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How high is up?
We have all bemoaned recently the rapid, sometimes breathtaking increase in wine prices. For example, Revue du Vin de France, the leading French wine magazine, reports and predicts startling increases. In 1991, Haut Brion got 284 French Francs as a futures offering. By 1998, RVF predicts, the price as a future per bottle will be a stunning 1,988 FF, or about $350 a bottle at today's very favorable exchange rates. (What happens when the dollar drops?) Similarly, Latour got 762 FF per bottle as a future in 1994 (over $100 as a future in an average vintage, for a wine I remember buying for $40 a bottle in the 1993 vintage!), and by 1998: a knee weakening 3763 FF per bottle---$625. As a future!
Those are just projections, of course. Reality....in 1995, the actual price for Latour was 1,335 FF, a mere $220 a bottle. Do you like that "mere?" I saw 1993 Latour as a future, by the way, for $40 a bottle. Even allowing for the difference in vintage quality, it is a pretty stunning increase in just three years.
RVF predicts that a good second growth like Pichon Lalande will be garnering 837 FF per bottle in 1998, up from 138 FF in 1991. They predict lesser wines like Lafon Rochet going from 59 FF to 255 in the period 1991 to 1998. Lafon Rochet, by the way, has improved dramatically, but around $45 a bottle at good exchange rates as a future is.....a lot.
We watched the market crashes in Asia and hoped
that would cool things off. We watched reports of vintage problems for 1997 in some areas,
and hoped THAT would cool things off. And all those factors may indeed chill the market a
little. There is some evidence that auction prices stabilized or even declined for top
Bordeaux over the last couple of months. Still, Robert Parker, leading wine critic,
predicts we ain't seen nothin' yet. He says that prices will continue to skyrocket and
current pricing will look reasonable in a decade or two; hence, he says, go out and stock
up on good Bordeaux vintages despite their seemingly hideous pricing (in particular, he
says, buy 1995).
The RVF predictions for 1998 would seem to bear him out, and so does a certain line of common sense. That is, despite current Asian economic problems, the world's population is growing quickly and regions like Asia are producing more and more people able to enjoy the finer things in life. Chateaux like Latour, however, cannot produce any more to meet this demand as their production is constrained by French AOC law. If Latour makes 20,000 cases in a good vintage, that's it. Latour cannot make 40,000 cases. This is not like General Motors simply directing the factory to turn out a few more cars to meet demand. If the same 20,000 cases are being chased by ten times as many millionaires thirty years from now.......they're snapped up, and supply is short and prices rise. So goes the theory, anyway.
However, it still seems to me that there is a fundamental problem. Granting the logic of everything previously noted, it seems hard to believe that the supply of people who can and will buy at stratospheric prices will be ever increasing when we are looking at bottle prices of, say, $500 a bottle for a futures offering. For one thing, remember that rich people don't always buy at any price and don't always like being taken advantage of. It's one thing to say there are enough such buyers to snap up a 1,000 cases of Petrus. But the entire 1st and 2d growth supply, plus top Pomerols and St. Emilions in Bordeaux? For another thing, wine consumption may be rising in certain areas, but it is dropping elsewhere (like in France). So there is a safety valve releasing pressure from the demand for fine wines, too. Also, former customers will necessarily have to bow out. Even if there is soon to be a larger supply of "millionaires" who might snap all this wine up, most past buyers, even if our incomes keep pace with inflation, simply can't afford to pay triple digit prices per bottle on a regular basis. It is no longer an issue of whether we think it is a fair value for the price. It is simply not possible. So, I am not quite so sure the world will support a vast and ever increasing supply of $300 and $500 bottles sold as futures that have to be stored for twenty years.
If this is the way the wine world goes, however, I am very certain that the vast majority of us will no longer have access to these wines. Basically, if indeed they maintain this trend, they are gone from our hands for the time being. I am not so sure this is a bad thing in the long run. In the long run, it might bring sense back to the marketplace. Remember that with Bordeaux in particular, it is a very real market. Bordeaux is sold like a commodity. Market forces control the prices.
What will change people's habits? If top Bordeaux and Burgundies temporarily become unthinkably unaffordable and stop becoming the first wines people think of as a result. Let me say that Bordeaux is my favorite wine region, and Burgundy second (albeit, a distant second). The big inflation kicked off in Bordeaux and at the upper levels has begun to make always pricey Burgundy look rational. (But expect the Burgundians, who make wines in infinitesimal quantities, to figure out pretty soon that they have the bargaining power to play this game even better.) But we have alternatives. There are plenty of lesser chateaux that are reasonably priced and make good wine. No, Poujeaux is not going to provide the quality of Latour at its best, but at times it may compete well. (I'd rather have '86 Poujeaux than '86 Latour, for instance.) Also, other regions will get a chance to make a case, and competitive pressures will be brought to bear. We will drink more Madiran, more Barossa Valley, more Mosel, more Alsace, more Ribera del Duero. Given a chance and some modest price increments of their own, we may find that these regions can exceed even their current quality levels (which are often pretty impressive now). Maybe if these wines themselves become prestige items (some already are), even Pichon Lalande and Latour may have an incentive to remain more reasonable. Competition works.
