A tale of two terroirs: is English sparkling giving champagne a hangover?

A Frenchman walks into a bar and says, “I’ll have some English wine”. It may sound like the opening to a joke but, despite the well-placed Gallic pride in their wine industry, the idea isn’t as preposterous as it might sound.

In 2023, Chapel Down, one of England’s leading wine producers, went undercover as “Chapelle le Bas” at a blind tasting held on the streets of Reims, the unofficial capital of France’s Champagne region. The results were a triumph for the Kent-based winery – 60% of consumers preferred the taste of its sparkling wine to that of the world-renowned Moët et Chandon Brut Impérial.

While the reveal may have shocked the locals, it was another indicator of UK wine’s burgeoning presence both domestically and internationally. 2023 was a bumper year for English wine production, where “near perfect” conditions produced the equivalent of 21.6 million bottles, up 77% on 2022 and 50% higher than the previous record year in 2018. Meanwhile, the number of UK vineyards topped 1,000 for the first time and hectarage in production grew 151% between 2018 and 2023.[1] [2] [3]

So, why the surge in popularity? The UK’s wine industry is primarily located in south-east England, with Kent and Sussex accounting for over 50% of plantings. While climate change and extreme weather conditions have hit production in traditional wine-making countries such as Spain and Italy, warmer temperatures have benefitted UK producers as conditions increasingly resemble those in some of the vinicultural heartlands of Europe. The well-draining, chalky soils of the UK’s wine-growing areas bear similarities to those found in Champagne and are particularly favourable for producing sparkling wine, which makes up approximately three-quarters of total UK production.

Although the UK still has a way to go to catch up with more established wine-producing regions (France produces 7-8 billion bottles per year, of which 300 million in Champagne alone), perceptions are changing. Historically, English wine was generally considered to be less flavoursome and of lower quality than its more celebrated peers. In recent years, however, UK producers have increasingly garnered the plaudits on the international stage; 143 wineries won awards at the 2023 Decanter World Wine Awards, including a “Best in Show” for Gusbourne’s Blanc de Blancs 2018 and a Platinum medal for Ridgeview’s Rosé de Noirs Brut 2018.[4]

With English wine on the up, investors are increasingly seeing it as an attractive investment opportunity.  English sparkling wine producers are not only expanding their own holdings but attracting interest from major wine industry actors looking to diversify into a growing market with untapped potential. In 2015, the champagne house Taittinger partnered with Hatch Mansfield to acquire 125 hectares of land in Kent and create the sparkling wine brand Domaine Evremond, whose first vintage is set to be released during 2025. Pommery, another well-known champagne house, owns a 40-hectare vineyard in Hampshire and sells “England Brut” under the Pommery brand. Other significant recent UK wine industry transactions include Freixenet Copestick’s acquisition of Bolney Wine Estate in 2022 for an undisclosed sum, while Berry Bros & Rudd and Symington Family Estates acquired Hambledon Vineyard in 2023 in a 50/50 joint venture worth £22.3 million.

Liquid assets: Uncorking the intricacies of winery valuations

Winery valuations may be required in a variety of contexts, including M&A transactions, legal disputes (including high-net-worth divorce cases), inheritance proceedings or for tax purposes. Traditional valuation approaches can be applied to the wine industry, although consideration must be given to the specificities of the winery being valued when selecting the most appropriate valuation method.

An asset approach can be used to determine a winery’s value based on the fair market value (FMV) of its tangible and intangible assets:

• Tangible assets include land (both planted vineyards and bare land), stock (including wine in the production process) and any buildings, machinery or equipment owned by the winery. The value of tangible assets will therefore typically be higher for a winery which grows, produces and stores its wines on-site (requiring more significant investment in physical assets) than a negociant which does not own its own production facilities. The valuation of each category of asset will reflect different criteria; for example, the value of land will be dependent on factors including location, size, accessibility and soil quality. The FMV of an asset may be different from its reported value on the balance sheet, necessitating asset revaluations to reflect prevailing conditions. As an illustration, the valuation of a bottle of wine in inventory should be updated to reflect the current market price for that vintage, which may appreciate or depreciate over time.
• A winery’s primary intangible asset is its brand. This is generally valued by reference to the future financial benefits that a brand owner expects to obtain, over and above those generated by an equivalent unbranded product. Well-established brands and strong market positioning can command significant price premiums, enabling a producer to sell at a higher margin than its peers. Therefore, brand value can be significant and may exceed the value of tangible assets for larger or better-known producers. Some producers (in particular, champagne houses) do not own vineyards but instead source grapes from long-term contracts with growers, further establishing the importance of the brand in that producer’s valuation. Care must be taken not to double count brand value already captured in the valuation of other assets (for example, in the value of the land itself).

