COVID-19: What is Next for the Market for Fine Wines?

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AMERICAN ASSOCIATION
OF WINE ECONOMISTS
AAWE WORKING PAPER
No. 250
Economics
COVID-19
WHAT IS NEXT FOR THE MARKET
FOR FINE WINES?
Jean-Marie Cardebat, Philippe Masset
and Jean-Philippe Weisskopf
May 2020
www.wine-economics.org

AAWE Working Papers are circulated for discussion and comment purposes. They have not been subject to a
peer review process. The views expressed herein are those of the author(s) and do not necessarily reflect the
views of the American Association of Wine Economists AAWE.
© 2020 by the author(s). All rights reserved. Short sections of text, not to exceed two paragraphs, may be
quoted without explicit permission provided that full credit, including © notice, is given to the source.

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Covid-19
What Is Next for the Market for Fine Wines?
Jean-Marie Cardebat
*
, Philippe Masset
†
and Jean-Philippe Weisskopf
‡
European Association of Wine Economists (www.euawe.com)
May 2020
Covid-19 has only been officially declared a pandemic since March 11, but its effects on the economy are
already dramatic. For some industries, such as the travel & leisure industry, the current crisis is likely to
become the most severe since the Great Depression. In this article, we investigate the impact of Covid-19
on the fine wine market (the upper segment of the wine market). The market for fine wine is dominated by
France, with Bordeaux and Burgundy accounting for close to 50% and 20% respectively of the trading
activity in 2019 (Liv-ex.com, 2019). Other major players include Italy, Spain, Germany, the U.S. (for
production and consumption) and China (mostly for consumption). Buyers typically include fine-dining
venues – whose revenues are currently down to zero; as well as consumers, collectors and investors – whose
purchasing power suffers from the economic and financial turmoil. Given the context, it appears obvious
that the fine wine market will experience negative effects due to the pandemic.
But two questions remain open: how severe will these effects be? And how long will the market take to
recovers?
There are two ways to answer these questions. One is based on an economic analysis of the fundamental
determinants of fine wine prices. The other is based on a comparative analysis of the economic crises that
have impacted the fine wine market in the past. A synthesis of these analyses is proposed before looking at
a prospective conclusion on the long-term effects of this crisis.
Looking at the economic determinants of the fine wine market
Following a negative income and wealth effect on economic agents in the aftermath of the Global Financial
Crisis (GFC) of 2007, the fine wine market had witnessed a strong negative impact on the demand-side. The
Covid-19 crisis could be much deeper for two reasons. The negative income and wealth effect will be much
more pronounced than during the GFC and additionally could affect fine wine supply.
*
University of Bordeaux & INSEEC U. Ave Léon Duguit, 33608 Pessac, France. jean-marie.cardebat@u-
bordeaux.fr.
†
Ecole hôtelière de Lausanne, HES-SO Haute école spécialisée de Suisse Occidentale, Route de Cojonnex 18, CH-
1000 Lausanne, Switzerland. Email: philippe.masset@ehl.ch.
‡
Ecole hôtelière de Lausanne, HES-SO Haute école spécialisée de Suisse Occidentale, Route de Cojonnex 18, CH-
1000 Lausanne, Switzerland. Email: jean-philippe.weisskopf@ehl.ch.

