The Fine Wine commodities market continues to move at an impressive pace, with some Bordeaux wines achieving a 25% growth in value so far this year. It means those in the commercial world are having to plan ahead – and that is not a reference to bar and restaurant owners!

It may seem a fair distance away but much of the planning for Brazil’s World Cup in 2014 is well underway, with massive investment programs for such things as transport and stadia development already being implemented. Soccer fans across the world are waiting with baited breath to see the result of the renovated Maracana stadium, Rio’s iconic shrine to the beautiful game, and the recently unveiled plans for the ‘Arena Corinthians Itaquera’ stadium, tipped to host the opening game. Indeed, according to Brazil’s Ministry, $310 million has already been invested in the tournament’s host cities, with billions more forecast over the next four years. No doubt all this activity will be alerting entrepreneurs in the tourist industry, who will all aim to slice up some of the massive profits possible from a visiting trade of 600,000 foreigners arriving four years from now. Selling tours will be fiercely competitive and tourist packages will no doubt be marketed with a good two years to spare.

A far more urgent concern however, for a very specific reason, falls on those in the niche Corporate Hospitality industry. Whether based in Brasilia, Sao Paulo or Rio de Janeiro, owners of the biggest Hospitality firms could learn a good lesson from their UK counterparts who are in the midst of preparations for the far more imminent 2012 Olympics. Most of the Hospitality industry’s cost base for staging events will stay at consistent levels in the near term: such things tours, function hire and events tickets will all rise with modestly with inflation and therefore pose no budgeting dilemma whatsoever. However one aspect to do with catering budgets appears well worth planning for now: the Fine Wine list. This liquid asset will no doubt be poured freely in the banqueting rooms adjacent to the main event, and it’s the fast changing cost of offering the world’s best wines that provides the incentive to purchase significant volumes now, well in advance. In very basic terms, the huge increase in values of the world’s prestige wine stocks make it a logical move to buy the best bottles today whilst they are much cheaper.

A typical client who books the services of a professional hospitality company is a Blue Chip corporate. The job of the hosting firm will normally involve entertaining the departmental Directors of international firms who see sports events as the ideal environment to cement a new business relationship or close a deal that has simmered for too long. These high flying networkers can be an uncompromising bunch and are never seen drinking a $10 bottle of wine when entertaining their guests; moreover if the wine doesn’t feature a famous Bordeaux Chateau with a start price of a few hundred dollars then it simply won’t boost the chances of closing that special deal.

So for the firms providing the wine lists it is common sense to start ordering the best wines now rather than wait, thereby enjoying for themselves the profit margin that the wine delivers as it rises in value. On paper it looks like a risk not to act now, with the opportunity to buy good stock that will otherwise cost up to four times the amount at the time of the event.

Currently in London, the clever Corporate Hospitality companies are adopting this strategy of “buy now, sell later” when it comes to the wine they will offer to a company’s senior staff visiting London’s 2012 Olympic Games. The facts make it easy to understand why: this year, the Liv-ex platform that issues data on wine price movement shows that this most traditional of asset classes is moving at the velocity of a penny share.  Bordeaux wines are spearheading the wine market and as of 31st August 2010 the index read 303.58, indicating an increase of 33.4% year-on-year and 26.8% year-to-date (a 27% jump in 9 months – in the current climate it is difficult to think of other assets delivering that return). This is obviously exceptional growth and this price movement may not always show such pace, but it is symptomatic of the added demand from the BRIC economies for famous Clarets. Luckily for this small region of France it still commands the world’s most distinguished taste buds – or ego’s? – above all other wine producing regions.

So for the Hospitality firms it’s worth hedging that over four years, a rough 30% annual incline in wine values presents both risk and opportunity for when the wines are finally consumed in 2014. For example, just one year ago, a wine that will be at its prime drinking age by Brazil’s World Cup, the Chateau Lafite Rothschild, vintage 2005, was $12,000 per case, or $1000 per bottle; twelve months later it is now $16500 per case, nearly $1400 a bottle. So some firms are already kicking themselves, wishing they had bought some stock at least a year ago, even though they won’t be popping the corks for another few years. Others won’t be caught out, Chieko Aoki, head of the wide reaching Hospitality Management and Entertainment Services firm Blue Tree Group, reveals planning is well underway: “Being one of the main links in the tourist chain we are organising ourselves now so as to offer top end products and services at the time of the event.”

Charlie Martin, Managing Director of First Growth Bordeaux, the investment wine specialists in London, offers his insight. “Three of my clients run Corporate Hospitality companies in London and they are definitely showing some decent foresight with regards to the Olympic Games. Whilst most of us here are just crossing our fingers that the arena will be built on time, these firms are buying up some incredible reserves of wine! One of them recently admitted to me that the appreciation in the value of his wine cases could provide the extra margin to pay for additional staff around the time of the event.”

From the outside, it might appear that there would be logistical problems with buying vast quantities of wine, but Charlie points out that there’s no operational concern: “Initially my clients thought they would have a storage problem because these firms are not restaurants with their own wine cellars. We have helped them with that, and are looking after their stocks in a Government Bond where the wine can be stored in perfect condition for the next couple of years.”

Clearly some small firms could consider a negative cashflow aspect to buying wine now and waiting years for the sale, but with interest rates so low the view is that it is worthwhile extending an overdraft in order to buy an early position on the wine. Other firms with larger balances simply cannot ignore the cost savings; having to pay early is easily justified. Matthew Wright, the London based Regional Director at online trading services firm Forex.com, sums up the logic: “We will have a lot of entertaining to do around the Games, both with visits from our other offices and with our key clients and I was recently presented the costings of a hospitality function. It’s not really something I get too involved in normally, certainly not at this stage, but when our marketing guy presented two scenarios of ordering the Fine Wine now for a certain price or risk paying three times as much at the time of the event I just had one answer.. buy yesterday!” That could prove to be sound advice for those in Corporate Brazil.

Source : www.alternativelatininvestor.com

Septembre 2010