This presentation will look at how perception and consumption of wine has changed over time from being regarded as a drink of celebration and feast; to an essential staple food; to fast moving consumer good (FMCG); and in its ultimate incarnation, a collectible investment. To do this it is necessary to skip through a little of the history of wine and human society, concentrating on pivotal moments and key developments that have influenced the relatively recent phenomenon of wine collection. We’ll then move into the modern era and look at some dollar values, what is happening today, and finally some emerging issues.
People have been making and enjoying wine (made from grapes) for at least 8,000 years. From the archeological evidence it is clear that its consumption was tied into primitive religious beliefs and customs that have long since disappeared or transmuted into the current religions we recognise today. (The Stone Pages, 2003). Wine was produced for feasts, festivals and celebrations but had no intrinsic value – in other words it wasn’t really worth anything. Neither was it something that was drunk on a daily basis as part of everyday life. However, over time this changed. Inevitably, as is the human way, those who made wine started to use it to exchange for other goods with those who did not make wine. It had become a commodity – it was now worth something. Arguably the modern notion of collecting and investing in wine can trace its origins to this period in history. However, transporting wine wasn’t easy since it was stored in large, heavy and cumbersome ceramic vessels. So, it became easier to export the raw material – the vines themselves – and the knowledge cultivation and fermentation. And so wine began to spread and its consumption to become more ingrained in daily life.
Skipping forward in time with the Greeks having spread wine around the Mediterranean we arrive at the great Roman Empire. Apart from the roads, sanitation, education and many other things they seem to have been the first to spot the potential for wine to improve. As Hugh Johnson notes “Rome’s great vintages were discussed and even drunk for longer than seems possible; the famous Optimian … 121 BC – was being drunk when it was 125 years old” (Johnson, 1997). So by then wine, or at least some wine, had acquired a value beyond merely its worth as a trade item. Modern marketers would say that it had developed benefits to the consumer. It was moving from being an everyday household necessitated by filthy drinking water to something more. It was desirable - no longer a need but a want.
The British, more specifically the English, have historically had a significant influence on the development of wine and continue to exert a great influence today as major consumers (and as dealers in fine wine - which will be looked at later). Possibly the most famous wine region in the world and one which today produces the most expensive and collectible wines owes its status to the English: “Bordeaux’s pre-eminence began as a result of the English connection” (Robinson, 2006). That connection started in the Middle Ages (1152) with marriage of Eleanor of Aquitaine to Henry II of England. Large parts of what is modern-day France became part of England. And the English loved their Claret – derived from the French Clairet, the pale red wines made in Bordeaux. They even dropped the export tax on it to make it cheaper to move from Bordeaux to England. The Dutch involvement is not nearly so romantic and came 400 years later. “It was the Dutch who drained the marshy Medoc in the mid 17 century, thereby creating the basis for the fine wines that made Bordeaux’s reputation throughout the world” (Robinson, 2006). Those wines include La Tour, Lafite and Margaux – wines that are now the most sought after by collectors and investors. The second English monarch to have an enduring influence on wine was Charles II. It was less of a direct influence than that Henry II. He didn’t acquire land but he did set trends and introduce a more liberal attitude to his court and high-society. Champagne began to take-off because “… it was English aristocrats who developed the taste for sparkling wine…” (Robinson, 2006). Eventually Champagne would become some of the most successful, expensive, desirable and collectible wine in the world.
Wine was being kept in bottles as far back as Roman times but it was not a reliable or robust storage medium. Glass making technology in Europe improved and by the early 1700s wine was kept in flask-like bottles resembling a carafe, which had glass stoppers. By the early 1800s English glass makers had perfected a mass production technique for uniform cylindrical bottles that are the basis for modern bottles (It was also English glass makers that created a bottle strong enough to safely contain Champagne). At about the same time as the modern bottle was developed, cork – a long forgotten closure used by the Romans – was re-introduced to the scene (The Brits again). It was already realised that some wine got better with age and these two developments meant that wine could now be stored securely on its side, stacked bottle upon bottle (known as Binning) to quietly age and improve. So it was now possible to collect and store wine, for those who could afford it, at home.
People continued to buy and keep wine without much fuss for almost 200 years. During that time certain wines – mainly those from Bordeaux and Burgundy – acquired greater status and command higher and higher prices. And then the 1980s happened. It was a decade of excess; instant millionaire stock-brokers; shiny supercars; red braces; shoulder pads and greed is good. There was an explosion of wealth and the newly rich started to buy big. Apart from extravagant houses, Lear jets and Lamborghinis they began to put their money into art and wine. Vulgar displays of wealth aside there are definite parallels between art and wine collection. The major difference being we can all share and enjoy a fantastic piece of art at a gallery but as we’ll see later the same can’t be said for wine. The trend carried through the 1990s and right upto the recent global recession. In fact there are some who believe there are indications that wine investment is almost recession proof. So whilst people have been collecting wine for the own consumption for a longtime it is only really in the last few decades that it has been elevated from collectible to bankable – and maybe bullet-proof - investment. It’s all about the money.
