Interview: Joss Fowler, Berry Bros. (February 2011)

Posted on: February 1st, 2011 by Simon Carter & Daniel Darwood

WC Fields once famously said ‘who took the cork out of my lunch?’ Indeed wine has proven an enduring pleasure for drinking with or without food. It certainly plays a major role in the fine dining world of today. Who better to enlighten fine-dining-guide about the subject of modern investment wines than one employed by one of the great wine merchants of our time – one of the great wine merchants of perhaps any time – Berry Bros. & Rudd.

Interview with Joss Fowler was conducted by Simon Carter of fine-dining-guide in February 2011. Interview took place in the beautiful cellar spaces (and they remain extensive, although some put to other uses) under 3 St James’ Street.

Joss Fowler

Berry Bros & Rudd Wine Investment Specialist: Joss Fowler

Tell us some history and background about Berry Bros & Rudd ?

The first thing you have to say about Berry Bros. & Rudd is the history. The company first started trading at 3 St James’ Street, London in 1698 and the company started selling wines proper in the 1700s.

It is a family owned and run business – the emphasis is on service and integrity. The aim of the family is not necessarily to be the most profitable wine merchant in the world but to be the best; a mission that brings many attributes that we strive toward on a daily basis.

Whilst the company has this great history behind it, (over 312 years) Berry Bros. & Rudd is forward looking: is generally recognised as the best in the business and ground breaking; the latest element is Berrys’ Broking Exchange (BBX) a trading platform where customers can interact with each other and buy and sell their fine wines.

As the market for investment wine has become global so has Berry Bros. & Rudd, the company now (since the late 1990s) has shops in Hong Kong and an office in Japan.

It’s a bonus working for a family business; for instance Simon Berry is a forward thinking, innovative, ideas driven man and the philosophy of the company reflects those characteristics – we like to stay ahead of the curve!

Over the last 20 years, what have been the trends in wine investment around the globe?

Fine wine investment is not a new market. Many years ago the main market for what we now call investment wine was essentially the UK aristocracy.

At that time “investors” would buy twice as much as they needed, knowing that when the wine matured they could sell half of their cellar and cover the cost of the half they wanted to drink. The US really came into the market in the 1980s. Robert Parker made his name with the 1982 Bordeaux vintage (a great year).

The market became more truly global during the early 1990s with the emergence of Japan and then further still in the mid-2000s with demand from China.

The Hong Kong/China market is really surging on – there are many enthusiastic, intelligent and wealthy potential investors in China with empty cellars!

Has the market for investment wines been affected by changing economic circumstances?

The market has stood up well. Whilst the market was affected by the global financial crisis, it was only affected in very particular areas and it has recovered.

A few wines experienced some volatility – such as the 2005 Chateau Lafite-Rothschild: Over a three month period in late summer 2008, a case may have dropped 40% in value but has now more than recovered. Those that were brave in the autumn of 2008 have already seen that investment more than double in value.

I must stress that it was only a handful of wines that experienced this volatility and should you look at the (long term) statistics of investment wine you will see that the top twenty or thirty Chateaux in Bordeaux have proven a solid investment.

What would you recommend to a complete beginner in wine investment?

The process is fairly simple. First of all, do your research. Researching wine is fun and new people to the subject can’t help but become seduced by the romance of wine. It is so much more than looking at charts of numbers and charts of trends of numbers.

Also do your research regarding from whom you are buying; make sure they are a reputable supplier, likewise with any advice you choose to receive in the trade.

Essentially you are looking at buying the top 20 or 30 chateaux of Bordeaux. Typically, an investor is buying wines when they are young (to sell when they are more mature) and you are buying wines from the best vintages.

Two simple facts regarding the passing of time and investment wine: Supply goes down (people are drinking the wine) so it becomes more scarce, by basic economics something more scarce (cetiris paribus) goes up in price: Secondly, the intrinsic value of the wine increases as the wine matures – a three year old bottle of Chateau Lafite-Rothschild is not really drinkable but at twenty years the wine is beautiful, therefore (up to a point and again cetiris paribus) the price will go up.

