Investing in Wine

I was intrigued by our class discussion of whether it makes sense for a winery to IPO. Listening to Pete Mondavi share his family's experience of grappling with multiple investors, wrestling with the public for control, and searching for ways to raise capital in order to expand the business was enough to convince me that an IPO is a often giant headache for a family-owned winery. It appears that wineries--especially in the Robert Mondavi era--were caught between a rock and a hard place, with expansion being necessary in order to survive, but capital being incredibly difficult to come by (and not without significant requirements). To summarize, going public may have been a necessary evil for the Mondavi family .

This discussion also caused me to consider how to access the wine industry as an investor. As noted in class, the public equity markets seem to be a challenging way for investors to access the wine industry. Consider that wine is a finished product with a high degree of underlying commodities volatility (i.e. grapes)--the finished product truly is at the mercy of mother nature, which would likely result in volatility in the winery's public shares. This volatility may be tricky to hedge for investors who are used to limiting this kind of commodities exposure to commodities futures and ETFs. Additionally, wine grapes are a finite resource, meaning the management at wineries cannot simply toggle production up and down with as much flexibility as other companies--that's one fewer lever to pull in terms of maximizing shareholder value.

If the public equity markets aren't investors' preferred method of accessing the wine industry, they could always buy the finished product by the case or by the bottle. This is akin to buying fine art, and it often requires significant capital for the retail investor to  purchase cases of expensive wine. Additionally, investing in physical bottles of wine--like investing in art--requires careful storage and handling to avoid compromising the product. Plus, there is the added risk of a secondary market for counterfeits and damaged goods. (U.S. News: How to Invest in Wine).

Apparently, one can also purchase wine futures--the an agreement to purchase or sell wine at a fixed price at a future date. Wine futures can allow investors inexpensive claims to particular vintages in specific regions (Wall Street Daily). I don't imagine that this is a particularly deep market, but it is an interesting way of gaining unique exposure to commodities markets.



Lastly, as discussed, perhaps the best way to invest in the wine industry is through long-term private equity investments, in which the investment in a beverage company or winery falls within a portfolio of comps (either luxury brands or food and beverage brands). I thought it was interesting that there are specific, wine-focused private equity firms (ahem, looking at you, San Francisco-based Bacchus Capital Management...nice name).