Current Trends in the Wine Auction Market

AS DISCUSSED in my last post, wine is no longer just a beverage and has emerged as a full-fledged investment commodity. It is clear, however, that not every wine will increase in value, and wines that increase do so at different rates. Are there patterns and trends?

The short answer is yes—and no. From 2011 to 2012, for instance, Bordeaux auction prices took a major correction after the 2010–2011 peak driven by demand in Asia. Since then prices have stabilized, and Bordeaux once again looks like it might be a good investment opportunity. Burgundy has shown the greatest and steadiest growth among the major wine categories, and the absence of dramatic short term fluctuations certainly suggests a reliable and stable commodity. California cult wines, however, while increasing in auction price 10.6% over the past five years, have done so with frequent fluctuations, including an 11.9% drop from Q1 to Q4 2011, and changes of –6.8%, +8.8% and –6% within the period from Q1 2015 to Q3 2016. Moreover, there is little consistency within the category, with different wineries’ offerings increasing and decreasing dramatically in value within the same time frame.

These are the primary collectible regions. As for some of the others, such as Port, the Rhone and Italy, Port seems to have the steadiest long term increases, while the Rhone and Italy show more modest growth and appear subject to periodic fluctuations. It becomes evident, then, that there is no hard and fast rule. What further complicates the landscape is the relative youth of wine as a collectible commodity, the emergence of Asia as a new yet powerful market, and the possibility for change in quality and fashionability of a given winery. In addition, the strategy of limiting investments to established blue chip wines is not necessarily a guarantee of stability, as can be seen from the Bordeaux bubble mentioned earlier.

Ultimately, investing in wine is a unique enterprise. Fine wine’s dual status as investment property and luxury beverage renders it subject to different influences and forces than any other commodity, and this is most definitely reflected in the changing values of wine.

Wine as an Investment Commodity

WINE USED TO BE something you drank, right? Well, not anymore, at least not exclusively. Wine has become a serious investment commodity, increasingly so in the past decade. More than ever wine has the capacity to appreciate in value, to the point where the current value of certain wines can far exceed their original purchase prices. Moreover, according to a joint paper by professors from Cambridge, Vanderbilt and HEC in Paris, wine as an investment outperforms such investments as government bonds, art and stamps. Not surprisingly, therefore, global wine auction sales more than doubled from 2005 to 2015, increasing from $165 million to almost $350 million in 2015. On top of that wine even has its own trading exchange—the London International Vintners Exchange, or Liv-ex, founded in 1999 in London and now doing over $100 million annually in trades.

So when presented with a wine collection how do you determine whether it constitutes an investment grade asset or is merely a very nice, but not especially valuable, collection of wines? There are several governing factors, such as the region from where it comes, the winery that produced it, the vintage from which it was bottled, and the conditions under which it was stored. An American Appraisal Association certified appraiser—one compliant with Uniform Standards of Professional Appraisal Practice—who also possesses high level wine credentials and experience can most definitely evaluate the situation and provide the assistance necessary. Email me at nkaplan@corkcounsel.com for more information.

A Tale of Two Wines (and Their Values)

THERE'S A LOT OF OLD WINE in the basement. It must be valuable.

Or maybe not. There can be a perception that as fine wines age they become more valuable, but that is actually not always the case. For instance, the 1999 Chateau Mouton Rothschild, a First Growth Bordeaux, cost $140 upon release and currently sells at auction for around $315. By contrast, the 1999 Chateau St. Jean Cinq Cepages, a Bordeaux blend from California, sold for $80 upon release and currently sells at auction for $36. Both have matured well and are drinking better than upon release, yet one has appreciated while the other has decreased in value. Why the difference?

Is it a matter of quality? It doesn't seem so. To the extent that critics’ scores provide a meaningful measure Mouton was rated 90 points by the Wine Spectator and 93 by Robert Parker, the two leading wine reviewers at the time. The Cinq Cepages received 95 from the Spectator and 90 from Parker. How about scarcity? Wrong again. St. Jean produced 13,000 cases of Cinq Cepages compared to 20,000 cases of Mouton. Longevity? Maybe, but maybe not. The reviewers suggested drinking the Cinq Cepages through 2015, while it was thought the Mouton would last until 2030. However, I drank the Cinq Cepages twice in the past few months, and I can report that it is extremely good and has plenty of life left.

So why did one wine more than double in worth and the other lose half its value? Basically, there are a small number of wines in the world that are deemed collectible, and they are the ones most likely to increase in value. Most are classified Bordeaux, but top Burgundies, Champagnes and some select wines from Italy and California can appreciate as well. They are often from wineries with long histories and track records for quality, and they are always of relatively limited production. But mostly they appreciate because they have a history of appreciating. It is somewhat circular, but the past success of these wines at auction breeds future success.

So how does one distinguish a collection of excellent old wines from one that is also valuable?

The best means is through an appraiser who is thoroughly conversant in the fine and rare wine market. More specifically, you are looking for an American Appraisers Association certified appraiser—one compliant with Uniform Standards of Professional Appraisal Practice—who also possesses high level wine credentials and experience. Email me at nkaplan@corkcounsel.com for more information.