The Cellaret has been trading fine wines for over 10 years and currently buys wine direct from producers around the world and specialist wine merchants in France. It sells the wine to private clients online, trade customers such as restaurants and hotels, other wine merchants and fine wine brokers.
The acquisition of The Wine Portfolio in February 2006 included stock and goodwill, which meant The Cellaret took over clients such as Gordon Ramsey and the Dorchester Hotel. The deal also included Wine Direct, a website selling fine wine and wine gifts, which the directors intend to expand.
The majority of the money raised by the EIS will be used to increase the fine wine stocks, although some will be used as working capital and for recruitment. the directors intend to raise a total of £5m over the next three years as they think a phased approach will not saturate the market or result in over-buying.
The directors say the majority of wine merchants are focused on everyday drinking wine, which is traded on the basis of price competitive and creating demand. The fine wine market differs in that demand often outstrips supply, so merchants have to buy early enough and in sufficient quantity at the initial price to take advantage of increasing value.
The Cellaret believes its main distinguishing feature is its exclusive distribution arrangements with small New World producers. New World producers are those which, in the directors’ view, produce wines with all the qualities of fine wine, but which have yet to be recognised by the industry. The directors believe its good to buy these up and coming wines while they are undervalued. Small players may also become low-cost acquisition targets, enabling the company to grow quickly.
Fine wine does not qualify for inclusion in Sipps, so an EIS investing in fine wine is a means of diversifying an investment portfolio with added tax advantages. However, investing early in new world wine increases the potential risks as well as the potential reward, since there is no guarantee the wine will gain industry recognition and increase in value.