I was privileged to attend the Domaines Barons de Rothschild vertical tasting held in London recently. Organised by The Institute of Masters of Wine and hosted by my good friend Charles Chevallier, Wine Director of Château Lafite-Rothschild, on the agenda were 6 vintages of Lafite-Rothschild, along with additional vintages of Carruades de Lafite and Château Duhart-Milon for good measure.

Moderated by Master of Wine Mark Bingley and with an enlightening introduction by fellow Master of Wine John Salvi (who has served as AWC’s consultant in Bordeaux for the past 20 years), the tasting provided some superb insight into the history, viticulture and winemaking practices of Château Lafite-Rothschild and various Bordeaux estates under the management of Domaines Barons de Rothschild. It is difficult to express just how exquisite these wines always prove themselves to be – concentration, structure, fruit and tannin, all in perfect harmony - and this occasion was certainly no different.

Above: Our moderators. (l-r) John Salvi, MW, Charles Chevallier, Mark Bingley, MW

Key discussion points covered by Mark and Charles during the introduction and opening remarks:   

- During the harvest, the pickers do no selection whatsoever. They pick absolutely everything and the fruit is then triaged by hand in the chai just before it is crushed. Optical sorters have been experimented with in the past but they have not been implemented thus far as they remain somewhat cost-prohibitive. If necessary, green harvesting is conducted in July, however it is not done to reduce the crop size (this is achieved through careful pruning during the winter months) or for the purposes of increasing concentration, but is instead relied upon to increase intra-row aeration and to adjust sun exposure. Today, all of the fruit for Lafite-Rothschild, Carruades de Lafite and Duhart-Milon can be processed in as few as 8 days, a remarkable feat. Up until the early 1990s, harvest was a 3-week long, non-stop operation.

- All of the red wines are fined in the traditional manner, by hand, with fresh egg whites. Filtration prior to bottling is utilised, but only to, as Charles noted with a wink, “Remove the mosquitoes.”

- Following success of certain estates and the fact that the trend is growing globally, Lafite-Rothschild has already experimented with both organic and biodynamic practices. Charles stated however, that, at the end of the day, the goal is, “Not just to have a ‘bio label’. We want to help the vineyards be protected, but we want to do it with minimal intervention and with the minimum quantity of chemicals necessary.”

- Between the Grand Vin, Carruades de Lafite and Duhart-Milon, there is almost no technical difference in production techniques, with the exception of the oak treatment and the ageing processes. Lafite-Rothschild receives 100% new oak in each vintage, whereas Carruades de Lafite is held in 10% new oak and 90% second year/used barrels which are recycled from the Grand Vin. Duhart-Milon receives 50% new wood and 50% second or third year barrels from both Lafite and Carruades. Starting from the 2011 vintage, some pyramidal, concrete vats will be used for certain Merlot parcels. These vats are fairly small in size and their use is purely experimental at this point.

- Domaines Barons de Rothschild owns and operates their own cooperage with 5, full time coopers who build, toast and maintain all of the barrels that the various estates use. Interestingly, when the discussion turned to the barrels, Charles commented that they have been conducting extensive research on the toast levels for each property and have come to some clear-cut conclusions. Rieussec’s barrels, for example, are toasted at low temperatures for a long period of time, whilst L’Evangile’s barrels are toasted at the exact opposite end of the spectrum – briefly, but with very high heat.

- As a rule, Carruades de Lafite is ready to drink several years earlier than Lafite-Rothschild. On average, 30% of the vineyard production from the Carruades plateau makes it into the Grand Vin and 50% is deemed of a high enough quality for production as Carruades de Lafite on its own. The remainder of the production is sold off in bulk to various (unnamed) negociants.  In the many decades since its purchase, in 1845, the terroir of the Carruades vineyard has been found to be less well suited to growing Cabernet Sauvignon. So, there is now always a greater percentage of Merlot in the Carruades de Lafite blend, versus the Grand Vin of Lafite-Rothschild.

- Duhart-Milon is expected to mature even earlier than Carruades. However, due to the terroir, it must be produced in a style that can seem almost stern in the first few years of its life. Charles likened the tannic seriousness of Duhart-Milon to “a young officer candidate, fresh out of the military academy, who doesn't yet know how to smile.” He also noted that, despite this youthful austerity, there are very few vintages of Duhart-Milon which will keep for more than 20 years. The fermentation temperatures for Duhart-Milon are kept purposefully lower and the number of pump-overs is reduced to prevent over-extraction and allow the wine to open up. Shockingly, prior to 2001, Duhart-Milon was a vineyard that the picking crews and Domaines Rothschild staff picked on an ad hoc, “when they had time” basis, nearly as an afterthought to Carruades and Lafite-Rothschild! Now it is a much more focused effort and has a specific team dedicated to its production. 

