Such stocks can add sparkle to your investment portfolio but beware a hangover, warns Jeff Salway.
As welcome as a decent bottle of something might be for Christmas, a clinking sound is a bit of a giveaway. But there’s a less predictable way to delight the wine, whisky or beer hobbyist in your life, and for longer than a bottle of red or four-pack of beers usually will – a slice of ownership in their favourite brand.
Plenty of takers
Investing in alcoholic beverages has become increasingly popular in recent years, with the rise of crowdfunding platforms making it easier for investors to buy a stake in their favourite drinks companies. Such an investment is not for the fainthearted, and it shouldn’t be at the heart of anyone’s retirement savings pot. However, for those who can afford some personal interest holdings alongside the more mainstream investments in their portfolios, the opportunities are out there.
BrewDog’s Equity for Punks campaign has captured the imagination of investors. Its latest crowdfunding effort, which closed in October, secured more than £26 million of investment from some 50,000 people in 12 months. Investors – known as Equity Punks – enjoy benefits such as discounts of up to 10% in BrewDog bars and 20% in the brewer’s online shop, depending on their level of investment.
Mark Polson, principal at Edinburgh financial services consultancy The Lang Cat, is one such Equity Punk. He says: “I invested in BrewDog as a speculative, very long-term investment. The shares are pretty illiquid, but I think the brand is great and will stand the test of time. And the shareholder perks are fun, although they weren’t the main reason for investing. I think BrewDog has the potential to be very big indeed.”
BrewDog’s latest funding round took place on Crowdcube, on which the Scottish firm is one of several brewers and distillers to have raised £1 million-plus sums (the others include Camden Town Brewery, The Wild Beer Company and the East London Liquor Company).
“Brewers and distillers have always been massively popular investments on Crowdcube,” says Luke Lang, co-founder of the platform. “Customers who can tell a good product like to back the producer with an investment and take part in the company’s growth, and those customers are really powerful ambassadors for the brand.” Other platforms also report a growing taste for wine, beer and whisky-related fundraisers as investors have sought to support, and make money from, their favoured brands.
Kirsty Grant, investment director at crowdfunding platform Seedrs, says: “We have funded some of the UK’s most exciting growth businesses in the alcoholic drinks sector, such as Chapel Down, the leading English winery, and Humble Grape, the fast-growing wine bar brand and importer. These firms have attracted thousands of customers as investors, raising millions of pounds in the process.”
Wine has long appealed to investors, either as a pure investment to be sold on or simply as a ‘passion collectable’. While investing in wine was once the preserve of wealthy investors, several wine merchants now offer ‘cellar plans’, starting from £100 a month. Berry Bros & Rudd’s plan allows investors to build a wine collection from £250 a month, while the Goedhuis & Co plan starts from £100 a month to build up a drinking cellar, although it recommends a minimum of £250 a month for an investment cellar.
Similar arrangements are available from the likes of Lee & Sandeman, Davy’s Wine Merchants and Justerini & Brooks. But costs vary widely, and the unique nature of wine means investors unprepared to pay for specialist management or advice and unwilling to hold on for at least seven years risk suffering heavy losses.
There’s also a long and inglorious history of fine wine scams for investors to consider. One way to avoid scams is to keep an eye out for the Wine Investment Association logo. In addition, investors can check wine prices on the London International Vintners Exchange, which went online in 1999 and allows investors to track fine wine prices. The Liv-ex Fine Wine 1000 index, for example, tracks the prices of 1,000 wines from all over the world. The index is up by almost 40% over five years and by more than 9% over the year to date. Nevertheless, a very sentiment-driven market such as this is vulnerable to sharp volatility.
For those who prefer malt, there’s a growing market for rare whiskies, in which the high-risk, high-reward dynamics are similar to those in fine wine markets. Impressive gains can be made: Rare Whisky 101’s Icon 100 index is up almost 500% since it launched a decade ago and by just over 10% in the year to mid-October.
Rare whiskies can go for eye-popping prices at auction, but it’s possible to invest for relatively modest amounts. The WhiskyInvestDirect online platform allows investors to buy units of whisky while it is still maturing in the barrel for as little as £2 a litre of pure alcohol (plus commission and charge for storage in bonded warehouses). There’s no minimum investment or minimum length of time that the investment must be held for.
