Picture by Serg Bataev, Unsplash
Over the years and through many presentations of ARENI’s work, some questions keep popping up. Why do we need a fine wine definition? What would this definition achieve? Is fine wine the same as luxury wine? What do fine art and fine wine have in common? What makes a classic? Should fine wine embody typicity or authenticity? Having thought a lot about the above questions, we decided to present our views in a series of opinion pieces, derived from our personal desk research, analysis and opinions.
All of these thoughts and more are compiled in ARENI’s white paper, Rethinking Fine Wine, released in January 2023.
One of the most frequent questions that members ask ARENI is to clarify the relationship between the fine art market, and fine wine. Superficially, the two categories look as if they have a lot in common, especially since they both have secondary markets, and often pass through the same auction houses. Fine art also has its own Old World/New World divide—it has Old Masters and modern art. And, of course, both fine art and fine wine are rare and expensive and have become investments. There are, however, some very significant differences between the two categories.
The origins of the secondary market
Art collecting has a long history, while wine collecting is a lot more modern.
The first secondary market for art is said to have developed around the sixteenth century, with the rise of professional art dealers. Then came the great auction houses of Sotheby’s and Christies, which both began in the eighteenth century in England; this was the period of the industrial revolution, when great fortunes were being made. Not only was there more money to spend, but this period saw huge innovations take place in finance, particularly around how things were valued; notably, the great insurance house Lloyds of London was established in this period.
Edme-François Gersaint (1694–1750), who owned a gallery in Paris, is often cited as a pioneer thanks to his innovation of printing catalogues with information about artists. This shifted power in the art market from the artist to the dealer. Later, Paris gallery owner Pierre Durand-Ruel (1831-1922), promoted Impressionism by exhibiting unknown artists. He also helped young artists cover their costs, helping to turn gallery owners into patrons, a role that they still play today.
These art dealers had a prosperous new audience to tap into. The combination of rising prosperity, colonial expansion and scientific discoveries drove people of all walks of life to collect objects, from art to Chinese porcelain to fossils to stamps. Prince Golitsyn of Russia exemplifies this—the wines that he collected on his travels remain on display at Massandra in Crimea. For him wine was more than a collectible—it was the inspiration for the founding of wineries in Russia and Crimea.
Inevitably, people began to seek bigger and better items, or sought to fill gaps in their existing collections, leading to a growth in secondary markets and auctions.
But while Sotheby’s and Christies were selling art, including to international customers, wine auctions developed in a different direction. The first wine auction in Germany, in 1806, sold wine to merchants, not to collectors. And the Hospices de Beaune auction, founded in 1856, was instituted to raise money for charity, not as a vehicle for collectors. Those who wanted to fill their cellars still needed a relationship with a wine merchant.
The art market explodes
In her book Big Bucks: The Explosion of the Art Market in the Twenty-First Century, art market reporter Georgina Adam looked at what propelled the exponential rise of the contemporary art market.
Adam describes how contemporary art was once a niche trade overwhelmingly based in the United States and Western Europe. Today, it has become a global industry bound up with luxury, fashion, and celebrity, attracting ultra-wealthy buyers who aggressively compete for works by brand-name artists. “When I started out, 30 years ago, millionaires had boats and jets—but didn’t necessarily have any art at all,” Thomas Seydoux, the former chairman of Impressionist and Modern art at Christie’s told Adam. “For the very wealthy today, it’s not fine not to be interested in art.”
According to Adam, two significant changes at the end of the 20th century set the stage for today’s inflated contemporary art market.
The first was the expansion of the base of potential buyers. The fall of communism in Eastern Europe and economic liberalisation in countries like China and India created a new wave of billionaires eager to show off their wealth.
The second major change was the shift came from the auction houses themselves. In 1998, Christie’s was bought by Francois Pinault’s holding Artémis, which held brands such as Gucci, Saint Laurent and Balenciaga. Auction houses began to “aggressively hype a never-ending flow of new inventory, and with it, a jet-set lifestyle of multi-million- dollar auctions, exclusive gallery dinners, and VIP art fair vernissages.” According to journalist Rachel Wetzler, auction houses also began to launch financial services dedicated to their Ultra High Net Worth clients, offering collectors lines of credit, allowing them to borrow against the value of their collections, and sometimes selling works with third-party guarantees, in which “the house effectively pre-sells a lot before the auction and may split some share of the proceeds with the guarantor if it ultimately goes for more than the agreed-upon price.”
In both contemporary art and wine, the results are ever-rising prices, which in turn attracts new players.
From the many interviews that we do with wine amateurs and collectors every year, we would like to add a third change to build on Adam’s analysis: the rise of Instagram as the social media of choice. Described by Robert Jazonc (1968), the Mere Exposure Effect demonstrates a phenomenon by which people show a preference towards an object simply because they are familiar with it. This principle—the more you see or are exposed to a product, the higher you think of it—served as a base for what we know as mass marketing.
