Stuart George

Liquid Assets: The fine wine market in 2009

For the last five years I have reported on the fine wine market.

This is an abridged version of the article published in Fine Wine International recently.

CHINESE FIREWORKS

Stuart George reviews the 2009 fine wine market and makes some predictions for the future.

Lightning is charged by a collision of air and heat. There were plenty of both in the fine wine market up to October 2008 when the lightning struck and the market slipped. The outlook improved in 2009 with the re-establishment of wine auctions in Hong Kong, which saw international auctioneers and merchants charging into Kowloon like bulls in a China shop.

Figures released by the major auction houses show that the market cooled like the northern European weather. In 2006 there were 26 US$100,000+ bids. In 2007 there were exactly twice as many; additionally, there were at least another 30 lots that made over $50,000. In 2008 45 lots fetched $50,000+. In 2009, allowing for exchange rates, only about 15 lots sold for $50,000+ at wine auctions.

Reversal of fortune

The New York wine retailer and auctioneer Zachys claimed the highest turnover of any wine auction house in 2009. Its total volume was $50,733,970 (including 20% premium) from 14 auctions. In 2008 Zachys totalled $29.84 million, which was over a third less than 2007’s $52.44 million.

As in 2008, Christie’s reported that its global sales of wine “surpassed the US$50 million mark” (including premiums) in 2009. Sotheby’s total for wine auctions last year was $41,755,284 (including premiums), below 2008’s $44,625,346. Its London wine sales for 2009 totalled £9,297,980, which, claimed Sotheby’s, made for “more than 100% increase in wine sales in London over the last five years.”

Acker Merrall & Condit totalled $44,212,698 (including 21% premium) from its 11 sales held in New York and Hong Kong. Online sales accounted for $5,428,392, with Hong Kong making $20,729,447 and New York $18,054,859. In 2008 Acker Merrall & Condit totalled $59,783,368 from 12 New York and two Hong Kong sales, as well as its monthly Internet auctions. In Chicago Hart Davis Hart made $24,008,542 compared to $32,273,540 in 2008.

Despite the publicity it generates (or used to generate) from high prices and rare wines, the auction market constitutes only a tenth of the annual $3 billion global fine wine market – a figure that has trebled since 2004, according to the London-based fine wine exchange Liv-ex, whose membership comprises the world’s major trade buyers and sellers, including merchants, brokers, retailers, importers, exporters and wine funds.

A safe pair of brands

In 2009 the still-fragile market relied heavily on two things: Château Lafite and Hong Kong. Lafite was rated number one in Liv-ex’s most recent Fine Wine Power 100, which ranks the strength in the market of fine wine labels according to price, trade, score and production level.

Lafite 1982 is probably the most sought-after fine wine in the current market. Its price gains over the past ten years have been astonishing. According to Liv-ex, it went from £2,613 in December 1999 to £25,000 by November 2009, an increase of 856.9%. If that rate were maintained until December 2019, a case of Lafite 1982 would then be worth nearly £250,000.

Even if Robert Parker’s recalibrated score for the 1982 suggests that the wine might be declining, it still shines in the market as brightly as the northern polar lights. The Liv-ex Lafite Index, which tracks six vintages of both Lafite and Carruades, rose more than 40% last year. The best-performing wine was Lafite 1999, which rose 125% during 2009, up from £2,000 per case to £4,500. Asia’s glutinous adoration of Lafite, which saw the 1982 achieve the equivalent of $45,000 at Acker Merrall & Condit’s November Hong Kong sale, will surely see its price continue to rise.

Message in a bottle

There is a simple explanation for Lafite’s supernova prices in recent years: China. Lafite is regarded by the Chinese like the wine in August Strindberg’s short story “What The Tree-Swallow Sang In The Buckthorn Tree”: “It was the rich man’s wine, which had grown a long way off in the sunny south; and it tasted like the sweetness of a good life when it is at its very best.”

The sweetness of the good life does not explain entirely why the Chinese are drawn to Lafite like iron filings to a magnet. Apparently the name is memorable and easy to pronounce, though it tends to be called “Lafay” by Chinese speakers. Some suggest that the etched label is also an attraction; this might also at least partly explain the increasing interest in Duhart-Milon, Clerc-Milon and Beychevelle in the Far East.

Asians also appreciate some of the broader cultural implications of Lafite and other fine wines. There is a nascent interest and understanding in China, or at least in Confucianism, of what fine wine supposedly represents – balance, harmony (ho) and a sense of place, and that this ho comes from the unique conditions of a specific geographical site.

But perhaps the greatest reason for Lafite’s success is its embrace of the free market economy. It releases its wines to the world and then lets the market do its work. By contrast Latour, which is arguably as great a wine and brand as Lafite, keeps a tight rein on its sales. Consequently it has had nowhere near as much impact in the Asian market.

Through the looking glass

Albert Einstein famously never worried about the future – it arrived soon enough. Fine wine prices go up and down all the time and to a certain extent prices can be predicted, just like a weather forecast. History shows that stock markets go up over the long run, albeit with many peaks and troughs. This is like climate, because even wild fluctuations in the weather (like the scorching hot summer of 2003 across Europe) will have little effect on what will happen over a century or more. So the most sought after fine wines will continue to increase in value and Bordeaux will not turn into the Barossa.

The 2009 Bordeaux en primeur campaign could be challenging, though. The hype has already started but the UK and US economies are still weak. Recent currency movements could make it a very expensive vintage for these two important markets.

2010 is year of the tiger but it might also be the year of the lamb. There is increasing interest in Château Mouton-Rothschild, which might become more apparent in 2010. The 1989, 1990, 1996 and 1998 vintages all traded at new highs on the Liv-ex exchange in December. October 2009 was the sixtieth anniversary of the People’s Republic of China; perhaps some bottles of the great 1949 Mouton were opened in celebration.

Champagne is likely to continue to struggle. It was rumoured recently that several houses were looking to offload stock, which would depress prices. H2O, or water, has been discovered on the moon, which might embolden the Champenois to plant some vineyards there.

Those celebrating their 18th birthday in 2010 are unlucky with most of the classics, though some good Tokaji and red and white Burgundies were made in 1992. 1989 is one of the great Bordeaux vintages; Barolo, the Rhône and white Burgundy were also outstanding. Silver wedding anniversaries might be toasted with Champagne, Rhône, red Burgundy or an exceptional Lafite. Centenarians can enjoy a glass of 1910 Madeira.

We may now be over the worst but even if we are still far from where we were before the economic crisis, there is much to look forward to in 2010.

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