Specialist advice is strongly recommended. Liquidity can be problematic, prices can be volatile and investors need to be prepared to hold on for the long term (ideally 10 years or more). Rare Whisky 101 warns that while there has been an “incredible” upsurge in both values and volumes in the UK auction space, anyone wanting to invest in whisky either as a passion collectable or as an alternative asset needs to know where to look and what to buy.
It’s probably easier than ever for investors to back their favourite alcoholic drink brands in a way that helps them feel part of that community, receive shareholder perks and potentially make financial gains.
James Horniman, portfolio manager at James Hambro & Partners, says: “It might be a way of saving your local from closing. Alternatively, buying someone who has already got everything a share in a gin distillery can be a quaint Christmas gift.”
But don’t let your taste for alcoholic drink investments dilute your investment principles. These are strictly hobby investments that are typically high-risk and expensive, have low liquidity and should only be a very peripheral component of a diversified portfolio.
It’s important to remember too that these investments – including those accessed through the crowdfunding sites – are unregulated, so there’s no recourse to the Financial Services Compensation Scheme or the Financial Ombudsman Service should an investment turn sour. Therefore, they should only form a small part of an investor’s portfolio.
“If you’re considering a crowdfunded distillery ‘crafting’ something like Somerset blueberry gin as a serious investment, do the proper due diligence,” Horniman suggests. “Look at how much equity it is giving away for initial investors and extrapolate from that the valuation it is already putting on a venture that may still be little more than an idea drawn up on the back of a beer mat.”
Look too at the experience of the people behind the project and who else is backing it, and whether you are being offered similar terms.
Horniman says: “The sober truth is that you’re more likely to generate a return from established mainstream drinks companies that have global brands and distribution, and are set up to access growing demand for premium labels – from emerging market countries, for example.”
Mindful millennials prompt drink diversification
For a company that owns the likes of Budweiser, Corona and Stella Artois, increasing the non-alcoholic drinks business to 20% of total volumes produced by 2025 might seem an odd aim. But that’s how Ab InBev is responding to a growing trend towards much greater sobriety among younger drinkers.
Almost a third of UK 16 to 24-year-olds don’t drink, up from a fifth in 2005, according to research by University College London, while similar patterns have emerged in countries such as Germany, Australia and the US.
Ab InBev, which has appointed a chief non-alcohol beverage officer, is not alone in seeking to adapt. It owns Becks, which like others offers a non-alcoholic alternative to beer. Fellow brewing giant Diageo bought its first so‑ drinks business in 2016, picking up a stake in Seedlip, which makes distilled non-alcoholic spirits. Meanwhile, Heineken has expanded its non-alcoholic offering after seeing a sharp increase in sales of its low- and no-alcohol drinks.
Note that the distinctive preferences of younger generations don’t just relate to alcohol. Pew Research has found that consumers in their 20s and early 30s are more conscious about the health, environmental and social impacts of their consumption choices than their parents at the same age.
Investors may want to keep an eye on those drinks companies able to adapt and meet the needs of a rapidly changing market.
Sweet rewards for winning plays
Chocolate might have a greater presence in portfolios than many investors realise. Confectionary stocks such as Nestlé, Lindt, Cadbury and Hershey offer exposure to chocolate, as do some commodity funds and a growing number of exchange traded funds.
But what about investing directly in the companies that make the stuff? Last year alone saw crowdfunding campaigns from firms such as York Cocoa House, which raised funds for a new chocolate factory in the city (which opened in July 2018); Raw Halo, which secured finance to expand its artisan raw chocolate distribution; and Troffie, a family-run patterned chocolate specialist, which raised money for new equipment and staff.
Hotel Chocolat, the high street chocolatier, took a different approach. It issued “chocolate” mini-bonds in 2010 and 2014 that paid annual returns with a difference: not in cash, but in the form of either Hotel Chocolat gift cards or luxury boxes of chocolate, depending on which of the two bonds investors chose. Not all investors received edible payouts, however. The company wrote cheques to around 1,700 bondholders in summer 2018, after it raised sufficient cash.