Money: The grapes of wealth

Wine is usually best drunk, but Smita Talati finds that a great vintage can make a great investment

Wine is big, big business. Off-licence sales of wine in the UK have overtaken beer for the first time, and a group of entrepreneurs believing there is more money to be made from the public's passion for the grape have funded Vinopolis, "the City of Wine", which opens this week on London's Bankside. An old bonded wine warehouse has been turned into a pounds 23m tourist attraction and restaurant complex devoted to the pleasures of wine (see box below).

Many wine lovers also consider investing in a few good cases to lay down. What starts as a hobby can lead to some serious investment gains - although this brings the dilemma of whether or not to drink it.

Jonathan Stephens, director of wine merchant Farr Vintners, advises novice wine investors to buy the best wines they can and invest for the long term. He suggests spending pounds 700 initially on two reasonable cases, but warns investors not to spend more than they would feel comfortable drinking.

"Wine is a luxury, and demand for it will reflect the economic climate," he says.

At the moment, business is booming. Fraser Jamieson, a broker at Berry Bros & Rudd, believes investors can expect to see returns of 30 per cent a year. But beware a stock market crash. During the mid-90s, prices for trophy wines such as Chateau Petrus soared to ridiculous heights, fuelled by wealthy Asian buyers. But when the stock markets crashed in October 1997, the bubble burst; by last year many wines had lost 20 to 40 per cent of their value.

Prices are starting to recover and experts believe now is a good time to buy. Bordeaux wines are the "blue chips" of the market and the safest investment when you are starting out. The region has a track record of producing the most outstanding wines, and it has its own classification system.

Mr Jamieson says the merlot grape was last year's success story. He recommends Pomerol and St Emilion, which have some merlot in them and can be picked up from pounds 300 a case.

If you can afford the top end, Paul Bowker, former head of wine at Christie's, says first- growth, big-name Bordeaux wines from 1996 would set you back at least pounds 1,000 a case but should stand you in good stead.

If you are buying to invest, you will have to go through a wine merchant. He will not charge a consultation or buying fee but will take 10 per cent commission on the sale of the wine. The merchant will also arrange for you to store your wines "in bond" in a warehouse, so you do not have to pay import duty or VAT on them, but there is a storage fee.

Your merchant will be able to offer tips on what to lay down and what to sell.

However, Mr Stephens stresses that there is no such thing as "investment advice" in the wine market.

"A reputable merchant should be able to tell you if the wine is good or not by discussing its vintage and structure," he says.

It is essential you have some appreciation of wine before you invest in it. Taking a course run by the Wine and Spirit Education Trust is a good start. It runs basic and advanced courses aimed at people working in the wine and hospitality trades but open to the general public.

Wine prices are also at the mercy of the opinions of a handful of top critics. No investor can afford to ignore the whims of American journalist Robert Parker, who gives wine a score out of 100 (you will often see Mr Parker's scores on labels in American off-licences). Anything with a score of 90 is a good bet, but he does sometimes change his mind later.

Wines are priced at three stages: en primeur (before they are bottled); on arrival into Britain two years later; and when they mature and are therefore deemed ready to drink. Many wine merchants en-courage investors to buy en primeur because this allows you to reserve stock before it comes on to the open market. You will usually be able to buy it at a lower price. This is a risky business because the wine is still immature and may not live up to its promise. (This is what happened with the 1997 vintage.)

If you want to try something more speculative, Mr Jamieson says there is some impressive wine being made in northern Spain at the moment. The top one is Piorato, but at pounds 800 a case you will have to splash out.

Italy, Australia and California are also producing some un-usual wines of note, while those who want a steady investment for the long term could look at port.

And even if your investment does not turn out to be worth a fortune, you will have plenty of great wine to drink.

Wine merchants: Berry Bros & Rudd, 0171-396 9600; Farr Vintners, 0171- 821 2000; Corney & Barrow, 0171-251 4051; Oddbins Fine Wines, 0171-329 6989.

Wine and Spirit Education Trust (WSET): 0171-236 3551, www.wset.co.uk

Vinopolis tickets: 0870 444 4777.

www.evinopolis.com

VINOPOLIS

This massive wine-lovers' complex on London's Bankside opens on Friday. Some 450 venture capitalists and private investors have committed pounds 18m to the project, which was set up as an Enterprise Investment Scheme to maximise tax breaks for investors. If Vinopolis succeeds, it plans to float on AIM, the junior stock market.

Deputy chairman Tony Hodges believes Vinopolis will cash in on the growing market for tourist attractions and corporate hospitality. The warehouse has four restaurants and its great hall can seat 600 for dinner. During the day, ordinary visitors can take a tour showing how wine is made and will get a free tasting of five wines from a selection of hundreds. Admission is pounds 10.