My predictions: (1) The market will begin resisting some of the crazier prices. Some chateaux may get away with this type of pricing, but as a group they are still producing a lot of wine. For a lot of people, it does not matter so much if they drink Sociando Mallet instead of Mouton Rothschild. In fact, a lot of people would say Sociando has held its own with Mouton over the last decade or so. All those 2020 era millionaires do not exist as yet--and projections being what they are, may never--- and there is in fact an Asian economic crisis today. (2) Prices will rise, but more slowly. We will see some stabilization, at least for awhile. I can't predict 2020 yet, but prices have risen too fast too far to continue in this manner without pause. (3) The very hottest wines, especially those in small quantities, are going to be difficult to find and harder to afford. Here, we have no bargaining power as consumers. This bodes well for those who own California boutiques. But other wineries with large productions to sell and less distinctive reputations are not going to find it as easy as they may think to just suddenly triple or quadruple prices. We may also see a lot of "lesser" wines suddenly performing well in the eyes of wine critics. This will be because "less expensive" is a relative term, and increasing numbers of these wineries that are relatively less expensive have the wherewithal to make special wines themselves. Which will you buy? Latour, $600 a bottle. 95 points. Or, Chateau XX at $33, 94 points? Yeah. Some people are still dumb enough to buy the Latour. But are there really enough people that stupid and that rich?
My recommendations: So, I have a couple of recommendations. (1)Stock up and buy those vintages that are affordable. Let the overpriced new stuff rot on the shelves. 1988 and 1989 Bordeaux are fine quality and relative bargains; vintages like 1994 can provide surprising quality if well selected (the aforementioned Lafon Rochet is a marvel and cheap!), and the prices are often more reasonable than you think. In general, older, more mature wines are often cheaper to buy now than futures of wines that need to be stored for twenty years.
(2) Just say no! We all have different means in the world. We all grimace at different places. I confess that if I had $50 million in the bank, I probably would not care how much Latour cost if I really, really wanted it. Still, most of us can't keep chasing ridiculously overpriced wines that are breaking the bank. We are part of the problem. Do you really want to pay $300 a bottle for 1996 Latour as a future? Why? There is an awful lot of fine wine, almost as good, as good or better, that can be purchased in far greater quantities and in the current marketplace, not as a future, for that type of money. I love Bordeaux, and I love Latour, but I cannot agree to mortgage my life for it. Just say no.
(3) Experiment. Try other wines, other regions. There
is an awful lot of great wine out there, even in the most affected regions like Burgundy
and Bordeaux, that does not require a second mortgage to purchase. The key escalation has
been with the prestige wines. They aren't always the best, and they certainly do not have
an exclusive on quality. Ignore the labels.
After all, it is only wine. If that seems like a shocking statement, the pricing insanity led me to that realization, as surely as if cold water had been thrown into my face. How much enjoyment can you get from a single bottle of wine that disappears in a couple of hours over dinner? Often my answer has been, "a lot." I am not oblivious to the surrounding circumstances, i.e., convivial dinners, shared experiences with friends. But I do not need a $600 bottle to accomplish that, and I find the wine turns bitter when one begins to feel that a bullseye is painted on one's back by the wineries. Or, perhaps a sign is taped onto your back reading: "Idiot wine lover. I like it more if it's twice the price. Kick me, sell me wine."
So, enough is enough. I hear some people already so jaded that they are beginning to talk as if $50 a bottle for wine is routine and not even to be mentioned. I'm often guilty. Yet, it seems to me that fifty bucks ought to get you an exceptional bottle of wine every time, whereas often these days it seems just to get you a wine that should be selling for half the price. If $50 doesn't get you an excellent bottle, the winery should refund your money, as it should have declassified the vintage, if that's the problem, or paid more attention to the winemaking. Yet, that's not what is happening. Prices increase, even in bad or mediocre vintages, but quality, while generally good, stays the same and is unrelated to the price increases. This is pure speculative fever, wholly unrelated to the costs of production, and it is similar to what we often saw in Burgundy in years past, where tiny production levels allowed producers to do as they pleased without, necessarily, much regard to quality or costs of production. Not too long ago, if I considered paying triple digit prices for wine, it was for something unusually rare, and usually very old and mature. Now, they want that for futures. Why? Supply and demand. Well, the demand is quickly evaporating from me.
If it is really true that the growing number of millionaires can support this market, I can only say, they can have my share of the wines priced at ridiculous levels. So here's my fundamental proposition: let's find out if there really is such a market. Let's see if the wineries can survive with all those hypothetical millionaires and without their traditional customers and consumers. If so, those millionaire types can have the wine because I can't and won't pay three digit prices for routine collectibles. My resolve is stiffened by the fact that it is just not possible to pay $4,000 a case for wine very often. I won't be tempted. Just maybe the market will come back to reality if enough people react similarly. I am just saying "no." You should, too. Trust me. There are other great things out there to drink.
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Copyright © 1998, all rights reserved, Mark Squires.