Liquid Insights: Vint’s Debut and the US Wine Market

May 11, 2021

Bradley Calleja

Wine Market History
Similar to art, fine wine has largely remained a private asset class, with the premier offerings accessible only by those with the money and means to afford it. With the democratization of assets and the development of new regulations, companies like Vint can now offer investors of any accreditation the opportunity to invest in wine. Lix-Ex, a global marketplace for wine, formulated indices focused on the fine wine market that are backtested to 2003. Investors and collectors have tracked wine price movements for generations though, with evidence of wine futures being bought and sold in the 1600s. So how are wine valuations established and what makes one wine more expensive than another? Numerous key factors that influence the value of vino including:

Brand prestige
Critic ratings
Supply and demand
Drinking window

Wine Ratings
Wine ratings can have a significant impact on the valuation of a vintage and understanding how the ratings are established is important in recognizing their influence on price targets. There are numerous critics whose reviews are respected enough to move markets including Robert Parker, James Suckling, Neal Martin, Jancis Robinson, and Antonio Galloni. Different critics have their own methods and processes for grading wines. Robert Parker founded The Wine Advocate (TWA), a bimonthly publication that features Robert’s reviews and tasting notes for thousands of wines each year. Today, TWA has a team of reviewers who each specialize in a region of the world. So how does a review of a poor quality wine versus a top-rated wine differ?

According to Robert Parker, wines receiving a score less than 70 correlate with the following assessment:

“A below average wine containing noticeable deficiencies, such as excessive acidity and/or tannin, an absence of flavor or possibly dirty aromas or flavors.”

For a wine to be deemed ‘Excellent’ by the publication it must receive a rating between 96-100. An example of the criteria and review for a wine meeting that standard would be:

“An extraordinary wine of profound and complex character displaying all the attributes expected of a classic wine of its variety. Wines of this caliber are worth a special effort to find, purchase and consume.”

The process of critiquing a vintage is thorough and time-consuming. According to Robert Parker, reviewers will taste the wine multiple times to ensure the critic is not basing their score of an entire vintage off a single bottle. The critic then provides written commentary of the wine, describing its features and qualities in a way that explains the given score while also comparing aromas and flavors to past vintages. Reviewers can also leave the door open for an early-stage wine. Robert Parker sometimes includes a (+) symbol after a score to indicate that the wine may need more aging before its true value is realized.

Liquid Compound Interest
Unlike stocks or bonds, you can consume your investment if your investment is wine. Fine wine appreciates through a combination of time and scarcity. The drinking window of a wine is a range of time where the true colors, flavors, and essence of the wine peak, resulting in an increased value. The number of bottles produced also influences the price. Every time a cork is pulled from a bottle of fine wine, the scarcity increases for that vintage, leading to a simple supply and demand equation that is found across other traditional markets and assets. The wine industry also attracts collectors who are less worried about the quality of the liquid inside of the bottle and instead focused on preserving bottles of rare wines well beyond their drinking window. This strategy requires patience as the bell curve of appreciation for wine often peaks near the window and then recedes shortly after. Years later, when limited unopened bottles remain, the vintage might again appreciate and possibly establish new highs driven by the extreme rarity of the asset.

Uncorrelated Returns
Diversification is an investing buzzword that is considered one of the most important aspects of portfolio construction. Investing in fine wine offers asset class diversification but also an investment vehicle with little correlation to the overall market. As displayed in the graph below, wine performance has almost no correlation to the S&P 500, while other asset classes that investors often use as a hedge against their equity positions still tend to follow the general trend of the market.

Source: Liv-ex, Cult Wines, iShares, Bloomberg. Analysis by Altan Insights, Inc. Data as of 31 Mar 2021

United States Wine Market & Public Policy
The United States wine market has continued to develop from an emerging market to an established asset class. According to Liv-Ex, in 2019, US wines represented just 2% of the total trade activity on the global wine market. In 2020, that number rose to 7%, with another increase in 2021 expected.Overall revenue for the US wine market has eclipsed $55 million and experts expect the space to grow 7.11% annually (CAGR) through 2025.

Although uncorrelated to the ebbs and flow of the stock market, the wine market is not immune to public policy pressures. Trade wars and shipping constraints apply the most hurdles to wine pricing and decisions made by legislatures often impacts the price and availability of wines. In 2019, US trade representatives imposed 25% tariffs on imports of European Union wines with limited exceptions. The trade war was sparked by an incident unrelated to wine but the tariff expanded into the market and influenced valuations. In March 2021, the tariff was suspended and US buying activity immediately increased by 36% as the global market had reopened, providing new investors with a recent example of how wine values can be impacted by policy decisions.