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Uncertainty on the supply-side is not coming from production itself. It should remain stable as wine is
deemed a priority agricultural sector in all producing countries. Despite occasional labor problems, the
harvest in the southern hemisphere and the springtime work on the vines in the north do not suggest a drop
in production. The uncertainty stems much more from two interlinked issues: inventory management and
the state of traditional distribution channels. Indeed, restaurants selling fine wines are in a delicate situation.
In most countries the prospects of reopening are close to nil in the short run. Some restaurateurs have
extensive cellars representing a very important marketable asset. To get through this crisis, the sale of part
of their inventory in the coming months is a definite possibility. Worse, in the event of bankruptcy, stocks
would automatically be sold by creditors. Other fine wine owners (private individuals, as well as investors)
could also go down that road to compensate for important income losses. A significant, but difficult to
quantify, increase in the supply of fine wines could therefore emerge in the course of 2020 and induce
downward pressure on prices.
At the same time, demand for fine wines should also fall due to the strong decrease in hotel and restaurant
business (according to STR average occupancy rates have been between 20% and 25% in many European
countries for March 2020). The low level of footfall in airport shops (around 95% of flights have been
cancelled in Europe according to IATA) will also affect sales of fine wines in 2020. These Covid-19 specific
effects come on top of the traditional negative demand effect following most “common” drops in global
economic growth.
Economic studies on the wine industry are clear and convergent on the outcome of this issue: the income
elasticity of wine demand is larger than 1, all segments combined (Fogarty, 2010). However, these
elasticities are higher in the U.S. and especially in China (Cardebat and Figuet, 2019), the main markets for
fine wines. In the case of China, Bargain (2020) reveals income elasticities close to 5, all the higher as the
appellations are prestigious. Fine wine, like all luxury goods, thus shows a very high-income elasticity by
nature.
In the World Economic Outlook published in April 2020, the IMF is forecasting a 3% drop in world GDP
for 2020 (-6.1% in developed countries and -1.0% in emerging countries). Assuming an average income
elasticity value of around 3.5 and a 3.0% contraction in world GDP, the anticipated drop in demand for fine
wines for 2020 could top 10.0%. What would be the impact in terms of prices on the fine wine market? If
we refer to the price elasticities revealed by the studies cited above, we can retain a range of -0.2 to -0.5, or
-0.35 on average, for fine wine. Combined with a 10% drop in world demand, this would lead to a reduction
in the price of fine wines of around 35%. This large downward effect in relation to the contraction of world
GDP does, however, not consider the possible impact of an increase in supply, or a specific decrease in
demand due to the closure of shops and food venues. Two effects that could further accentuate this fall in
prices.
This economic mechanism does not account for the microstructure of the fine wine market either. The
characteristics and behavior of the participants on this market play an important role for price dynamics. A
key point will be the ability to avoid panic sales in a bear market. This capacity is linked to the economic
health of the players and their attitude towards risk. The IMF anticipates a significant recovery in activity
for 2021, making the Covid-19 crisis a severe but temporary shock, while nevertheless specifying the strong
uncertainty weighing on this forecast. Consequently, the least risk-averse players and those in good financial
health could keep their wines and wait for the recovery before selling. In this case, the price effect would
diminish, and the adjustment variable would become market liquidity. In a scenario in which the market
becomes illiquid, the drop in prices could be contained to a lower level than indicated above.

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The best strategy to limit severe price declines could therefore be to dry out the market, freeze it to some
extent, and bet on a solid recovery in 2021. This purely and simply involves the cancellation of the en-
primeur campaign that should have been held at the beginning of April and is now possibly taking place in
the summer. In view of the crisis context, organizing the 2020 en-primeur sale risks dragging the whole
market into a very sharp decline and crisis if buyers stay out of it. The shock would be considerable and
could call into question the very principle of en-primeur sales.
Looking for a point of comparison
Another possibility of understanding the effect the Covid-19 pandemic may have on the fine wine market
is to analyze past crises and how they impacted the wine market. From a medical standpoint, the only, but
rather imperfect benchmark, is the Spanish flu pandemic of 1918. Over this period, inflation-adjusted wine
prices dropped by more than 25% (Dimson et al., 2015), but rebounded by close to 30% in 1921. However,
apart from the sanitary situation that bears some resemblance to the current Covid-19 outbreak, the context
could hardly be more different. 1918 marks the end of the Great War, the wine market was much less
globalized than today, the political situation extremely unstable, and the economic conditions marked by
rising inflation.
The Global Financial Crisis constitutes a more relevant benchmark. It followed a period of economic growth
and political stability in most wine producing, and consuming countries and inflation was fairly limited. The
wine market was increasingly globalizing with the emergence of new customers from the Far East and the
rapidly financializing with the emergence of wine investors and funds. Until summer 2008, wine prices were
rising and even after the collapse of Lehman Brothers, they remained rather resilient. According to Masset
& Weisskopf (2018), they declined by a mere 25%. However, these limited losses occurred in a market
marked by a quasi-absence of transactions. The trading activity resumed in late spring 2009 after the release
of the new 2008 vintage in Bordeaux, which can be considered as relatively successful thanks to better-
than-expected quality and attractive prices. The wine market not only rapidly rebounded but entered a strong
upward trend. This can be explained by the pressure on demand due to the arrival of new customers from
the Far East and the development of wine investments. The interest of speculators for this new asset was
initially spurred by the diversification potential it offers and then further reinforced by the buzz surrounding
the release of the outstanding 2009 and 2010 vintages. Since then, the fine wine market has further evolved.
The Bordeaux wine-bubble popped and led to a 4-year correction (see the graph 1). In parallel, other regions
have seen their reputation and wine prices increasing rapidly. Burgundy, in particular, is now challenging
the leading position of Bordeaux. The Rhône Valley, Piedmont and Tuscany follow the path of Burgundy,
but are still rather far behind it in terms of prices.