- Château Rieussec, which was purchased by Domaines Barons de Rothschild in 1985, operates under a completely different philosophy than the other estates, embracing and cohabitating with botrytis. Charles chuckled at the thought of how difficult it was for him to adapt to this alternate way of thinking when he first showed up to manage the property. Ultimately, quality control in the vineyard and the success of the wine each year is simply down to monitoring the evolution of the botrytis through the vineyards and reacting accordingly and at the appropriate times. A very specific and unique product, fermentation is done in small casks and ageing is conducted in 50-60% new oak barrels for 24 months. Charles commented that, although the estate has experimented with cryo-extraction (freezing the grapes prior to crushing), they do not believe it allows the wine to express itself in the best fashion, so cryo-extraction is never utilised with the Grand Vin.

Above: Charles discourses on the vintages of the past decade.

- Of the various, recent Lafite-Rothschild vintages, Charles noted that, “2005 is probably a ‘100 year’ wine. It is very closed down at the moment but I’m sure it will last almost indefinitely. 2004 is much more open and it is ready to drink already. It is a classic vintage. 2009 has phenomenal potential, but there is the possibility that it may head in the same direction as the 2003 in terms of its evolutionary timeline. The 1990 is very similar to what I expect the development of 2009 to resemble, actually. The exoticism that the 2009 displayed at En Primeur is now changing back to something a bit more classic. 2010 is still difficult to grasp at the moment and I cannot predict where it will head in its evolution. It is certainly a great vintage, with classic fruit flavours. The acid levels, as measured in the laboratory are exactly identical to the 2009, yet it tastes completely different. This leads me to believe that the 2010 will probably last longer.”

- On the advancements in technology, Charles further commented that, “There are no bad vintages now. The truly great vintages are the same as the great vintages of the past but new technologies in production mean there are no more bad years. 1968 was the last, truly disastrous year and it is a perfect example of what can go horribly wrong.”

-  To fight counterfeiting and forgeries, Lafite-Rothschild is now using Prooftag as an additional security measure. Starting from the 2009 vintage, all new bottles of Lafite-Rothschild and Carruades de Lafite which leave the winery will be fitted with Prooftag Bubble Seals on the capsules. Each Prooftag Bubble Seal is a unique, three-dimensional, proof of authenticity which is irreproducible. Château Palmer and Domaine Ponsot are two other notable estates which are already utilising Prooftags. At Lafite-Rothschild, these seals will also now be fitted on all older bottles that are sourced and supplied directly from the vintage library.

Above: Intense concentration when tasting.

Tasting Notes and Comments –

2006 Carruades de Lafite

Dark purple colour with slight rim variance. A soft perfume. Subtle tobacco smoke and cedar aromas on the nose. This is a lighter bodied wine, which, while quite nice, is not particularly powerful. A reminiscence of incomplete lignification is overridden by pleasing cranberry and raspberry fruit. Medium acidity. Lasts on the palate. A solidly made wine, but from a vintage that was marred by heavy spring frosts. 90 Points

John Salvi, MW - “Bright purple core turning to ruby at the edges. Clean, bright, fresh nose of red fruit. Delicate and open in the mouth. A relatively light wine that is already developing well. Ready to drink at this point but will continue to last another 5 to 10 years. Plenty of fresh acidity and integrated tannins. A gracious and charming vintage rather than a powerful one.”

2006 Duhart-Milon
Brighter red and with less purple at the core when held next to the Carruades – perhaps maturing a bit more rapidly. Similarly, the nose is a bit more open and expressive but has fewer nuances to it. Darker plum and black raspberry fruits in cohesion. Broad and mild in the mouth, with noticeably lower acidity than the Carruades but more primary fruit flavours. Charming. 91 Points

John Salvi, MW - “Colour a bit more mature than the Carruades, still bright and vivid though and perhaps a bit deeper. Nose is very gentle. Creamy red and black fruit aromas. Plenty of vigour on the palate with fresh, spicy acidity and firm, strong tannins. Again indicative of the vintages charm. Will last, but it is certainly approachable already.”