Vint
The California Collection is set to open as the first offering for Vint and will feature an assortment of 3 producers and 6 vintages. The California Collection will open with a $46,000 market cap with 1,000 shares selling for $46 each. The offering includes 24 total bottles, half of which come from Screaming Eagle, one of the world’s most renowned producers of Cabernets.

The 2010 Screaming Eagle is the most coveted and valuable vintage of the offering, with the benefit of having the most time in the bottle in addition to an array of awards and recognition. All three of the Screaming Eagle vintages sell for over $3,000 per bottle and over the last year returned between 9.5% and 24.4% on the Liv-Ex market.

Two other cult classics, Harlan Estate and Opus One, are also represented in the offering. The two have lower valuations compared to the Screaming Eagle wines but offer stability within the portfolio matched with a short drinking window which leads to earlier appreciation.

Source: Vint.co. Analysis by Altan Insights, Inc. Data as of 1 May 2021

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Screaming Eagle Wines
Founded in 1986 by Jean Phillips, Screaming Eagle’s rise to supremacy in the US wine market started with humble beginnings. Jean purchased 57 acres in Oakville, California and initially planted a mix of white varietals which were harvested and sold to local Napa Valley producers. Jean experimented on one acre of the vineyard, planting 80 Cabernet Sauvignon vines which she cared for, harvested, and produced herself. Deep in debt with limited resources, the first harvest from the vineyard was produced in plastic trash cans. Hard-work and patient expansion would develop the operation though and in 1992 Screaming Eagle Winery produced its first commercial vintage. The 1995 and 1996 vintages would turn heads around the world when acclaimed critic Robert Parker gave the wines ratings of 99 and 98 (out of 100) respectively. Since then, Screaming Eagle Cabernet Sauvignon has maintained its place amongst the leaders in the world of fine wines not only in the United States but around the world.

Screaming Eagle 2010

Robert Parker bestowed a perfect 100 score for this 2010 vintage from the Oakville vineyard. In the review, Parker highlighted the impressive floral arraignment that has defined the 2010 harvest:

“Utter perfection, the 2010 Screaming Eagle Cabernet Sauvignon boasts a dense ruby/purple color along with a staggering bouquet of spring flowers, graphite, creme de cassis, kirsch, licorice and subtle toast in the background. Opulent and full-bodied with a multidimensional personality, gorgeous purity and a stunning, flawless texture”

The 2010 Napa Valley growing season started slow, with flowering beginning in late May/early June due to cooler Spring weather and heavy rainfall in April. The chilly temperatures carried through the summer until a record-breaking heat wave hammered the region with temperatures reportedly reaching 115 degrees in late August. While the intense heat proved fatal for some of the white varietals that are harvested earlier in the year, the warm front was a blessing for Cabernets as the fruit produced strong tannins with medium acidity.

Screaming Eagle 2015
The 2015 vintage brough not just a perfect score from Robert Parker but also from James Suckling and Jeb Dunnuck. In the review published by Suckling he wrote,

“The 2015 Screaming Eagle is another monumental wine from this address, and it's one of those cases where if you afford it, you should buy it. A blend of 79% Cabernet Sauvignon, 13% Merlot and the rest Cabernet Franc, this magical elixir boasts a deep purple color as well as a blockbuster bouquet of blueberries, creme de cassis, violets, incense, and cedarwood. Reminding me of the 2015 Château Margaux with its off the charts class and purity, it’s full-bodied, thrillingly textured, and has a finish that just won't quit. This legendary wine is going to keep for 30-40 years.”

High quality production with limited supply best summarized the 2015 season. Uncharacteristically warm weather in the last winter caused an early bloom that was then met with a cold front in May that caused uneven growth and poor yield. While the chill was a bitter surprise it was also short-lived. The greater Napa Valley area averages 13-15 days each summer where temperatures surpass 100 degrees. In 2015 there were 26 days where the mercury rose into triple digits. Many vineyards began pulling fruit from their vines in mid-July, one of the earliest harvests on record. In September, fires ravaged through Lake County, less than 70 miles from the Screaming Eagle vines in Oakville. With some grapes dehydrated by the extreme heat, technology played a pivotal role in ensuring only the highest quality fruit was bottled. As the grapes run through sorting machines, technology known as ‘Optical Sorters’ collect data from the grapes at 18,000 frames per second and are able to detect flaws within individual grapes. Even with a season bookended by extreme weather, the 2015 vintage proved to be one of the finest ever produced.