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Graph 1: Evolution of the MSCI World and Liv-ex Fine Wine Investables Index (both in euros)
01/01/2008 (base 100) to 03/31/2020.
Graph 2: Evolution of the MSCI World and Liv-ex Fine Wine Investables Index (both in euros)
04/01/2008 (base 100) to 03/31/2020.
What to expect then?
The current resilience of fine wine prices (see graph 2) could be misleading. The price has dropped very
little compared to that of stocks or commodities such as petrol, which have been much debated in the press.
However, the correction that could take place on the wine market could just be delayed. In the same way, it
would also be exaggerated to predict a general collapse of the market. Indeed, the price and income
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MSCI World Liv-ex Fine Wine Investables
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MSCI World Liv-ex Fine Wine Investables

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elasticities of demand proposed and the experiences from past crises all suggest a common factor. The
reaction of the fine wine market will not be uniform and needs to be contextualized by market segment. It
will, for example, vary for different wines, appellations, vintages, or the degree of rarity of the fine wines
considered. Apart from the elements discussed above, other differences between the current situation and
the GFC may reinforce this phenomenon. Last year, President Trump imposed tariffs on European products,
including French wines (of less than 14.0% alcohol), but not Italian wines. Moreover, given the sanitary
nature of the current crisis, many communication & marketing actions and tasting events have been
postponed or cancelled. The creativity, innovation and dealing with political risk by wine regions and
specific producers may lead to an even more fine-grained continuum of reaction on this fragmented and
segmented market for fine wine.
In Bordeaux, the good, but not exceptional, 2019 vintage will have to be released on the primary market at
significantly lower prices than the previous three vintages to attract some interest. Stated differently, a
discount of at least 30% (as estimated above) compared to last year prices is necessary for these wines to
attract buyers. Prices on the secondary market will follow the same direction even though the amplitude of
the decline should, at least initially, be less pronounced. Obviously, if the Covid-19 crisis should worsen,
prices may drop substantially more as many players would discount their prices to incentivize opportunistic
purchases.
Trees do not grow to the sky. It has become increasingly common to hear people arguing that Burgundy
was close to overheating before the Covid-19 outbreak. For this region, the current crisis may mark the
beginning of a long-awaited correction. Over the last decade, prices have quickly increased due to a severe
imbalance between demand and supply. This imbalance is due to both the low quantities produced and the
organization of the distribution channel in Burgundy. Most wineries sell an important part of their
production through an allocation system,
1
which reduces the number of bottles of the best cuvees that ever
reach the secondary market. This means that market prices are based on a limited proportion of the overall
production and implies that even a small change in demand may rapidly lead to important price adjustments.
For most wines, this should translate into a price decline comparable to what Bordeaux will experience. But,
for the top five to ten most sought-after producers the decline is likely to be less pronounced as opportunistic
buyers will try to replace those people that cannot afford these wines anymore.
In Italy, prospects appear to be more positive. The vintages currently for sale are 2015 and 2016 and both
are regarded as excellent or even exceptional. Antonion Galloni (Vinous) describes 2016 in Barolo as “a
vintage full of truly spectacular, breathtaking wines” and Monica Larner (Wine Advocate) call the 2015
vintage as “picture-perfect” for Brunello di Montalcino. It is of course easier to sell great vintages.
Moreover, prices of Italian wines remain reasonable compared to their French counterparts and there still is
some latent demand as illustrated by the year-long waiting lists of new buyers at many wineries in the
Piedmont. Thus, prices will probably retract only moderately, but there will be opportunities to get access
to many of the best wines.
The implications of the above analysis for the three main segments of the fine wine market can be
summarized as follows:
1
Every year, so-called ‘allocataires’ get a sample of wines at prices that are (well) below their market value but they
are not expected (and in some cases authorized) to sell on their allocation to someone else.

