esteemed producers often carry centuries of tradition and heritage, and a long-standing reputation for consistent quality and craftsmanship. The long-term value of a bottle of wine goes far beyond the quality of the liquid itself. Dom Perignon is one of the most recognisable champagne brands in the world; its product is excellent, but its value is in-part driven by the brand’s consistent dominance, maintaining steady consumption and increasing scarcity.

2. Vintage quality

The quality of the harvest in a particular year is key in determining a wine’s market value with stronger vintages commanding a premium over the lesser. Weather patterns, vineyard management and harvest timing all have a direct impact on grape quality. Exceptional vintages, like Piedmont’s 1978 or Bordeaux’s 1982, are celebrated for both their immediate appeal and longevity, achieving notable price appreciation over time. Wines from less favourable years may be less sought after, with lower potential for long-term growth appreciation.

3. Scarcity

From the outset, supply is perfectly inelastic; once a vintage is bottled, no additional wine from that year be produced, irrespective of demand. Domaine du Comte Liger-Belair’s La Romanee, for example, comes from France’s smallest appellation - a 0.85-hectare vineyard in the Burgundy region – and produces less than 3600 bottles each year. Production is then further constrained by regional standards designed to control yields and maintain quality. Then, as bottles are consumed over time, availability on the market declines further, accelerating long-term price appreciation.

4. Critic Ratings and Reviews

Critic scores can play a large part in the pricing of wine. Critics and publications evaluate wines based on quality, character and potential for aging, and translate this into a standardised scoring system, most commonly the 100-point scale. These scores then feed through to the market to influence pricing: Sassicaia’s 2016 vintage received 100 points from Wine Advocate, whilst the 2017 vintage received 94 and now trades at a 43% discount to 2016.

5. Provenance

Provenance refers to the documented history of a wine’s origin, ownership and storage conditions throughout its lifetime. Well-documented information is crucial when determining a wines value and resale potential; buyers want certainty that their purchase is authentic, and its quality has been maintained. Unclear provenance introduces risk and can result in highly regarded wines being devalued or even impossible to sell.

6. Wider Economy  

Despite its relative stability, the wine market can still be significantly influenced by wider economic dynamics and global trends. The Covid-19 pandemic, with all its uncertainty, created opportunities for the market. Extended periods at home meant disposable income was redirected away from travel, hospitality and leisure towards tangible assets. Fine wine, with its dual appeal as both a consumable and an investment asset, benefited directly from this shift; the Liv-ex 1000 gained 8% between April 2020 and April 2021.

The Bottom Line

At the market’s core lies an imbalance between steadily diminishing supply and global demand, providing a strong foundation for long-term price appreciation. Taken together, these factors explain why fine wines continue to command premium prices and highlights the importance of a holistic approach when assessing wine as an investable asset.