To commemorate the tenth anniversary of Fine Wine International, its editor Ove Canemyr asked me to do a ten-year overview of the fine wine market.
It has been a topsy-turvy decade since Fine Wine International was established in 2004. A graph showing the annual turnover of wine auction houses over the last ten years would look like a map of the Himalayas, with dramatic peaks and vertiginous falls.
It seemed as though the good times would never end. But on 15th September 2008 the party ended. Lehman Brothers filed for bankruptcy and the credit-crunch began.
The turn of the century boom could not last forever. Even on hot summer days, there might be a rain cloud that can burst at any moment. The global economy is still fragile. But the fine wine market remains staggeringly robust, with record prices frequently achieved.
There is no doubt that the most significant change to the international wine market was the emergence of China and its bao fa hu (“explosive rich”).
China’s economy grew by an amazing 9.8% in 2005, over twice the 4.3% growth rate forecast for the world economy by the International Monetary Fund. In a September 2014 report, the global information company IHS predicted that China would overtake America to become the world’s biggest economy by 2024.
China and the other Asian economies are producing a massive middle class with enough disposable income to chuck a chicken in the pot – and a bottle in the fridge – whenever it wants to. As an example of how auction houses have taken advantage of the decade-long boom, Acker Merrall & Condit’s premium has risen from 16% in 2002 to 23.5% in 2014. Most people would be pleased to have given themselves a 47% pay rise over that period.
But there is also the risk of flooding what remains a relatively small market. There is still a lot of stock in Hong Kong for merchants to sell. Private cellars are full to bursting and new collectors tend to stop buying when their cellar is complete.
For wine merchants and other sellers of luxury goods, Xi Jinping’s “election” as leader of China in November 2012 was arguably more important than Barack Obama’s re-election as President of the United States in the same month. Xi vowed to crackdown on corruption with an “iron fist”. The price of top Bordeaux has subsequently cooled.
Lafite of strength
Lafite, and particularly its 1982 vintage, was probably the most sought-after fine wine in the last decade. Its price gains have been astonishing. According to the London-based fine wine exchange 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.
As of September 2014, Lafite 1982’s average auction price was £18,073. The supernova inflation of recent years has ended and the bubble has burst. Overexposure, excessive prices, forgeries and the Chinese government’s clampdown on gift giving have led buyers to look elsewhere. The brightest star in the current market is Domaine de la Romanée-Conti.
As this issue of Fine Wine International went to press, Sotheby’s had announced an auction to be held in Hong Kong on 4th October 2014. The centrepiece of the sale is what Sotheby’s claimed was “The Most Valuable Wine Auction Lot Ever Offered”: A 114-Bottle Romanée-Conti “Superlot” of 19 consecutive vintages 1992–2010, with six bottles per vintage. The estimate was HK$12–20 million / US$1.5–2.5 million / £930,000–£1.5 million. Burgundy’s market supremacy at the moment was confirmed by it accounting for over 40% of the total number of lots in the sale and approximately 70% of the value.
It’s possible that Burgundy – and particularly DRC – could follow the Lafite model: Hugely increased interest and prices, a sudden spike, and then a collapse back to pre-hype levels. Short-term speculators please note. Some wines will continue to fall in value; others will gain. That is the way of the free market.
The Los Angeles Times of 1st December 2006 reported on the gargantuan wine buying activities of 30-year-old Rudy Kurniawan, an Indonesian-born scion of a hugely wealthy Chinese family. Kurniawan was allegedly spending more than $1 million a month on fine wines and was the anonymous vendor of New York auction house Acker Merrall & Condit’s two record-breaking “THE Cellar” sales in 2006
Fast-forward to 2012 and Kurniawan was exposed as possibly the biggest wine fraudster of them all. In February 2012 there was huge controversy about a London wine sale conducted jointly by Spectrum Wine Auctions and Vanquish Wines. It was alleged that the consignor of many of the wines was Kurniawan. Doubts were cast about several wines and 13 lots were withdrawn after label and capsule discrepancies were pointed out.
For Kurniawan, who used to refer witheringly to traditional merchants as “dusties”, the game was up. On 8th March, one month after the London auction, the FBI arrested Kurniawan in Los Angeles on five counts. Here, for the first time, fine wine fraud on an industrial scale had been exposed – not just a few bottles but hundreds.
In August 2014, Kurniawan was sentenced to 10 years in a US prison, ordered to forfeit £11.9 million and pay over £15 million in restitution. The man himself might now be locked away but, depressingly, many – hundreds, possibly thousands – of his fakes and forgeries are still in circulation.
The pressure on “experts”, especially at auction houses, to get it right first time, every time is greater than ever. But there is an inherent conflict of interest when an auctioneer “appraises” a cellar. Because auctioneers rely on consignments for their livelihood there are always demands from managers and shareholders to “authenticate” potentially valuable wines.
Unlike in the art and stamp worlds, there are hardly any completely independent third-party authenticators in the wine industry – there are too many conflicting interests and not enough wine to make it viable as a fulltime occupation.
Being a “wine detective” sounds like a nice career but, as art and stamp authenticators would confirm, in such a job you make enemies rather than money.
Back to the futures
Expensive Bordeaux en primeur campaigns have become normal. The 2005 campaign was the most expensive ever, 2009 and 2010 ditto, and 2011 not discounted enough vis-à-vis the previous two (and far superior) vintages. Underwhelming wines were made in 2012 and 2013 but prices remained high. There are better and less expensive vintages available than 2013. Surely the system is becoming unsustainable?
And yet the world, or at least parts of it, keeps getting richer. According to Forbes magazine, 20 years ago there were 140 billionaires worldwide: In 2006, that number had risen to 793, 23 of whom were based in London. By 2014 there were 72 billionaires in London. There are more rich people than ever. Somebody bought a copy of Superman’s “Action Comics No. 1” for $3.2 million on eBay in August 2014. Transfer fees spent by English Premier League clubs in the same month was a record £835 million.
The long-term fundamentals for the fine wine market remain unchanged: There is an increasing number of very wealthy people with an appetite for fine wine, which by its very nature will always be made in relatively small quantities. This is why – and how – owners of top Bordeaux estates will always sell their wines at what for most people are outrageous prices. Ten years from now the eye-watering prices of recent en primeur campaigns will probably seem like bargains.
Through the looking glass
Much of the work of the wine trade, like any other business, is about trying to forecast trends. But in an industry that is based so much on weather and on global economic conditions no outcomes can ever be guaranteed.
Auction house totals in 2013 were down for the second year in succession. Prices have remained firm though volumes have fallen.
History shows that wine prices 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.
To celebrate ten years of Fine Wine International, readers can raise a glass of outstanding 2004 Barolo or Barbaresco. It was also a fine year in Spain and Australia.
CHÂTEAU LAFITE 1982 AVERAGE AUCTION PRICES 2004–2014
(12x75cl including premiums)
September 2004 £4,055
September 2005 £8,970
September 2006 £7,475
September 2007 £14,055
September 2008 £19,570
September 2009 £23,659
September 2010 £34,840
September 2011 £31,294
September 2012 £31,037
September 2013 £21,726
September 2014 £18,073