Screenshot of Optical Sorter which targets flawed grades and sifts them out of the batch. Source: Armbruster Technologies

Screaming Eagle 2016
James Sucking and Robert Parker both gave the 2016 Screaming Eagle vintage 100 point ratings with Suckling noting its early development and future potential in his review;

“The subtle and nuanced aromas to this are so enticing with perfumed, floral, blackcurrant and blackberry character. Roses, too. Some lavender. Full-bodied yet so refined and polished with the most transparent and polished texture. Firm and seamless. So beautiful now. Give it three or four years to come around, but this already sings”

Mother Nature finally offered vintners reprieve in 2016, with mild weather and timely rainfall providing ideal conditions. The growing season carried into the Fall with an extended harvest season that ended as rainstorms became consistent throughout October. For the first time in years, the region did not experience extraordinary heat spikes which allowed the vines to ripen their fruit without the added pressure of dehydration. The lack of stress on the grapes should allow for an extended drinking window as this vintage features developed tannins and concentrated flavor.

‍The 2017 Wines
Included in the Vint offering are two wines from 2017, a tumultuous season for California winemaking. The growing season started smooth, with steady Spring rains and mild early Summer temperatures promoting high yields. The Fall harvest would be cut short though as a series of wildfires tore through Northern California, resulting in over $14.5 billion in damage and 44 deaths. The fires torched over 245,000 acres of land surrounding the Napa Valley wine region and are considered one of the costliest and deadliest fire seasons in California history. Most winemakers had already harvested their fruit before the October burning- allowing production to remain steady. Even though most of the wine produced in 2017 suffered little impact from the blaze, the vintage will be forever connected with the fiery Fall- increasing its recognition and value on global markets.

Fires rage through the rolling hills of Northern California. Source: AP

Harlan Estates The Maiden 2017‍

Founded in 1984, Harlan Estate has established itself as a prominent fixture on the California fine wine stage. The winery is a favorite among critics including the trailblazing wine writer Jancis Robinson who called the Harlan “one of the ten best wines of the twentieth century”. Harlan Estate’s ‘The Maiden’ is their second label which is produced from the harvest not used in the Grand Vin. Second label wines are sold at a lower price and allow high-quality producers to be more particular with the grapes used in their first label. For a producer with the brand and expertise of Harlan, even the second label attracts attention from critics. Robert Parker’s Wine Advocate published the following after awarding the 2017 Maiden with 92 points;

“Deep garnet-purple in color, the 2017 The Maiden opens with beautiful red currant jelly, warm plums and blackberry pie notes plus hints of rose oil, Chinese five spice and fragrant earth. The palate is medium-bodied, elegantly styled, refreshing and plush, offering bags of perfumed black fruits, finishing long and fragrant.”

Opus One 2017
Built on a limestone foundation in 1978 and co-founded by Robert Mondavi, Opus One quickly became a California cult wine that would help the region establish itself on international markets. Mondavi, arguably the most influential winemaker in California, ventured with Baron Phippe De Rothschild, heir to the Château Mouton Rothchild Estate, to develop a unique blend of red varietals. The vineyard is known for producing wines that combine both old world (France) and new world (United States) styles into one bottle. Although Opus One does not demand the same valuation as Screaming Eagle, the wine still commands respect from the top critics around the world with their 2017 vintage receiving high praise and a high score of 95 points from Robert Parker:

“The 2017 Opus One, bottled in July 2019, is a blend of 81% Cabernet Sauvignon, 8.5% Petit Verdot, 5% Cabernet Franc, 4.5% Merlot and 1% Malbec. Medium to deep garnet-purple colored, it slowly grows on the nose, revealing compelling notes of baked black cherries, mulberries, black raspberries, warm cassis and blackberry pie with nuances of spice cake, yeast extract, tapenade, licorice and dusty soil with a waft of wild sage. Medium-bodied, the palate has a lively skip in its step, featuring bags of juicy raspberry and cassis-laced fruit and a refreshing line, supported by ripe, plush tannins, finishing long and graceful.”