So in terms of dollar value what are we looking at? 1787 Chateau Lafite = US $156,000. The world’s most expensive wine sold at auction (1985) 1945 Chateau Mouton-Rothschild Jeroboam = US $114,614 (at auction 1997) 1907 Heidsieck Champagne = US $275,000. These hundred year old bottles of Champagne from the Heidsieck vineyard in Champagne took over eighty years to reach their destination. Shipped to the Russian Imperial family in 1916, a shipwreck off the coast of Finland caused this champagne to be lost at sea until divers discovered over 200 bottles in 1997. Now they’re finally being sold—to wealthy guests at the Ritz-Carlton hotel in Moscow, at least. (The Most Expensive Journal, 2006) The 2009 Bordeaux vintage has been hailed as one of the best ever and prices en primeur (i.e. before bottling) have reached astonishing levels. For example Chateau Margaux, Margaux = GBP £4,000 per case of six. (The Wine Society, 2010)
For the avid and financially secure collector there are organisations like The Wine Society. Although it has been around since 1874 it is a thoroughly modern society and offers members not only the opportunity to buy wine (of all price points) but also fine wine advice; how to plan a vintage cellar; vintage guides; and even temperature controlled storage facilities – which are pictured on the slide. (The Wine Society, 2010). Many keen wine enthusiasts simply buy cases of their favourite wine and put it to one side, drinking a bottle or two a year. This is the divide between collecting and investing – generally speaking collectors, whether they store wine at home or in special facilities, do so with the intention of drinking it …. when the time is right. However, wine investment is a different beast and it is still big business with many cases of highly valuable wine being traded and changing owners without ever leaving the bonded warehouses they are stored in. According to Decanter the current price for 2009 Lafitte is 550 Euros = NZ$1000, an increase of 323% from 2008. Such huge prices mean that collecting wines like this is very much a rich man’s game and “price itself becomes the primary reason for collecting” (Jefford, 2010). It is likely the wine will never be opened or if it is then it will only be enjoyed be a tiny clique of the ultra-wealthy, privileged few. Whether you regard that a great pity or simple financial a fact of life is a matter of personal opinion. Investing in wine is tricky and like any investment subject to risk. Fraud is not uncommon, as a Guardian article warns, “Would-be investors should proceed with caution and deal with reputable operators as there have been scams. The Serious Fraud Office jailed three men and a woman in 2008 for operating a fraudulent wine scheme promising stellar returns” (Moya, 2010) Even that $160,000 of Chateau Lafitte wasn’t exactly what it claimed to be. It had been claimed that it came from the cellar of the third US President Thomas Jefferson (and the man who wrote The Declaration of Independence). This undoubtedly added to the dollar value achieved at auction. However, the Jefferson connection was subsequently comprehensively disproven. Today scientists can use extremely advanced technology, including particle accelerators, to test wine and wine bottles. To combat fraud wineries have begun to insert vine DNA encoded tags on the inside of closures. (Tzabar, 2008)
In terms of investment risk the following illustrates some cold hard statistics: Just how much does a wine increase in value over time? Lets take a look at a 1961 Ch. Latour. On release in 1961 dollars, it cost $3 to purchase. Currently it is selling at auction for approximately $500. This is a return on investment of just over 15% annually for 35 years 1 . I picked 1961 Latour because it is a best case scenario. For our second case, let us pick something less illustrious: 1975 Ch. Cissac. A lesser Bordeaux wine from a lesser vintage. Ch. Cissac was released for about $4 a bottle, it currently fetches $15 at auction. That is a ROI 2 of only 6.5%. Clearly not all wines make great investments. Let us return to Ch. Latour for our 3rd example, but from 1975. Great wine, moderate year. Released at $20 it would now bring $75 at auction. Again our ROI is only 6.5%. Not considered in the above examples of ROI are the costs involved in storing the wine (condition of the wine at at the time of the auction can vary the value as much as 100%). If you have a passive cellar with existing racking than these costs may not enter the equation. If you use a plug in device to moderate the temperature of the aging wine then you need to add as much as $10 a month 3 for the cost of utilities (much more in Europe and other countries where electricity is more expensive than the US). In the above best possible scenario, the 61 Latour, this reduces the ROI from 15% to around 12%. In the other scenarios it brings the 6.5% down to a loss of over 200%. (Buyers & Cellars, 2010) Historically London and New York have been the hubs for sales of valuable wine but after China abolished all tax and duty on wine in Hong Kong in 2008 it has developed rapidly as a major centre - particularly for the expanding Asian market. “… a clique of affluent super-collectors in Hong Kong has established a reputation for outbidding global connoisseurs when top vintages have come up for sale” (Reuters, 2010) Interestingly these new Asian collectors are actually consuming much of the wine they purchase. Since the price these wines command is derived from a combination of reputation, quality and scarcity they are actually driving prices up because the wines are getting increasingly scarce. On the other hand the economic recession has lead to some investors liquidating parts of their collection to raise cash: “ In the last few weeks, private collectors submitted offers to sell US$10 million worth of wine to Vinfolio, a San Francisco-based company that buys and sells wine online. Normally the company has about US$6 million offered to it” (Reuters, 2010) So, if anyone has a spare few bucks then there are bargains to be had! But do your homework – Decanter has some good advice.