Why the rich are buying wine, champagne to keep

Kenyans are now spending a fortune on fine wine and champagne as an investment, joining the rest of the world that stores wealth in luxury collectibles.

Last year was a particularly good time for luxury beverage makers, with global consumption and investment demand for wine (Burgundy) and champagne rising to 25 and 31 percent respectively.

In Kenya, like in the rest of the world, more people are drinking expensive wine, including rare vintages, during the pandemic than they were before, contrary to fears of a demand slump in 2020.

There is also a new wave of investment coming into the new wine market, to which Kenya belongs. Others are stocking wine as an investment choice, majorly driven by concerns of inflation and global supply chain upsets.

This is unsurprising, having coincided with the rise of the number of dollar millionaires in Kenya to 3,362 in 2021, according to Knight Frank’s Wealth Report 2022. These are high net-worth individuals (HNWIs) valued at $1 million (Sh113 million) and more.

In 2021, investment in fine wine and champagne topped Knight Frank’s Luxury Investment Index, up from the second position in 2020. It beat fast movers in the market such as houses and classic cars.

Burgundy wine, for instance, set new records at global wine and champagne auctions in 2021, moving more than 10 places up from 11.5 percent the previous year.

“[Last year] was a good year for those lucky enough to be owners…of tangible assets,” said Rory Penn, Knight Frank’s Head of Private Office.

So, what vintage wines and champagne are Kenyans stocking? Are they collecting wine and champagne out of love or to make money or both? Is this a viable investment choice?

Wine consultant and founder of Cellar254 Victoria Mulu-Munywoki is one of the professionals who has capitalised on the growing popularity of wine collections in Kenya. As a wine consultant with substantial investment in wine and cellar management, the last two years have particularly been rewarding for Victoria.

She has been sourcing ‘‘investment-worthy’’ wines and managing a portfolio of investment wines for her clients. “I also sell wines at exchanges on their behalf.”

“More people today are interested in wine as an investment choice, either to make money or for later consumption. Kenyans are more knowledgeable about wine now than ever before. We are importing more wine varieties than any country in Africa,” she adds.

From Italy’s Antinori Sassicaia to Robert Mondavi from the US, Argentina’s Catena Malbec Argentino and Domaine Faiveley Clos de Vougeot Grand Cru from Burgundy, Victoria says Kenyans are consuming luxury wines from all over the world. There is also Creation Wines from Rupert & Rothschild in South Africa.

“South African luxury wines have always enjoyed patronage in Kenya due to their consistent accessibility. Kenyan consumers now have a better understanding and appreciation of the taste profiles,” she says.

Victoria talks of the Jacob’s Creek Double Barrel Shiraz a premium wine from Australia “that Kenyans cannot get enough of” pointing that ‘‘it is a new kid on the block but whose demand has already outstripped supply.’’

Champagne shortage

These fortunes appear to be replicated in the champagne category. Premium champagne brand Moët & Chandon says it recorded significant growth last year compared to 2020. The company cites changes in consumer behaviour for its accelerated earnings in the region.

Alexandre Helaine, the market manager, Eastern Africa, Moët-Hennessy, reveals that Kenyans consumed more champagne in the past two years due to both pent-up demand and the ability to purchase at lower prices.

“Kenyans have been buying directly from distributors after hotels, restaurants and clubs were shut during the pandemic,” says Alex.

By the end of 2021, the country was experiencing a shortage of supply of Moët.

“We have had to take stocks from other markets to sustain the demand in the Kenyan market. In a few months, we will experience a shortage of Moët & Chandon products in the region {Eastern Africa} because the demand is higher than the supply. By the end of the year, we project to have an out-of-stock situation.’’

Other champagnes such as Maison Perrier-Jouët and Dom Perignon, both from France, have new-found local lovers.

So, by what volumes are Kenyans drinking champagne?

“Our organic sales have been increasing every year for the past few years. Over the past three years, volumes sold have gone up five times. This is because more and more Kenyans are now appreciating the craftsmanship that goes into quality champagne,” explains Alex.

Alex says the curve of growth has been getting steeper in recent years, influenced by changing factors such as an increase in the number of HNWIs in Kenya, an emerging middle class and an increased appetite for luxury.

A bottle of Moët costs between Sh7,000 and Sh10,000, depending on the outlet. The average Moët drinker is male or female aged 25 and older and urbane, says Alex.