Now while these are the basic rules, there are always exceptions and in the modern era there are many exceptions to these basics. Nonetheless, they remain a sensible point of departure for the thinking of a beginner.

With the current state of the market, there is strong upward pressure on price given the demand that is being experienced from the far-east.

This is a double edged sword – the 2009 vintage en primeur (that which was sold and allocated while still in the barrel) was given a very high spread rating by Robert Parker and coupled with this demand the prices were set very high.

Some might have argued that 2005 became a better investment – there was a finished product (in the bottle) with a specific Parker rating. However, expensive vintages, like the 2009, do tend to appreciate in value.

I don’t want to delve in too deep, but just give a flavour of some of the complexities of the market, I’ll talk about one further area to consider: In ten years time, there may be a clamour for the 2009s, the 2005s, the 2003s and 2000s, as they are the strongest vintages. Therefore you would expect them to be the best investment today, however, there’s also a case that their actual value is being manipulated by speculators.

As a result there’s a potential argument for looking into wines for their intrinsic value – a wine of quality that compared to others implies there’s a discrepancy in price today that may be corrected tomorrow. So for example, a strong second growth, Chateau Leoville-Las Cases, or even a fifth growth such as Chateau Lynch Bages (a fifth growth by the 1855 classification but broadly recognised today as the standard of a second growth) will experience much stronger markets.

I should stress, in the context of this discussion about the market, that Berry Bros. & Rudd are wine merchants and not financial advisors. Our advice and expertise is around the wine!

What makes the top twenty or thirty chateaux in Bordeaux stand out as investment wines?

The region has hundreds of years of expertise, ideal growing conditions, aged vines and all round know-how for producing fine wines for investment. There is stability, professionalism and a set of established standards that all serve to reassure the investor and make for a stable market.

Tell us about the influence of the critics on perceived quality and price?

Robert Parker continues to be the world’s leading critic. There is also James Suckling in the US and Jancis Robinson in the UK. There may be a gap in the current market for a critic from the far-east who captures ‘the taste of the far east’. As it stands today, the far-east is a key driver of this market and that market is perhaps more brand loyal than vintage sensitive.

Nevertheless, as it stands today, the Bordelais will not release the price of a vintage until they have the Parker scores. The exception to this rule was the 2008 vintage. Robert Parker produced a set of extraordinary (positive) scores and overnight the price per case of a benchmark Chateau increased by 75%. Now (Feb 2011) they are exchanging hands at seven fold that original (pre-Parker) score price. So yes, the critic(s) have a huge influence! – This example is specific to Lafite-Rothschild, though Chateau Latour is now trading for circa five times its release price.

What is the trend in demand for fine wines ready to drink?

The market for drinking wine mirrors the investment market in that there are a great number of educated, wealthy people in the far-east who will buy fine wines to drink and for their cellars at home.

What is in the store for the future of wine as an investment?

First of all, more in a similar vein, the far-east will continue to be a dominant force in the market. They will perhaps, over time, look more at second growth wines, becoming more vintage and more intrinsic value sensitive (ie less brand driven – Chateau Lafite-Rothschild is comfortably the brand leader in the far-east)

There will also be emerging markets such as India or South America.

How do Berry Bros & Rudd differentiate themselves in the marketplace?

History counts in two ways, its not just heritage, there are negociants that Berry Bros & Rudd have been working with for over one hundred and fifty years. This builds mutual trust and respect. The chateaux like to work with the company as they see Berry Bros. & Rudd’s standing and history in the market mirroring their own.

The financial strength of the company is also important as customers who are (for example) buying en primeur, are buying nine litres of wine they will not see for over two years. You need that feeling of security when you are investing.

Most of all, it is about quality of value-added service to the customer. We offer professional, respected service with unbiased trusted advice to clients.

The sum of these factors help us aspire to be the leading wine merchant in the world.