If mass marketing has seldom been the weapon of choice for fine wine, it is clear that “daily scrolling” through dozens of wine labels everyday highly influences wine amateurs and collectors. By constantly seeing labels being presented as rare, exciting and associated with a sense of privilege, both amateurs and collectors develop their preference, and their will to chase the now familiar fine wines.
The rise of the wine secondary market
Wine took a lot longer than art and antiquities to develop a secondary market. There have, of course, always been wine lovers who collected in the sense of accumulating wines according to a category—people who sought top Bordeaux, or top Riesling wines. But wine being treated as an asset is a recent phenomenon. According to American wine writer Jeff Siegel, buying wine for the purposes of selling it later, “really began in the U.S. in the 1970s, but for a long time it was an insider’s game—would-be investors needed to know where to find the wines, and how to sell them.”
Everything began to change in the 1980s, as a new generation of professional wine writers began to make the opaque wine world accessible to ordinary people. By the 1990s, wine investment services were beginning to appear. The birth of the internet also had a major impact, with the founding of wine-searcher.com in 1998, which has allowed international wine lovers and collectors to see what wines cost in different markets.
Another milestone was the opening of Liv-ex, the London-based fine wine exchange, in 2001. Its mission was to bring transparency to the fine wine market, by convincing wine merchants to be open about their stocks and their prices. Today, the exchange has more than 620 members, who can not only trade fine and rare wines with one another but can access real-time market information.
But perhaps the big bang in fine wine came in February 2008, when Hong Kong dropped its duty on wine, paving the way for a boom in collecting in southeast Asia. As wine lovers across the world began to compete for the same pool of wines, prices rose and wine investment exploded. Today, wine lovers have a suite of sophisticated wine investment services at their fingertips, from wine consultants to wine merchants, to wine investment services. As the market becomes more transparent, a new generation of young wine lovers is entering the fine wine sector, empowered by the apps and information available on their smartphones.
The impact of globalisation
Today, the audiences for fine wine and for art and antiquities look somewhat similar.
According to the UBS Art Market Survey 2022, “While the market remains anchored around the mature centres in the US and Europe, the growth of trade in Asia, particularly the increasing share apportioned to Mainland China and Hong Kong, is one of the clearest examples of the global proliferation of sales.”
And, importantly, the growth in the number of High Net Worth Individuals during the pandemic has driven both the art and antiquities markets, and the fine wine market, to new highs. According to the Liv-ex report The Fine Wine Market in 2022: a cautionary tale, the 2022 fine wine market rose to new heights.
“It was a bull market powered by the low interest rate environment and a growing interest in alternative, tangible assets in the wake of the Covid-19 lockdown,” said the report. “As a result, the market saw robust demand from both old hands and new entrants.” ARENI’s own previous research has demonstrated how significant the HNWIs are to the wine market. In general, therefore, the art and wine markets look similar. But there are some key differences.
Wine is not art
The question of “what is art” is an ancient one that can be endlessly debated. But at its most fundamental, it’s a unique work of human hands that’s intended to be appreciated for its beauty, emotional power, or insight. Craft, on the other hand, is something based on skills and techniques that can be reproduced. Contrary to art, it does not seek to generate deeper thinking and to invite reflection on who we are as individuals or society.
Winemakers bring something of themselves to the wines they make, but ultimately their job is to get out of the way and let the site express itself, or to reproduce a blend. Wines from the same site made by different winemakers will have a lot in common with each other. This is not a small distinction. It has enormous ramifications for the secondary market.
According to Jamie Ritchie, Worldwide Chairman, Wine & Spirits at Sotheby’s, both art and wine appeal to collectors who like the finer things of life.
“The difference is that wine and spirits are volume businesses,” he says, meaning they trade in multiples. “In the art business, you are buying a unique object, which is one of one. In wine, the production is larger.” In other words, there is only a finite supply of Matisses and Da Vincis, but many thousands of bottles of Lafite, with new vintages on the market each year. “There’s an opportunity for growth, because every year there are new wineries,” he goes on. “You have an increase in supply,” even while he acknowledges that old vintages get consumed and thereby removed from the market.
And that, of course, is another issue. While art continues to appreciate in value, at some point wine becomes worthless as wine, because it’s no longer drinkable. At this point, rare and historic bottles become sought after, not for the wine they contain, but for their historical value. In other words, unlike art, wine needs to be consumed and destroyed.
What wine collectors do have in common with art collectors, however, is a shared passion for the product; a need to draw on professional expertise; a need to use ancillary services like storage facilities and valuers; and the embrace of a product that has become a major store of value.
But, in the end, wine lovers need to open their bottles and drink them. Like art lovers, they will hopefully share what they have.
The full version of the white paper is freely available to ARENI members and partners only. To access it, become a member today.