2003 Duhart-Milon
After a very hot August, this was an incredibly difficult vintage to manage. Many vines suffered from excessive heat stress which retarded both their production of sugars and their complete phenolic evolution. The resulting wine was quite high in alcohol and the tannins remain unusually disjointed in their presentation on the palate. Nearly a decade on, the wine is now quite uniform in its ruby colouration, with lots of remaining particulate – the use of minimal filtration is readily apparent. Roasted fruits, baking spices, and mild Christmas cake aromas all swirl in the glass. This presents as having great width in the mouth with broad, soft tannins. For better or worse, along with the remaining cassis flavours, this has the subtle taste of roast Arabica coffee beans. Soft and round, with understated yet integrated fruit. Begin drinking it now. 93 Points

John Salvi, MW - “Young, bright colour which does not appear appreciably different than the 2006. Core has slightly more depth. Nose is full of power and youth. Restrained and spicy. This is a deeply concentrated and solidly constructed wine, yet is almost austere at present. Needs time still but is developing at a rapid pace. Surprisingly well balanced given the vintage’s heat.”

2003 Lafite-Rothschild

Picked 5 days before the Duhart-Milon. Interestingly, and despite the severe heat, Charles noted that the fruit from the Grand Vin blocks was quite regular and required less triage than the berries from either Duhart-Milon or the Carruades plain. He chalked this up to the fact that the Grand Vin vines have roots which penetrate nearly 7m into the gravel subsoil. Additionally, as they are older vines, they are prone to fewer problems and the heat has markedly less effect on them. This has a similar colour but darker core when held up next to the Duhart-Milon. Softer and somewhat tighter on the nose as well. Smells quite ‘smart’. Whiff of pine grove and cedar, hint of charcoal dust, and slight baking spice aromas. You can sense the hidden, explosive power in this. Toes the line in terms of balance, yet just holds back. Impressive. Expansive. A really lovely wine but one which is developing rapidly. Lasting, lasting, lasting in mouth. 97 Points

John Salvi, MW - “The ‘jump-up’ out of the glass on this is impressive. The 2003 Duhart-Milon pales next to it. There is just more of everything here and it is clearly at an entirely different (and much higher) level. Colour is still young with traces of purple around the edges. Nose is powerful, intense and resplendent with black fruits. Perfume is exotic and clearly has further development ahead of it. Palate follows the nose, with concentration and intensity. Spicy tannins. Needs to sit for a few more years, but will last for some time still. Skilful winemaking was definitely vital here in order to counteract the effects of the vintage. This has retained a fine level of acidity and will live on into a graceful maturity. The grand terroir of Lafite is undeniable!”

2000 Lafite-Rothschild
Upon tasting this, Charles commented that, “In 2000, the weather was really great. Maturity was complete. It is a real pleasure to enjoy this today and I expect that it will be nearly impossible to destroy this wine. This is an indestructible wine that people can keep in their cellars for many, many, many years.” The wine is a dark, consistent, reddish-purple colour. The nose is pure. Black cassis in spades. An absolute beauty. Fruit aromas are still presenting themselves as being quite young. On the palate, the fruit, tannins, and medium acidity are all in perfect balance. This is so hard to achieve. An incredibly difficult and applause-worthy performance. Truly exceptional. Tannins are unbelievably fine and you can really taste the primary essence of the Cabernet Sauvignon skins, in a fantastic and pure expression. Alcohol is nominal and completely unapparent. 98 Points

John Salvi, MW - “Colour still hinting at youth – ruby and surprisingly fine and bright. Generous, ripe and heavily fruited. Now this is really beginning to show what it’s made of. Tannins are powerful and quite severe. Palate remains less developed than the nose and the tannins need further time to soften. Eventually these will blend with the remaining fruit and all the fine flavours will be revealed.  This still needs time in spite of its ripeness and superior phenolic maturity. A very complex and complete wine.”

1999 Lafite-Rothschild
“This is a great expression of a [still] young, drinkable Lafite,” commented Charles. This had slight bricking near the edges - a similar colour to the 2003, in fact.  Sublime nose, yet a bit shy. Cigar box, but you have to work at finding it. Silky, delicate and seductive. Has a confidence and certainty to it that is enviable. Very fresh in the mouth, it dances across the palate. Incredibly difficult to spit out! Lasts and lasts and lasts. The additional Merlot in this particular cuvée is readily apparent. Drinking now. 98 Points

John Salvi, MW - “Maturing, with a ruby/browning edge. Unsurprisingly, more developed and less concentrated than the 2000 on both the nose and palate. However, the nose remains showy and delightful, fresh and fragrant, with lots of pure fruit aromas. Open and juicy in the mouth, the tannins are totally integrated. This is wonderfully expressive and attractive.”

