Alcohol Investment Overview 2023

Show your work series #1

Title: Alcohol Investment Overview 2023

Hello everyone! Thank you for joining me and reading my first of many newsletter articles. If you have found yourself on my page, checking out my content, or reading this article then you have to be at least curious of the "Beverage Industry." Before I get into the actual content of today's article, I want to preface that my opinions on the market are speculation - educated guesses that have been formed over my many years in this business and diligent research into the topic field. Today's article will be a brief walk through the current state of investment viability and potential strategies as they relate to the Fine Wine and Fine Whiskey markets. While I could spend the next 300 days doing an overview of the beverage investment field as a whole (wow if only I had a bottle of white label Chartreuse....) I am going to focus on just the wine and whiskey markets. Okay, enough ranting. Let's talk about why this market is so unique in the world of investing.

Alcohol Investing Overview: Why you should start thinking about it seriously.

Alright, time to hit you with some numbers. According to the NIAAA, 106.5 million men ages 18 and older (86.2% in this age group) actively drink alcohol, and 106.7 million women ages 18 and older (81.9% in this age group) drink as well. Let's move past the fact that the NIAAA surveyed 18-, 19- and 20-year-old Americans and focus on the fact that, damn near everyone drinks. Activity in the alcohol realm is extremely high. Imagine if the day trading market had high 80% participation rates in the field. Well.... A lot of people would lose a ton of money, but you get the point right? The market is flooded with interest, participation, and you guessed it, MONEY.

In 2020 the total alcohol sales in the US were a little over 246 billion dollars. 56% of that being OFF premises sales (buying retail and drinking at home, your friends' back yard BBQ, etc.) For some perspective, Apple's total revenue in 2020 was about 274 billion dollars worldwide.... the USA alone was just shy of matching that with domestic alcohol sales. If money is moving in a market, there is an investment to be made. So, now that we justified opportunity though the $ side of this, let's talk about the products themselves because, alcohol investment is not a brand new shiny new investment vehicle no one has ever thought of - it has some serious roots.

Alcohol Investing History: What Makes the Best Investment?

Well, the short answer right now is wine. But the argument for whiskey is going to be tackled a little later and you NEED to read that, especially if you live in the USA. So, the question is why wine? Well, there are three things when investing in wine that need to be considered. 1- Availability 2- Time 3-The Label.

• Availability- I have been LOVING the 2017 Cornell Estate Cabernet Sauvignon. Before anyone lights me up in the comments, I KNOW it is probably a little early to be drinking them. Oh well. But you know what? I think it's an awesome long-term investment which is actually why I am not drinking them anymore. If you don't know that vineyard it's okay. It is not a huge label like Opus One or Screaming Eagle, but I would say this wine will punch up right next to them and is a fraction of the price. Here is where availability come into play. Cornell Vineyards has 12.5 acres of Cabernet planted. That is NOT a lot. This is a relatively SMALL vineyard. When you start getting into the nitty gritty of harvest, selection, allocation, etc., how many total bottles came from that plot? I don't actually have that number, but I know it's pretty small. So there are just not a whole lot of these bottles out there in the market. This is why Cornell Vineyards checks my availability box when I considered investing in the bottles. To summarize, when looking for a wine to invest in, you need to be looking at how much of it is out there and the demand, or potential demand for that quantity.
• Time- Not surprisingly at all, wine matures and grows in value much like stocks in the market. Does anyone else here wish they went all in on Apple or Google, or Amazon in the early 90's or even 2000's? Knowing how long to hold an investment is what every player in the market would wish to know with certainty. Well, what if there was a cheat code? In the world of wine we don't really get a full peer into the future, but we sure do get a hint with the quality of the harvest year. 2017 was a GREAT year for wine in California. I don't want to jump into all the reasons why in this article, so trust me and I promise I'll talk about that in a later article... But what we do know is that if the conditions were great, there is a high likelihood the wine will be too. Going back to Cornell Vineyards, so far, I love the wine, I know it is scarce, I know it was a great year and has a great aging potential - so stands to reason I can expect some return on my investment year over year until it's time to sell, yeah? Well, maybe but there is another factor we need to talk about, and this is where PEOPLE get involved...for better or for worse.
• The Label- Popularity, what is "hot", Designer Stocks. This part is the WORST. People can fall in love with stupid stuff and drive the prices up for no real reason. Yeah, GameStop...undervalued at one point, worth $600+ a share at its peak... LOL NO. But thankfully, wine doesn't really have that problem. Vineyards need to earn their stripes. There is a heavy review system (100pts JS, 100pts WW, etc... The wine critics play a big role in assigning value to a bottle overtime) and importantly, consistency of product makes or breaks a vineyard. Overtime these vineyards build up a reputation just like any company you would think about investing in. Where you might look and see who the CEO and CFO are of that company, I look at the Owner and Chief Wine Maker. With the right people in charge, do you think this brand has the potential to market well, sell well, build a positive reputation? Wrap it all up and you end up with something called name brand recognition. Do you know what a Tesla is? Would it surprise you if I told you that they don't spend ANY money on marketing? That is some seriously cool power. Does Cornell Vineyards have that name brand power yet? No, not really...but I think their product is so good that in the long term they will build that, increasing the value of my bottles.

