Wine, Whisky and Champagne: Buy, Sell, or Hold? - With Gary Boom, Co-Founder and CEO of Bordeaux Index

Gary Boom moved to the UK from South Africa where he earned a BSc degree in Finance at the University of Cape Town. He founded Bordeaux Index after having worked in the city specialising in interest rate options and after having been a Director at Intercapital Group. 

Founding Bordeaux Index 

Boom notes that the initial idea to start Bordeaux Index came from the realisation that there was effectively no secondary market in wine ‘there was this massive gap in the market to address the market that people who wanted to trade could trade.’ 

He explains that while one could go to Sotheby’s or Christie’s they would take about 25% from margins. ‘So there was no bid on this stuff and it struck me that this was a global market waiting to be revolutionized and changed. And after all, that is exactly what I did.’ Boom further puts across the point that effectively they thus chose to exploit a massive gap in the market by ‘bringing some transparency and liquidity to the market’. 

“It struck me that a bit like the car market, you've got the car manufacturers and then you've got the people selling the brand-new cars in the forecourt. There was no secondary market in wine.”

Boom emphasizes that since the last episode with him Bordeaux Index has grown to about 100 employees with a strong tech team of 12 to 14. He further states that revenues have now reached about 150 million sterling. He, however, points to the fact that this ‘is not an easy market for anyone to operate in now’. 

Demand and Supply in the Fine Wine Market 

Boom discusses that at the top end the market is very resilient as ‘the demand is driven by top end wealth and that top end wealth doesn’t seem to be going anywhere.’ This is the case, Boom explains, as the number of millionaires in the world keeps expanding, for instance, due to the rise of India. 

“I don't think it's been a normal vintage for the last seven years in Burgundy, is either hailstorms in May or there's a short crop and it gets magically bailed out by fantastic weather in September.” 

On the supply side ‘you’ve got all these supply constraints’, Boom explains, and furthers stresses the effect of global warming resulting in shorter vintages. Boom adds that as a result smaller amount of fine wine is being made. 

The Case for Wine, Whisky and Champagne Investing 

In Boom’s words ‘wine has compounded over the last 25 years at about 7-8%.’ So, boom explains that in fact wine has done better than the bond market as well as than the equity market. Moreover, there is no capital gains tax on wine now, Boom states. 

On the other hand, ‘the whisky market has gone completely crazy,’ Boom says. In terms of the numbers, it has compounded at about 20% over the last ten years. This, he explains, has very simple reasons such as a growing demand and people becoming aware of whisky as an investment asset as well as a very limited supply of casks. 

“You could buy a cask from Macallan's what they called Neufville back in 1991. You could buy this for £2,000. They trade these days at about £750,000 because you can't find them because they were bottled.”

When it comes to Champagne, Boom emphasizes that while champagne is up 15% this year one may forget that it is up 55% over the last two and a half years. Boom explains that this is to do with the fact that champagne is a global brand. ‘Everyone knows the Bollinger brand’ … ‘You can say the same thing about Cristal or Dom Perignon.’

Boom stresses that there is ‘this limited space in champagne where you cannot make any more’. He further explains that there is a definite amount of champagne released from Grand Cru vineyards. 

“So it is well known they released it gets drunk, but it also gets better. So the great vintages, there is a yield curve for champagne. You go and buy the latest vintage of Dom Perignon, the 2013. Happily, it will trade at £100 a bottle. You want to buy the 2008, it'll cost you £150 a bottle you want to buy the 2002 will cost you £200 a bottle. So there are these fantastic dynamics and champagne will do 10% a year.”

Bollinger’s Investment 

Boom says that he cannot talk for Bollinger directly but offers his view of why he thinks Bollinger invested in Bordeaux Index, he says that there is the fact that Bordeaux Index is the largest seller of champagne globally as a result of which they have significant data on the demand for champagne. 

“We have our screens which are making the market because we're creating the yield curve for your back vintages, which will enable you with that knowledge to know where all the back vintages are trading, where and why, and how will enable you to make a very informed decision on where you should pitch your new releases. That is worth a fortune.”

Boom explains that Bollinger have bought a small but reasonable portion of Bordeaux Index at first and since have realised an option to buy more. Boom further highlights the point that the Bollinger investment was a significant reinforcement of Bordeaux Index’s brand, so Boom explains ‘that the money was less important to us than getting Bollinger in as a shareholder’.

What Is LiveTrade? 

“So LiveTrade was a screen whereby we went out and to this day, there are about 600 wines in there whereby we make the bid, we make a guaranteed bid. So we make a bid in an offer on the wine. So we carry the stock and then we make a buying price against that wine.” 

Boom then stresses that through LiveTrade you can essentially transact for 4% instead of all the other antiquated transaction fees. It ‘attracts people who want to sell it cheaper than us, which they can do so for 4%, or to allow somebody else to come in and say, well, I'll pay a bit more than that’. So Boom explains that essentially LiveTrade is the only platform which ‘will value your wine on the bid side of the market’.

In Boom’s words that’s what they do ‘they make the bid and the offer which allows our customers who want to understand what their wine is worth. They can look at a bid and they can pretty much give us a call and liquidate. So, we create pools of liquidity. So, Boom explains that LiveTrade creates transparency and attracts trading which then gives them data which they then feedback to the Chateaux. 

Portfolio Management Part of the Business 

 “The portfolio management part of the business starts with two things. Firstly, you have to have a bid in order to value a portfolio. It's like, what's my illiquid bond portfolio with? Well, nothing unless you've got a bid. So you've got to have a bid. We make the market so there's a bid. So if you've got a bid on that. Secondly, outside those 600 wines [currently on the Live Trade platform], what is your wine worth?”

Boom explains that they need to approximately know or take an educated guess on what the bid is for a particular wine and that in about two months they will be launching an extended version of LiveTrade. This will mean that ‘any wine can be put up for sale on the platform and that anyone can bid against that wine’. Boom explains that this has never been done before and is likely to fundamentally transform the wine market. 

Boom highlights that ‘you will now have a complete portfolio and you will be able to let's say you store with another wine merchant; you will be able to send us your portfolio. Then log on to our website. It'll come up as a virtual portfolio as if you've stored it with us and you will be able to trade.’

The Future of Bordeaux Index 

“In five years, I'd like to think we're doing half a billion turnover. We completely dominate the secondary market trading, and we act as a central bank to all the wine merchants."

Conclusion

“Every single time somebody is buying and selling in the secondary market, I want to be a part of that market.” 

This article summarised the recent episode with Gary Boom, the Founder and CEO of Bordeaux Index, who seeks to fundamentally change the way a fine wine merchant transacts. The article included parts on the founding of Bordeaux Index, the demand and supply in the fine wine market as well as the case for wine, whisky and Champagne investing. The article further encompassed Bollinger’s investment, explanation of what LiveTrade is, explanation of the portfolio management side of the business as well as what the future holds for Bordeaux Index. 

By Jan Ptacin. Jan is currently a third-year student at Durham University studying PPE. Outside of his degree Jan is interested in investing, having been a team leader of a team which reached a global final of an investment competition organised by KWHS in high school. He also enjoys art, hiking and fine wine as hobbies.