1990 Lafite-Rothschild
High temperatures in this vintage resulted in the final assemblage being nearly all Cabernet Sauvignon. Only 3% Merlot made it into this cuvée due to the heat damage the vines suffered. Much more bricking than the 1999, although the colour is still uniform. Powerful nose. Wild herbs and a bits of dried bramble coming out, along with dust and tea leaves. Tertiary aromas and flavours really coming out now. A true older Bordeaux that is really starting to expressing itself. Wow. Exceptional stuff. Has now aged enough to be really interesting. Sweeter than expected. Bruised plum flesh. A fabulous winner. 99 Points

John Salvi, MW - “Magnificent. Bright, classic maturity. A fragrant, elegant nose of first class cassis fruit and loads of spice. Palate is wonderfully pure. Mouth-filling dark berry flavours and sublime acidity. Long. This is now a wonder to behold and an honour to drink. Will still keep for many more years due to the fine, silky tannins. A lovely and finely bred Lafite of great beauty, opulence and expression.”

1989 Lafite-Rothschild
Noticeably lighter colour than the 1990. Very brick. Really quite focused and Cabernet Sauvignon-centric on the nose. A sweet, kind, gentle wine. Pleasant pepper aromas and on the finish. An exceptional Cabernet expression. Nuanced. Medium acidity still. Lasting. Tannins still present but absolutely at their finest. “This is definitely what you expect in a great Pauillac,” said Charles. 96 Points

John Salvi, MW - “A visibly denser wine than the 1990, however the colour around the rim is a little more evolved. Truly a perfect example of what a Lafite is and can be. A great wine. Fruit-driven fragrance that is rich but also classical and restrained. Palate is deep, structured, lengthy, powerful, and complete. Breeding and elegance. This wine can be kept for many, many more years and is still far from its best or its peak. This will outlast the 1990 and reach great heights.”

1988 Lafite-Rothschild
Similar colour to the 1989. Subtle, attractive, complex perfume. Soft and drinkable. Medium high acid and certainly more present than in the 1989. Tension continues across the palate. Another good expression of ultra-premium Cabernet Sauvignon, but somewhat less interesting than the 1989. 94 Points

John Salvi, MW - “Not quite the same power or body as the 1989, yet it is a pure, classical Pauillac at its very finest. Perfect balance and structure but less opulence or richness when set against the prior two wines. Wonderfully pure fruit on the nose with a delicious spicy fragrance. Expressive, bright acidity on the palate. A wine of great beauty, elegance, finesse and harmony. Will last as long as the 1989, but longer than the 1990.”

The tasting concluded with a selection from what is, undoubtedly, the top Sauternes vintage of the past 20+ years, the supremely elegant 2001.

2001 Rieussec
This is the only possible threat to Chateau d’Yquem’s reign over the 2001s. Absolutely leaps from glass. A religious experience. Spicy, botrytis nose. Just cut button mushrooms and chopped sultanas. Fresh. Beautiful. Brings a tear to your eye. Candied apricots for days and days on the palate. Long, long, long. Hint of an espresso crème tinge on the finish brings the whole package together. Lovely acid and sugar in complete balance. 99 Points

John Salvi, MW - “Brilliant golden hue. Pure, bright and crisp. Powerful demerera sugar, pungent botrytis and lemon pith bouquet. Toasty and opulent. Very long and mouth-filling. Lingers beautifully in the aftertaste. Liqueur-esq nectar. Sweet and sultry yet spectacularly fresh and airy due to the acidity. A superlative Sauternes of unmatched grace and style.”

On their global brand strength and the legendary history of their flagship estate, the properties and wines of Domaines Barons de Rothschild remain incomparable in the fine wine world. What a pleasure it was to enjoy these fabulous examples and reflect on the remarkable capacity of great Bordeaux to age, develop and evolve.

Contact us to enquire about our current availability of Château Lafite-Rothschild, Carruades de Lafite, Château Duhart-Milon, and Château Rieussec.