The Argument for Whiskey Investment- Okay here ya go. Knight Frank Luxury Investment Index estimated that rare whiskey has seen its asset value grow by 564% percent over the last 10 years. Do I need to keep going? In 2022, beer was dethroned as the most popular alcohol in the United States. Spirits took their place. I can make the argument for the resurgence of craft bartending and how crappy most bars are nowadays when it comes to bartending (especially looking at you private clubs...) but here's a quick prediction - and feel free to hold me to it - the bars that start failing over the next few years can thank their poorly trained bar managers and terrible bartender training practices.... I ordered a gin and tonic at a REALLY nice restaurant, and they couldn't even do that right... what a shame. I'm not going back there because of it. Okay back on topic. Whiskey is made all over the world but let me tell you, right now everyone is talking American whiskey, specifically Bourbon. A barrel of Michters sold at auction for something like $210,000 - the highest amount ever paid for a single cask of bourbon. The Japanese are making some of the best whiskey in the world and they are buying up used bourbon barrels to age their juice in. Hell, even the wood barrels the American whiskey is aged in are valuable. Like I mentioned for wine, Availability, Time, and Brand are all playing the same roles to whiskey as they do to wine; But currently Whiskey in general is on the move and you need to start thinking about what is going to be worth it to hold onto.

Risks and Mitigation - This is more of a question than a list, but there are things to consider. Here's the big one: If you buy a stock nowadays, they don't even send you the paper, you just hold a digital receipt. With wine and spirits, you get to hold onto these bad boys. It is a real product, with very real conditions that need to be met to ensure the health and safety of said product. Doing it wrong will cost you everything. Do not invest in wine if you cannot ensure its proper storage - just don't. But even if you can store everything safely, is it worth it over traditional investing? Well, it has beat the global equity index by 2% a year annually for like, the last 10 years. But here is the most unique thing that I love about this investment vehicle. It IGNORES the rest of the market. You want to know just how much the alcohol market could give a crap about the rest of the market? The correlation between the Fine Wine Market and S&P 500 is .12. A correlation of 1 would basically mean that they are directly correlated, so a .12... means the market for Fine Wine doesn't care if you are in a recession, growth period, or whatever. An Investment Vehicle that is partially immune to market forces outside of itself? Say less.

Okay, here is my tin foil hat moment so feel free to stop reading if you don't want to read some straight up shots in the dark... although I am not making up any of the facts I researched while thinking about this....

The Alcohol Market is global in nature, great Bordeaux's come from France, great Bourbon from America, amazing Cachaca from Brazil, Mezcal from Mexico, etc... Getting cheap alcohol even in high quality formats is cheap... For now. It's not a secret that the international globalization is propped up on the fact that since the Bretton Woods agreement, the United States has been protecting and patrolling the world's oceans and allowing for global shipping at incredible levels of safety. The proof is in the global shipping insurance market. From the early 1950's to 1975 there were NO attacks on global cargo bearing ships. So, the cost of insuring ships was, well basically zero. What happened in the Iran-Iraq war crippled the insurance agencies when the claims started coming in and even the insurance firms had to make claims on THEIR insurance policies because they completely ran out of operating capital. The only thing that kept this small hiccup from completely destroying the insurance market was President Regan's decision to escort all non-Iranian ships through the Persian Gulf and reflagging all of the vessels as American ships. (Credit Peter Zeihan). Look, what I am trying to get at is that the days of America personally escorting shipping vessels from port to port is over. Global shipping as we know it is going to get a LOT more expensive and a LOT less safe in the near future of de-globalization and getting your hands on that French Bordeaux is going to get a LOT harder. This is in no means the only reason why I am speculating that Fine Wines and Spirits are about to be some of the best investment vehicles in the near future.... I would have to write a WAY longer article to explain that line of thought, but you should start thinking about how much you love that Calvados from France and how you aren't going to see it regularly stocked in the local liquor store much longer. What I see in the future is harder access to the rare and collectible wine and spirits game and the demand for it not dropping anytime soon leading to...you guessed it. A fat juicy amazing surge in prices...if you are the seller that's great...if not...damn.

My Name is Chris Boyenga and I am the owner of Boyenga Consulting LLC. I am passionate about the Beverage industry and I LOVE every aspect of it from training bartenders, managing beverage finance, investing in the private sector, consulting at local businesses etc. etc. I am also passionate about teaching as well. Please consider checking out my website Boyengaconsulting.com and hiring me to help you get more competitive, and setup for a successful future!

Cheers,

Chris

Facts and Figures from: Vinovest, NIAAA, Peter Zeihan, and mostly Statista.