A market approach relies upon the principle that similar assets should have similar values. A valuer may perform a comparables exercise to identify recent industry transactions and derive a multiple which can be applied to the asset or business they are seeking to value. In the wine industry, a multiple is commonly calculated on a “per hectare” basis. The price of land suitable for vines in the UK typically ranges from £37,000-£74,000 per hectare,[5] while established, planted vineyards can sell for significantly more (the acquisition price for Hambledon Vineyard, which is one of the most renowned in England, corresponded to a value of approximately £280,000 per hectare). This pales in comparison against the Champagne region, where a hectare will typically sell for between €1m and €2m, and Burgundy Grand Cru where prices can exceed €5m per hectare. The main challenge of this approach is identifying truly comparable companies, given the unique characteristics of different wineries. Valuers should therefore consider how operational factors such as the age and condition of vines and on-site facilities, or the level of brand recognition of a wine producer, may influence a valuation under a market approach. Adjustments may also be required to account for differences in yield or market price for the wine between the comparable and target properties.

Finally, the most typical application of an income approach is the discounted cash flow (DCF) method, which models the future cash flows of a business and discounts them back to the present day to account for future risk and uncertainty. By modelling the cash flows a winery expects to generate, a DCF can directly account for the specific opportunities and risks of the business, including the future growth and brand value. This approach is reliant upon various financial, operational and macroeconomic assumptions, for example in relation to production yields, market prices, operating costs (e.g. distribution) and capital expenditure requirements. Financial performance may be difficult to predict reliably in an industry where economic viability is dictated to a significant extent by the weather, as well as longer-term evolutions in the regulatory environment and consumer preferences. Therefore, this approach can be subjective, and a comprehensive understanding of both the fundamentals of a winery and wider market conditions is required.

Purchasers are often willing to pay significantly more to acquire a winery than the value of its expected future cash flows. Wineries may be of particular strategic value for luxury groups such as LVMH and Kering, who have both acquired prestigious vineyards in recent years in an effort to diversify their luxury portfolios and generate synergies with the other brands they own. For example, in 2022, LVMH acquired Californian producer Jospeh Phelps Vineyards for a rumoured sum of between $500m and $800m. [6] In other cases, a purchaser may simply view a vineyard as a “trophy asset”. In 2018, Château Pétrus (one of Bordeaux’s most exclusive estates) sold 20% of its shares to a billionaire investor for an eye-watering €87m per hectare, over three times the previous record in France.[7]

As a general rule, the more prestigious a winery, the greater the disconnect between its expected financial performance and the value an investor is willing to purchase it for. Might English wine one day compete on the same level as the examples above? Perhaps not, but with valuations rising and local producers attracting growing interest from international investors, it is certainly enjoying its day in the sun.

[1] https://winegb.co.uk/press-releases/winegb-releases-report-on-2023-harvest/

[2] https://winegb.co.uk/press-releases/uk-vineyards-surpass-1000-milestone-mark-and-sales-continue-to-buck-the-wider-wine-market-trend/

[3] https://www.vineyardmagazine.co.uk/grape-growing/near-perfect-year-for-wine/

[4] https://www.decanter.com/wine-news/decanter-world-wine-awards-2023-results-unveiled-504872/

[5] https://rural.struttandparker.com/wp-content/uploads/2024/07/2024-07-01-UK-Viticulture-Report_Jun21-v3.pdf

[6] https://www.vinography.com/2022/07/as-phelps-enters-a-new-era-a-look-back-at-insignia

[7] https://magazine.wein.plus/news/chateau-petrus-sells-20-percent-of-its-shares-to-investor-for-200-million-euros-buyer-pays-highest-price-per-hectare-in-the-history-of-french-viticulture

Henri Philippe – Partner – Accuracy
Marina Poyasnik – Director – Accuracy
Louis Osman – Senior Manager – Accuracy