WineLeaks #5: The Tech Edition
NFTs, blockchain, "Generation Investors" & the most undervalued Left-Bank Bordeaux.
Welcome to In the mood for wine — a weekly newsletter on wine for the next gen of wine lovers and investors. This is WineLeaks, a curated overview of the wine market, which will be with you every Monday at 10 a.m. (London time).
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I’m tentatively working on the ambitious goal of making sense of Bordeaux classifications 😂 Also, you can find the list with all my favourite wine experts & their twitter handles. Check them out, and if I’ve missed anyone feel free to mention them in the comments.
The Tech Edition
“Buying a Penfolds Magill Cellar 3 2018 Cabernet Sauvignon Shiraz was an investment, honest.“ (Alts by Flippa)
This week, the substack Alts by Flippa caught my attention. Richard Patey, the editor of this alternative asset investing newsletter, bought a $750 bottle of Penfolds Magill Cellar 3 2018 Cabernet Sauvignon Shiraz from Blockbar.
Blockbar is a direct-to-consumer NFT marketplace for luxury liquor products.
Patey bought the Penfolds for 0.26 ETH — at a premium from their 0.15 ETH release price during the drop of 300 bottles/NFT in January. It’s now currently listing for 0.40 ETH.
As a longtime skeptic of NFTs & blockchain, when I hear start-ups utilising these technologies to solve “problems”, I wonder whether they actually solve “problems“ or they repackage something that already exists with a plastic wrap of unnecessary technology (and costs!).
For example, these Tasting Token NFTs🤌.
Blockbar seems to be solving some very well known pain points of wine ownership, namely: storage, insurance, and proving authenticity (with blockchain) when reselling.
Effectively, Blockbar’s solution is similar to cash-settled derivatives on commodities. While a physically-delivered derivative might be useful to businesses using those commodities, cash-settled instruments allow speculators and investors to take advantage of arbitrage and mis-pricing opportunities.
The same can be said for the fine wine market. At the moment, collectors (who want to own fine wine with the idea of drinking it, eventually) are the vast majority of the retails players. In fact, every conversation with wine merchants starts with this same caution — ”in the end, we sell you wine that you need to be happy drinking, not so much for investing”.
These types of platforms could change that, by reducing the bureaucracy surrounding the physical storage and settlement.
How the platform works:
Users can list, bid and purchase bottles from their marketplace.
Owners of the NFTs set the price in either ETH or US$.
Non-owners can purchase the NFTs at the list price or make an offer that is valid for 3 days.
Should you want to drink the wine, you can redeem the digital asset for the physical one. This process removes the digital NFT from the ecosystem making the remaining NFT’s more rare. (Well, the wine might still exist though!)
In terms of fees: when selling, collectors receive 90% of their selling price (which means 10% brokerage fees). The remaining percentage is split between Blockbar and the brand.
The workflow seems pretty simple. What also appeals to me is the direct connection between retail investors and brands — effectively skipping the need for wine merchants and brokers at purchase (and their relative markups).
Now, to the issues I see:
Wine merchants, who account for the large majority of revenues for wine makers —are they happy about being bypassed? I don’t think so. For this reason, I am wondering whether the allocations on these platforms will be the “rejects“ or else, the allocations that wine merchants are not too keen on taking on?
Price. Assuming only “special edition“ allocations will therefore go on these platforms, how do we (as buyers) know if a wine is fairly priced? In fact, I couldn’t find a critics’ score on the wine and the PR release Decanter article links this 100% Shiraz — NOT the Cabernet Shiraz sold. Price can therefore be inflated by the platform and the brand themselves with the “special edition” excuse.
“World’s biggest fine wine trader toasts rising sales as consumers seek to hedge against inflation“ (FT)
Bordeaux Index was prominently featured in the press, after the fine wine merchant recorded a stellar H1 2022, reaching £80m in sales during the six months to June 30, up 37% on the same period last year.
