When building a consistent portfolio of assets, wines and spirits become investments of choice. They contribute to diversifying the risk of the portfolio. Indeed, there is only a slight correlation between fine wine and the rest of the market; financial crises, such as in 2008, did not seriously affect the wine sector. Therefore, wine investment enabled individuals to diversify their portfolios and reduce their risks significantly. Moreover, fine wines not only appreciate over the years but also become rarer and more sought-after — not only because of consumption, but also due to climate change. It then promises a juicy return on investment after a few years.
Investing in wines and spirits is not a recent trend. It has its roots in several centuries of mainly European history. Indeed, since wine consumption is very widespread in Europe, many wineries have always sought to improve the quality of the wine they produce, thus guaranteeing its value. There are many types of investments in this sector, whether it is investments in wineries, in the production of wine (in the form of barrels or bottles), or even in En Primeur wine. This last type of investment is similar to a “future” for the production of wine of a domain in several years. Indeed, an investor can decide today to “book” a part of the 2026 production of a domain as an investment, whether for investment purposes or to hedge against price changes. This investment is risky due to the uncertainty of the development of wines and events that can occur up to the production several years later such as violent climatic variations (such as hail or flooding which can damage the soil), but it can also provide a great return on investment. Indeed, the prices of En Primeur bottles are much lower than the prices of existing bottles and are therefore a risky but juicy investment not to be neglected for a wine-loving portfolio manager or an enthusiast ready to extend their knowledge in the world of wine and spirits.
Investing in wine has become simpler over the years, whether it is through the professionalisation of the industry, increased accessibility, the appearance of wholesale sellers or the development of platforms, notably stock exchanges which help in simplifying trades. Indeed, for almost 25 years, fine wines have been a major player in the marketplaces, whether through the Bordeaux Index or the Liv-ex (London International Vintners Exchange). In addition, prestigious luxury auction houses such as Sotheby’s and Christie’s have been key players by organising large auctions and allowing the exchange of rare wines and spirits.
Although investing in fine wine or spirits has many advantages, it comes with certain issues. Indeed, the wine trade is mostly done through intermediaries who buy in bulk from multiple wineries, sometimes with discounted prices, and resell to other wineries, retail outlets or traders at higher prices. While these middlemen are necessary and allow the wine supply chain to function properly, the margins they take as middlemen are margins that producers cannot take advantage of to develop and modernise their wineries, as well as margins that are passed on to the end consumers, making wine a less affordable commodity. In addition, it is difficult for producers to find customers other than these intermediaries, since there is a real distance between the wineries and the final consumers. Finally, from the point of view of a portfolio manager wanting to invest in wine, it can quickly become difficult to manage the stocks of bottles or barrels, which must be stored under certain conditions to guarantee their quality. All of these factors have a cost that can quickly push back when you are not already an established player in the wine industry.
We mentioned earlier that investing in wine has become easier over time. However, it can still be difficult for amateurs to properly understand how investing in wine works, or how to find the bottle that perfectly suits their needs. Farandole aims at making the process of buying and exchanging wines and spirits even easier to understand and execute, while accompanying customers by educating and inspiring them with knowledge about wine and spirits. To better understand Farandole, let us introduce the use of NFTs. Indeed, due to multiple issues within the industry, we are trying to find solutions and create new ways of looking at the wine industry. One of them is the use of the Blockchain and NFTs (Non-Fungible Tokens), digital certificates of ownership proving authenticity encoded by smart contracts, i.e. contracts that are only realised under certain predefined conditions and operated by the Blockchain. In concrete terms, these NFTs allow a real revolution in terms of the exchange of assets. Indeed, in the case of wine, it allows the producer and the final consumer to be directly in contact, without intermediaries, by exchanging cryptocurrencies or even fiat money for NFTs, with each NFT representing a unique bottle of wine coming from the producer’s domain, through what is called tokenization.
The value is then more easily distributed between producers and consumers than with the traditional system. Moreover, the connection without intermediaries that the blockchain offers allows proximity of the producer and the consumer which will allow the latter to better get to know other products offered, such as En Primeur wines. In summary, the use of NFTs greatly facilitates the exchange of wine. This is especially true in the case of suppliers and other third party companies who want to make their exchanges without worrying about the high volume of inventory and supply problems that the exchange of such goods can cause. Indeed, projects such as the one carried out by Farandole on the Avalanche blockchain propose an opportunity for its users to store the physical bottle equivalents of their wine or spirits NFTs that they are exchanging, until the owner of the NFT asks to have the bottle delivered. Thus, nothing could be easier than buying, selling and discovering wine by taking advantage of the storage solution proposed and the marketplace developed by Farandole, connecting the different actors of the sector, while educating and accompanying customers in finding the bottle they want.