Welcome to Part 2 of our three-part wine investing series.
- Last week we did an overview of fine wine as an asset class 🍇
- Today we’re exploring investing in Burgundy 🇫🇷
- Next week: A special wine opportunity 💵
At the end of the series, we’ll have a special vetted wine deal you can invest in. Express interest here.
This guide was written by our mates at WineFi and edited by Stefan.
Let’s go 👇
Table of Contents
Why Burgundy specifically?
Highest number of AOC wines
Burgundy has more ‘appellations d’origine contrôlée’ (AOCs) than any other French region.
What’s AOC?
AOC is a French certification system that regulates the production of wine, and to guarantee quality and authenticity by enforcing strict geographic & production standards.
It’s similar to the CRT, which is tequila’s governing body (which Wyatt experienced first-hand on his due diligence trip).
For Burgundy, the AOC system is crucial because the region is highly fragmented, with hundreds of vineyards producing distinct wines, often from the same grape varieties (primarily Pinot Noir for reds and Chardonnay for whites).
The classification system gets pretty intense, but just know that it helps to categorize and distinguish all French wines.
The Bourgogne Boom
In the past decade, wines from the Burgundy region of France have witnessed an explosion in popularity, in what has colloquially become known as the ‘Bourgogne Boom’. (Burgundy Boom)
Using Liv-ex data, wine investment platform WineFi analyzed 2,094 highly liquid, investment-grade vintages from the Burgundy Region going back to 1980.
Their analysis showed that wines from Burgundy have achieved a 21% CAGR over the past decade. That’s very good.
Burgundy stands out as the world’s single best performing wine region – achieving a 580% total return since 1980.
In fact, the most expensive bottle ever sold at auction was a 74-year-old bottle of Romanée-Conti French Burgundy, which in 2018 sold for $558,000. That’s about $116,000 per glass, or $20,000+ per sip.
The Burgundy market contracted in 2023
In 2023/24, wine markets experienced a general decline in prices across the board from their Oct 2022 highs.
Burgundy did not remain unscathed, with the Liv-ex Burgundy 150 index plunging nearly 25% from its all time high.
So as the wine market begins to show signs of recovery, the million dollar question is: will the ‘Bourgogne Boom’ continue?
Burgundy fundamentals are strong
Like the rest of the fine wine market, Burgundy is driven by supply and demand.
There are a limited number of ”blue chip” producers in Burgundy, across several sub-regions – the most prestigious being the Côte de Nuits and Côte de Beaune (together called the Côte d’Or – golden slope)
We’re not talking about mass-producer Gallo here (thank God). Only a finite number of bottles can be produced by each winemaker each year. As these wines improve with age and bottles are consumed, they become increasingly scarce.
At the same time, as global wealth increases, so too does demand for high-end wine. This combination of ever-increasing scarcity and growing demand helps drive prices higher.
Supercharged scarcity
However, this supply-demand dynamic is super-charged in Burgundy even in comparison to top investment regions like Bordeaux, Champagne and Napa.
This is because production quantities are significantly more limited in Burgundy than other regions.
For example, Chateau Lafite-Rothschild – arguably the most prestigious producer in Bordeaux – produces around 16,000 cases of its ‘Grand Cru’ in each vintage.
In comparison, Domaine de la Romanée-Conti – the most prestigious Burgundian producer – produces just 500 cases of its first wine in every vintage.
So sought after is this wine that in Norway, where the state-owned alcohol retailer operates a ‘first come, first served’ policy, wine lovers have been known to camp outside in sub-zero temperatures just to secure some allocation.
This scarcity comes from a quirk of history.
Following the French Revolution, Napoleonic inheritance laws decreed that parcels of land be split equally between all heirs. This led to large estates being divided multiple times, over multiple generations.
In the 21st century, that means that a single vineyard can have multiple ‘vignerons’ working on it – producing wines that can vary considerably.
When this inherent scarcity is combined with the brand equity of the top producers, and the quality of the wines they produce, you have an explanation for the extraordinary price movements that we see today.
Climate change
Climate change is likely to further boost scarcity.
A changing planet is expected to have a disproportionally high impact on Burgundy versus other wine regions.
Vinovest founder Anthony Zhang agrees that Burgundy is in the top 3 most at-risk wine regions.
The reason for this is that Burgundian wine is (almost always) made from just one of two grapes – Pinot Noir and Chardonnay. And unlike in Bordeaux and Tuscany, these grapes are almost never blended with other varieties.
Pinot Noir is especially vulnerable to a more volatile climate. Its thin skin puts it at risk of ‘sunburn’ in extreme heat, whilst it is especially susceptible to disease in wetter conditions. (Chardonnay is more at risk of frost damage – another facet of climate change – which saw significant crop losses in 2021.)
Iconic climate-impacted vintages from Burgundy are likely to be seen as time capsules to a previous era, and therefore benefit from positive price appreciation.
In fact, there is already strong precedent for this in the wine markets. In the 19th century, native European vines were almost entirely wiped out by ‘phylloxera’ – an aphid that arrived from America and feeds on the roots and leaves of vines. (Fortunately, vineyards were rescued by grafting American rootstock onto the vines, which proved naturally resistant to the pest.)
But here’s the thing: those wines bottled prior to the destruction are now known as ‘Pre-phylloxera wines’, which continue to command inflated prices. They’re regarded as the original expression of each vineyard – now lost forever.
Unique, pure, unblended
For wine drinkers, Burgundian Pinot Noir and Chardonnay are regarded as the purest expressions of both grape varieties, given they are unblended. They are soft, elegant and made to be cellared.
Despite attempts in America and Germany to replicate the style of these wines, these have so far come up short.
From an investment perspective, this means that demand from drinkers is likely to be sustained.
Wine is already a luxury asset. In many ways, it represents social and cultural capital. For global elites who want to drink ‘the best’, Burgundy stands out as the home of some of the most prestigious producers in existence.
Burgundy’s avg price per bottle is orders of magnitude higher than most wines from the other core investment regions of Bordeaux, Tuscany, Napa Valley, Rhone, Piedmont and Champagne.
This status as the ‘finest of the finest’ helps to maintain high prices.
Is it still a good time to buy Burgundy?
After a period of painful market contraction following all time highs, there are signs that both Burgundy and the wine markets more generally are reverting to the mean.
This can be seen in the price performance charts of several of the more liquid Burgundian wines:
The fundamentals of Burgundy as a wine region, outlined above, remain unchanged.
If investors are looking for an opportunity to pick up wines at a significant discount to their all time highs, they should look carefully at the Burgundy region in particular. 🍷
That’s it for today. If you’re interested in our upcoming Burgundy investing deal, express interest here.
Cheers 🍷 Stefan
PS – Should we do an investor trip to France? Would you be interested in joining? Let us know.
