THE DECADE OF DESTINY

As the 2000s came to an end, the global economy remained in a fragile state. The credit crunch that began in 2008 and spread like wildfire in 2009 forced Greece and Ireland to seek financial aid from the EU and the International Monetary Fund. By March 2011, Portugal was on the brink.

The world as a whole is richer than it was in 2000. But stock market investors have spent ten years getting nowhere. The Dow had its worst decade since the 1930s. The dotcom crash, 9/11 and the financial meltdown all sent shares plummeting. By December 2010, it was up by only 2.2% on its January 2000 level. Apple shares, which are one of the success stories of the decade, were worth less than $30 / CNY196.50 in 2000. Now they are over close to $350 / CNY2,292.50. But even Steve Jobs’s mighty outfit has been outpaced by fine wine.

In January 2000, a case of Lafite 1982 was worth, according to figures from the London-based fine wine exchange Liv-ex, $3,895 / CNY25,512.2. By December 2010 it was worth $60,151 / CNY393,989, an increase of 1,544%. In October 2010 the price had spiked to $107,248 / CNY702,474. It has been an unprecedented decade for fine wine, ten years in which where, how and for how much wine is sold has changed forever.

A New Order

There has been a fundamental change in the market worldwide over the last ten years, with growing numbers of people beginning to take an interest in wine and continuing dynamic economies and new emerging markets in Brazil, Russia, India and China – the so-called BRIC nations.

In 2000, not a single Bentley was sold in Russia. In 2009, 103 were sold. At the start of the decade there were 2 million mobile handsets in India. By 2010, there were 545 million. As these figures show, the world has become both richer – and taller. In 2000, the world’s tallest building was the PetronasTowers in Kuala Lampur at 452 metres. By 2010, it was the 828-metre Burj Khalifa in Dubai.

The fine wine trade is dependent on the rich and, even after the credit crunch, there are plenty of those around at the moment. These days, a fine wine trader’s only concerns are likely to be Parker points, theft of his stock, and end of year bonuses in the financial sector. Fine wine is booming so much that Tonnellerie Quintessence, one of the leading suppliers of barrels to fine wine producers, has made the Fleur de Quintessence “Premium Barrel”. (It has not yet been proven that it makes the wine taste any better.)

Growing Pains

The prices of top Bordeaux 2000s redefined the en primeur campaign. By 2010 and the aftermath of the 2009 releases, it was no longer a matter of securing the wines at the least expensive price – it was a matter of securing allocations that could be sold on for even higher amounts. Although there was indignation at the release prices of the 2000s, 2003s, 2005s and 2009s, one cannot blame the Bordelais for selling their wines as extravagantly as possible. They make the wine, after all, and if anybody should profit from them it is the producers themselves.  

The three expensive Bordeaux en primeur campaigns in the first half of the decade created a conundrum: release prices would have to decline or secondary market prices would have to increase. Finally, in 2007, the secondary market exploded. Suddenly there were more lavish, hardback catalogues than ever before – perhaps increased buyer’s premiums are partly due to the enormous printing bills incurred by the auction houses. “Super-lots” of deep verticals were offered at high estimates, as well as large single-cellar sales. More attention than ever was being paid by auctioneers, merchants and buyers to criteria that might affect the value of a wine: its provenance, condition, previous sales, and drinking form. Prickly consumers forced standards to go higher and authenticity became the priority.

The new money in Asia overwhelmed “Traditional” collectors, including the wine trade, wine press and enthusiastic amateurs. Several hundred free-spending individuals entered the fine wine market and changed it radically.

Go East, Young Man

Virginia Woolf wrote in her 1924 essay “Mr Bennett and Mrs Brown”, “On or about December 1910, human character changed.” The fine wine market’s character changed in February 2008, when Hong Kong banished tax on wine. This was even more significant than the reintroduction of wine auctions to New York in 1994. It completely changed the dynamics of the international fine wine trade. Indeed, it has probably been the most momentous (and lucrative) addition ever to occur to the fine wine industry.

Hitherto the most sought-after lots went to New York. During the 1960s, 1970s and 1980s, there was a steady flow of wine from Europe to the USA, which became the foundation of the large collections established by Lloyd Flatt, Marvin Overton III and others. But now all that wine started to travel eastwards. To paraphrase the British art dealer Joseph Duveen, America has a great deal of wine, and Asia has a great deal of money.

With the addition of an insatiable Hong Kong to the already thriving London and New York, the market was flying. But on 15 September 2008, Lehman Brothers collapsed. With their long lead times, auctioneers were powerless to prevent prices and clearance rates plummeting.  

But sometimes the darkest hour is just before dawn. Thanks to the economic strength of China, which was largely untouched by the credit crunch, the market recovered as quickly and it took less than three years for the market’s de facto capital to relocate. 2010 was the first year that auctions in Hong Kong were more valuable than those in the whole of the USA.

It is easy to understand the attraction of Hong Kong to wine merchants and auctioneers. Selling wine there is largely painless. There is no import tax, so paperwork is greatly reduced. To hold an auction all you have to do is rent a room and find some wine to sell – but that has become increasingly difficult, with several new auction houses entering the fine wine crucible recently.

The end of the beginning

There is no future without a past, so we can perhaps make some fairly random predictions for 2011 and beyond, based on what happened during the previous decade.  

With old treasures so increasingly rare, auctioneers and merchants need younger wines to ensure liquidity and cash flow. The still unbottled Lafite 2009 made HK$300,000 / CNY252,043 at an October 2010 auction in Hong Kong. It is possible that the Bordeaux en primeur campaign could be conducted via auctions in the future. The châteaux and negociants could set the reserves and estimates to their satisfaction – that is, as high as they like – and watch a bidding war break out.  

The short-selling of Lafite 2009 on Liv-ex in June 2010 caused “outrage”. People had better get used to this sort of thing. Wine has become a commodity, albeit non-fungible, and it will be traded as such.

The Internet will continue to make “darkness visible”. There might be increasing use of the Internet as a relatively cost-effective way to sell wine that also makes prices more transparent – why pay more in London than New York, or Hong Kong, for that matter? The traditional auction house business plan, with offices scattered across the globe, is looking increasingly anachronistic, its format like a fly trapped in amber.

Lafite will continue to be the most sought-after fine wine, though the other Firsts all have stories to tell and will increase their presence in Asia. Lafite begins the new decade working with ASC Fine Wines in China, a company that is positioned to be hugely influential over the next ten years and beyond.

What might have seemed like a bubble in Hong Kong has turned out to be an interstellar balloon. China and others will continue to drive growth and demand. There are more wine collectors with deep pockets than ever before, all of them clamouring for the finest bottles.

Fine wine – like art and property – is, in the long-term, a one-way bet. In his Wine and Spirit Education Trust lecture in October 2007, Christian Seely of AXA Millésimes said, “In almost every habitable place on the globe there are a growing number of people wanting to consume wine that can only be made in one place. This is a good long-term position if you are the producer and you own the place in question.”

Hong Kong is gobbling up wines that might previously have gone to London or New York. Perhaps we might see large private collections of wine from Chinese cellars being sold by 2020.

As in any decade, some people became richer and others became poorer. There were visionaries and there were rogues. So was 2010 the end of history as far as fine wine is concerned? No – it is the start.