The Cost of Fine Wines in a Global Recession
By James Suckling, European bureau chief
For the moment, I'm not buying many expensive wines to lay down in my cellar, in view of the current global economic problems and the continued decline in prices of "trophy" wines. There's just no reason to buy them, because I'm very sure that their prices have not yet reached bottom. When they do, that's the time to buy.
Granted, trophy wines are a small fraction of the market. These are the high-priced wines that sell for hundreds of dollars a bottle, wines such as first-growth Bordeaux, tiny-production Burgundies and a few designer wines from California, Australia and Italy. They may have very little to do with what most of us buy and drink on a regular basis, but they're the wines that many of us read and talk about. Some people even invest in these wines like stocks and commodities. Moreover, these wines are the leaders in the market. If their values go up or down, sooner or later the prices of other wines usually do the same.
Prices for the great modern classics have already dropped from 10 percent to 50 percent in Europe, and some have declined even more dramatically. The U.S. market has seen less of a fall so far, but it should be only a matter of time. The most dramatic example of falling prices is 1982 Château Le Pin, the astronomically priced Merlot from the tiny Pomerol estate. At its height, in 1997, it sold for close to $60,000 a case, and now it's hard to sell at $20,000. (It's still an insane price by most standards.) A more typical example of the decline in fine wine prices is something like the 1990 Château Latour, which sold in October 1997 for about $6,000 a case in London, but now sells for around $4,000.
The reason for the decline is obvious: It's purely a question of demand. Fewer people are buying these wines, and more people are selling as they see prices going down. Everyone is worried about the world's current economic situation, and when you're worried, you don't spend money on things like ultraexpensive wines, and you don't hold them in your cellar for investment. This said, Bordeaux and other fine wines in the $30- to $100-a-bottle range are still selling well and holding their value, but you have to wonder what will happen if the economy gets worse in America and Europe.
Global fine wine traders don't like to talk about it, but I know that they know that the dike holding a river full of fine wine is beginning to give way, and by next year it could be flowing freely, with fine clarets and premium wines from around the world at much lower prices. A large part of this wine could be coming from the Far East, where the economy has been in a free fall for almost a year, and where a significant proportion of recent great vintages of Bordeaux, Burgundy and other wines went over the last five years.
The fact that some wine producers seem totally out of touch with the situation only exacerbates everything. The best example I can think of is the 1997 en primeur, or futures, campaign in Bordeaux, when the top wine producers of the region raised their prices an average of 10 percent to 20 percent for a good-quality but boring vintage. The wines sold through this spring to châteaus' clients (agents and wine merchants around the world), but apparently consumers have not bought the vintage. Some European wine merchants are now selling their '97s at prices 20 percent below what they paid for them.
The French are not the only ones who are not facing reality. Another example is the well-known Chianti Classico estate of Castello di Ama, which now sells its 1995 single-vineyard Chiantis for $140 a bottle. The 1994 vintage sold for about $40.
What does all this mean? I might be wrong, but I believe that prices will be coming down even more for top-class wines and that they won't hit bottom until next year sometime, when the U.S. economy slows. It happened during the oil crisis in the 1970s. It happened during the world recession in the early 1980s. Why shouldn't it happen this time around? Of course, the world economy could turn around and the U.S. market could grow stronger. However, the thought of reasonably priced top-class wines could be one of the few reasons to hope for an economic downturn.
This column, Unfiltered, Unfined, features the opinionated inside scoop on the latest and greatest in the world of wine, brought to you each Monday by a different Wine Spectator editor. This week we hear from European bureau chief James Suckling, in a column also appearing in the current issue of Wine Spectator magazine. To read past Unfiltered, Unfined columns, go to the archives. And for an archive of senior editor James Laube's columns, visit Laube on Wine.
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