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- Bargains on ‘nice’ wines: attractive discounts on fine, but not speculative wines. Discounts will be
especially important on wines that are produced in large quantities. These wines were already
attractively priced and will become genuine bargains.
- Access to ‘rare’ wines: there will be opportunities to get allocations at renowned wineries. If more
people can buy these wines on the primary market, their prices on the secondary market will most
probably slightly retract.
- Wait for more reasonable prices on ‘investable’ wines: the liquidity on the market will first
deteriorate, and if the situation worsens, there will be heavy discounts on those prestigious wines
that are available in large quantities like Bordeaux First Growths.
Supply & demand, demand & supply - takeaways
The discussion illustrates a few salient facts about the wine market. First, the production of fine wine appears
to remain rather fixed in the short to medium run as producers have adapted to the situation and continue
their work in the vineyards. However, existing fine wines may be dumped on the market which may lead to
an oversupply of fine wines on the secondary market. Second, there is downward pressure on a demand-
side, which has evolved compared to 15 years ago. Changes in demand can be exogenous (arrival of new
customers) or endogenous (shifts in the demand/preferences from existing customers). Over the last
decades, the demand for fine wines has become truly global. Stated differently, there is less reserve in
demand than in the mid-2000s, except perhaps in India (but it will take years before wine consumption
becomes significant there). The demand from existing customers is more unstable and highly sensitive to
market signals. On the one hand, the release of a critically acclaimed vintage tends to provide support for
higher prices on the primary and on the secondary market. On the other hand, during good economic
conditions, prices stagnate without a special vintage or occasion to make people purchase wines. Fourth, the
wine market is complex, and reputation as well as prices in different regions may follow distinct patterns
depending on customers’ preferences. Fifth, one of the motivations for holding fine wines is their supposed
‘safe-haven’ nature. The sharp decline of Bordeaux wines experienced during the Eurozone crisis provides
empirical proof that this is not the case, at least not for the most liquid
2
and financialized wines. This
observation, coupled with the fact that liquidity quickly dried up on the wine market during the GFC, may
influence the trading decision of wine investors if the Covid-19 crisis worsens.
Long-run effects: headache or not?
At the time being, we know there will be a global recession but not its shape: V (severe recession followed
by a rapid rebound), W (double-dip recession – potentially caused by a second outbreak of coronavirus), U
(long recession – alimented by a number of bankruptcies), or L (Japan-like absence of recovery). Clearly
the longer and the more severe the recession, the larger its impact on the wine market will be.
Apart from the economic situation, the current crisis may lead to changes in consumption patterns.
Governments and people are realizing the importance of producing and consuming locally. In the case of
wine, this suggests that there may not only be losers but also winners: producers who benefit from an
important local/regional demand, who focus on organic and terroir-driven wines, and who have (or who will
2
Bordeaux ‘Premier Crus’ are produced in quantities ranging from 120’000 up to close to 300’000 bottles a year. In
Burgundy, most wineries do not produce more than 5’000 bottles of their most celebrated ‘Grand Cru’ cuvees per year.

7
be able to develop) a solid direct-selling channel may well in a few years perceive this crisis as having been
beneficial for their business.
Local tropism could also become a key success factor due to strategic trade policy reasons. A regionalization
of trade in a protectionist context and strong exchange rate instability linked to monetary manipulations are
possible evolutions in a post-Covid-19 world. A tripartite trade war between the U.S., China and the
European Union would further reduce the possibilities of trade in fine wines. Above all, it would reduce
purchases of European wines by Asian and American customers and result in substantially lower prices.
Sources:
Bargain, O. (2020). French Wine Exports to China: Evidence from Intra-French Regional Diversification
and Competition. Journal of Wine Economics, 1-29.
Cardebat, J. M., and Figuet, J. M. (2019). The impact of exchange rates on French wine exports. Journal of
Wine Economics, 14(1), 71-89.
Dimson, E., Rousseau, P.L., and Spaenjers, C. (2015). The price of wine. Journal of Financial Economics,
118(2), 431-449.
Fogarty, J. (2010). The demand for beer, wine and spirits: a survey of the literature. Journal of Economic
Surveys, 24(3), 428-478.
Galloni, A. (2020). 2016 Barolo: Right Place, Right Time. Retrieved from: https://vinous.com/articles/2016-
barolo-right-place-right-time-feb-2020
Larner, M. (2020). Italy, Tuscany: Picture-Perfect 2015 Brunello di Montalcino and More. Retrieved from:
https://www.robertparker.com/articles/pGd7NH3jzNWkvRABM/italy-tuscany-picture-perfect-2015-
brunello-di-montalcino-and-more
Liv-ex (2020). Year that was 2018 – Regional market share. Retrieved from: https://www.liv-
ex.com/2019/12/broadening-fine-wine-market/
Masset, P. & Weisskopf, J.-P. (2018). Raise your glass: Wine investment and the financial crisis. In:
Ashenfelter, O., Gergaud, O., Storchmann, K., and Ziemba, W. (Eds.), Handbook of the Economics of Wine.
Singapore: World Scientific Publishing.