Wine Investment Update July 2012

Lafite Slide Crimps Sales 25%, China Turning to Burgundy

Source: Bloomberg

By Guy Collins

July 03, 2012

Wine sales at the world's five biggest auction houses fell by a quarter to about $160 million in the first six months of 2012 as lower prices for top growers combined with investor caution sparked by the economic slump.

A decline in prices for top vintages of Chateau Lafite- Rothschild since the start of this year contributed to the drop as demand from Chinese investors focused more on Burgundy.

Lafite extended a slide which started in mid-2011, taking prices for top vintages such as 2000 and 2005 down more than 25 percent from their peak. A switch in focus by buyers away from the most expensive first-growth Bordeaux wines to second-tier producers, lesser vintages or rival regions such as Burgundy, Rhone and California contributed.

"The Bordeaux market has come off the highs of a year or two ago," Acker Merrall & Condit Chief Executive Officer John Kapon said in a phone interview from New York. "It's stabilized. Bordeaux's more susceptible because of the larger quantities. You won't find that volatility anywhere else, unless there's a major financial crisis."

Acker led global wine sales in the first half with $46.5 million, including Internet auctions, while Christie's International sold about $35 million, Sotheby's (BID) (BID) $34.2 million, Zachys $30.3 million at its live auctions and Hart Davis Hart Wine Co. $15 million, according to e-mailed figures from each company.

Asia Ahead

Hong Kong maintained its lead, accounting for about $75 million, or 47 percent, of global sales by the top five houses. U.S. sales, split between New York, Chicago and California, accounted for some 35 percent and Europe 18 percent.

The total of about $160 million sold in the first half by the top five houses compares with more than $220 million in the same period a year ago and about $405 million for the whole of 2011, a record year. Wine totaling $350 million was sold at auction in 2010.

"The change in the market was obviously the decline in the Bordeaux market," said Paul Hart, chief executive officer of Chicago-based Hart Davis Hart. "That's the big picture. Although we saw a decline in dollars, we saw an increase in the number of new buyers and bidders."

At an Acker New York summer sale in the Hamptons on June 23 which raised $3.67 million, Burgundy featured as top lot and as 10 of the top 25, with a six-magnum case of 1999 Domaine George Roumier Musigny fetching $79,950. A 12-bottle case of 1959 Chateau Petrus achieved $55,350 and eight other Petrus lots featured in the top 25.

Romanee-Conti

The top three lots at Sotheby's two-day London auction on June 13 and 14 were six bottles of Montrachet 2000 Domaine de la Romanee-Conti Burgundy, which sold for 17,625 pounds ($27,400), a double magnum of Chateau Latour 1961 which went for 15,863 pounds and 12 bottles of Cote Rotie La Mouline 1976 Guigal from the Rhone, which achieved 14,688 pounds.

"There certainly has been diversification," said Serena Sutcliffe, Head of International Wine at Sotheby's in London. Asked about signs demand in China for Bordeaux is cooling as attention focuses on Burgundy, she said "I think it's settling down. In the first years many people were starting collections from scratch."

The Liv-ex Fine Wine 50 Index, which tracks 10 recent vintages of the five Bordeaux first-growths, has declined 8 percent this year. That contributed to a 30 percent drop in the past 12 months, having gained 50 percent over the previous 15 months. "The big drop in the first-growths was September to December" last year, Sutcliffe said.

"Last year was a record and not every year can be a record," said Acker's Kapon. "We expect a good fall season. The market's healthy, it's active."