In the HNWI category, however, consumers enjoy Moët & Chandon champagnes daily.

“These high-earners consume champagne both socially and during occasions. More millennials are also consuming our champagne than before, making them the fastest-growing demographic. This is majorly because of democratisation of luxury and online shopping.”

There is an exciting statistic supporting this trend. The Knight Frank 2022 Wealth Report shows that 27 percent or 907 of Kenya’s 3,362 high net-worth individuals are millennials aged 40 years or younger. These young people are entrepreneurs mostly in technology, metaverse and blockchain.

On the demographics of Kenyans buying luxury wine brands, Victoria says these are “discerning and discreet” consumers. “They are mostly people who like to enjoy their drink in privacy. They are also educated and well-travelled; people are curious and like to discover rare wines.”

Unlike champagne, though, buyers of luxury wine brands are aged 35 and older. On whether and why Kenyans are stocking up champagne and wine as an investment choice, Alex and Victoria say these two items are safer investment compared to bonds and securities, which, somewhat, explains the record-breaking uptake during the pandemic at a time when nearly every industry suffered shocks.

“Wine investment is a great alternative asset especially because consumption of wine is going through exponential growth in Kenya and the region,” says Victoria.

As a collector, Victoria tends to invest in wines from promising vineyards and small producers.

“The ability to age the wine is a big consideration for me. I do not necessarily collect the most famous brands, but they definitely have to be from the top 11 wine-producing countries of the world.”

Alex notes that vintage champagne collections can be stocked up as an investment owing to their scarcity. “This often causes prices to rise consistently over time, making champagne an ideal long-term investment.”

To understand why collecting champagne is being considered an attractive investment by a growing number of people in Kenya and globally, it takes at least three years to produce a bottle of a champagne brand such as Moët.

“Grand vintages of Moët are made from the grapes of a single exceptional year. Such collections, though, are scarce which underpins their investment potential.”

“Investment in wine is effectively just wealth management. The asset class is simply wine.” But if you are considering going into this type of business, Victoria has advice for you: it will not work if you are looking for immediate returns.

The sommelier argues that wine is generally a more volatile asset class than stocks and shares. “The cost of setting up a considerable investment is quite high. If you are long-term oriented and are willing to keep up with research, however, it is a viable investment opportunity. It helps to hire a wine expert to manage your wine asset.”

However, she notes that wine trade in Kenya is relatively immature and fragmented ‘‘and thus is not well set up for investment trade. Prospects for the wine trade are exciting and highlights the need for support from all stakeholders in the value chain, including the government.

“I am aware of an insurance company that is developing a cover for wine investment. The insurer will be providing clients with insurance for their luxury wine investment.”

Victoria, however, points that there is insufficient information on how to structure such a cover, owing to the fragile nature of the product. “It takes mishandling to break a Sh250,000 bottle of wine and to lose your investment.’’

Collectible wines available locally include Château Mouton Rothschild Pauillac which retails at Sh195,000 and Château Beychevelle, Saint-Julien costing Sh98,000.

While acknowledging that the pandemic disrupted the champagne market, Alex says the introduction of challenges and virtual tastings has pushed numbers up in the past two years. Consumers could ‘‘pop bottles at home with their loved ones’’ a trend that continued even after the economy opened up.

‘‘The pandemic has made us realise that we do not need to have a special occasion to celebrate life by popping champagne. You can celebrate any time.’’

On the popularity of Burgundy, Victoria says the global influence of Bourgogne wine in East Africa is not as popular as that of Bordeaux, with dismal import and consumption data.

“It is not easy to understand Burgundy wines, especially the reds. The great expectations consumers have on Burgundy wines are less frequently met. Beyond Chablis and Bourgogne Pinot Noir, Burgundy wine is misunderstood and under-appreciated simply because there is a huge knowledge gap.”

For this reason, she says, many consumers lack the confidence to buy these wines. In its place, Victoria says Kenyans are enjoying Beaujolais, which has currently gained popularity, thanks to its “simplicity and fruitiness.”

To address concerns of the looming champagne shortage, Alex says Moët has had to implement selective distribution in the country, by identifying one supermarket chain, high-end clubs and five-star hotels for stocking.

Knight Frank predicts that the number of dollar millionaires will keep growing in the next five years, hitting 4,200 in 2027.

Experts say this scenario is likely to keep pushing investments in new ventures, with wine and champagne particularly attractive.

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