LiveTrade, their online wine trading exchange, “was responsible for the majority of growth, reporting sales 53% higher than the comparable period last year”.
Interesting to read that, especially in connection to what Digital Stack by Rex Woodbury (another great substack!) refers to as the “Generation Investor“.
“A NASDAQ survey found that 48% of Gen Z investors check their portfolios multiple times a day, while 24% check once a day. That compares to 39% and 22% for Millennials, 16% and 19% for Gen X, and 10% and 12% for Baby Boomers. Generation Investor is also more active: 34% of Gen Zs make trades a few times a week, compared to 26% of Millennials, 19% of Gen Xers, and 7% of Baby Boomers.”
The newer generation’s interest for investing is great because “owning stock is directly correlated with wealth creation”. In addition, this trend will also benefit platforms such as LiveTrade and BBX (Berry Bros. & Rudd’s fine wine exchange). Not only it has directed quite substantial amounts of venture capital funding in start-ups such as Cult Wine Investment (CultX) and Koia (now Chip) but, above all, I hope it will push the market to create a more transparent, accessible, safer and easier way to trade fine wines.
“Sociando-Mallet is the top insider value by a mile” (Quantian on Twitter)
Three years outdated — so please take the results with a pinch of salt.
Interesting analysis nonetheless.Anyways, I finally got around to finishing the wine project I've been dabbling in: reclassifying left-bank Bordeaux using scores from Cellartracker, and the results are interesting if you enjoy both simple linear regressions and spending your money on dumb shit like wine. Thread.Caveats apply blah blah blah, this analysis only works for liquid markets with lots of producers in a small area, CT scores have variance, stylistically wines differ greatly even within appellations, not investment advice, but this is a decent first-order approximation AFAICT.Data spanned 60 left-bank (i.e. cab-heavy) chateaus, considering only their grand vins, from 1990-2016. Scores were predicted from a three-factor log model of vintage, chateau, and improvement over time: PredScore = 100* (1- exp[-vtg*name-improv*year]), with an R^2 of 76%.Results (which I've partly posted before) are in line with what's expected: first growths are the best and most improved; 00/05/09/10/15/16 are the top vintages; global warming and improvement in technique means that even mediocre vintages today would be excellent 30 years ago.Unsupervised clustering selects the following six classes, corresponding to 1-5 plus a declassified rump. I did not select any of the cutoffs, it was purely algorithmic- the data above appears to have a clear 1.5th growth of Mouton, MHB, and LLC between 1st and 2nd:Using Liv-Ex price data from their 2011 reclassification, we can use this to identify value picks and overpriced producers, since the chateau scores correlate extremely well to case prices (R^2 of 89% for a log-linear regression)The biggest outliers are basically what you'd expect: S-M is the top insider value buy by a mile, followed by LLC and Montrose; while any Rothschild-adjacent winery is bid up way above its innate quality.
Looking at the model’s results:
Vintage quality seems to be improving — in line with the idea that technological advances in the vineyard and in the cellar allow for a better management of non-ideal conditions.
The two most undervalued Châteaux are Sociando-Mallet & Léoville-Las Cases.
Sociando-Mallet is a château located “on one of the best quality gravel slopes of the Haut-Médoc, in the village of St Seurin de Cadourne”, says Jane Anson. While the analysis above refers to the 1990-2016 vintages, the 2019 Sociando-Mallet scores 92 from TWI, 94 from Jane Anson and 95 from Decanter — maintaining a fair price below £30 (in bond).
Second on the list, St-Julien Château Léoville-Las Cases. The 2019 scored 98 across the board on Decanter, TWI and Jane Anson (“I love it when a wine steals up on you, and you very definitely get that here, taking its time on the first attack then rapidly expanding outwards and upwards“). A step-up in price at £165 (and quality) from Sociando-Mallet, but certainly cheap compared to same-scoring 2019 Château Mouton Rothschild (£500).
Until next Monday,
In the mood for wine (a.k.a. Sara Danese)