The Event -

This report follows a fascinating evening of tasting and analysis which covered recent Top Investment Wines and was held in Monte-Carlo, the tax-advantageous wealth haven on the Cote d’Azur.

The thirty-two attendees were comprised of clients of Monaco Asset Management and local clients of The Antique Wine Company.

The purpose of the tasting was to study the investment performance of wine as a commodity, while simultaneously offering an opportunity to taste some fantastic wines.  At The Antique Wine Company it remains our view that whilst fine wine represents an impressive investment vehicle, ultimately, great wines deliver pleasurable experiences. It is those experiences with family and friends which are often just as important as a wine’s ability to provide financial gain. What better place to enjoy some fine wine and discuss its investment potential than in a wealth management environment?

The line-up included four of the five First Growths (Lafite, Latour, Margaux and Mouton) along with the world’s finest white wine (Chateau d’Yquem), an exceptional example of Domaine de la Romanee-Conti Echezeaux and Chateau Cheval Blanc. Additional wines included Carruades de Lafite, Chateau La Mission Haut Brion, and a 100 point rated vintage of Chateau Pavie. Bordeaux vintages included 2000, 2005 and the recently released 2008.

Tasting Format -

Our head of purchasing, Berenger Piras, acted as sommelier for the evening and prepared the wines approximately 2.5 hours before the event. With the exception of the Domaine de la Romanee Conti Echezeaux, all the wines were double decanted in advance. The Echezeaux was tasted but not decanted in order to avoid any excess exposure to air.  The wines were presented by Stephen Williams, our Managing Director.

The Rules of Engagement -

The wines were tasted in pairs. After delivering a short presentation on The Antique Wine Company and our Fine Wine Investment Services the ‘rules of engagement’ were explained. In this competitive tasting format, tasters could earn points for guessing (or calculating) the correct Return on Investment which would have been generated had the wine been purchased en primeur and then sold on the market today.

 
To enhance the competition, a bottle of 2005 Chateau Margaux was put on the line for the winner!

Guests tasted their way through the pairs, with some tasting notes, the opening en primeur price, and information on the various estates and vintages being provided. A few subtle clues here and there aided with the calculations. After the final wine was tasted we revealed the answers and guests marked their sheets accordingly. The winner scored an impressive 40 points!

Guests were then asked to vote on their favourite ‘palate’ wine (the wine they enjoyed drinking the most), which also revealed some surprising results...

Votes and Answers –

Please click here to enquire about the availability of these wines or to request additional information.

Surprising Conclusions -

The favourite wines of the night (by taste) were the 2002 DRC Echezeaux followed by the 2000 La Mission Haut Brion and 2003 Cheval Blanc in a tie for second place.

The 2002 Lafite Rothschild was the best performing investment wine with an increase of 1106% since release.

Correlation between taste and investment performance -

The tasting showed that there was very little correlation between the ROI and the Parker scores for this sample set. Two of the three 100 point wines actually ended up at the bottom half of the results sheet in terms of ROI (the Pavie at 203% return and the d’Yquem at 186% return). Interestingly, the two highest performing wines in terms of ROI, Lafite Rothschild (1106%) and Carruades de Lafite (712%) were scored modestly on the Parker scale at 94 points and 91-93

points respectively. This is no doubt due to the distortion caused by the Chinese market for Lafite.

The standout wine of the tasting was clearly the 100 point rated 2000 La Mission Haut Brion. In terms of ROI it came in third place (at 564%) and it was tied for the second most popular wine of the evening by taste. Our view is that La Mission continues to challenge the First Growths year after year in terms of quality. Be this as it may, it is still often overlooked by investors who are only focused on the ‘First Five’.  This tasting really highlighted the investment potential of this wine, particularly given that it currently sits at an undervalued position in the marketplace. Fortunately, for savvy investors who are interested in the potentially 100 point La Mission 2009, we still have this wine available for acquisition in small quantities.

What did we learn? -

All of the wines at the tasting performed well from an investment perspective. Mouton Rothschild was the ‘poorest’ performer and it still showed 99% ROI over a four year period! Selecting blue chip wines and carefully analysing the market for undervalued options is the most lucrative route to ensuring solid financial returns.

The corollary between taste, critical acclaim and investment performance is clearly not direct. This shows the diversity of individual preferences, style and quality. These complexities are what continue to make the world of wine so intriguing.

To discuss or purchase wines from this tasting, or if you have questions about other fine wine investment opportunities, I can be reached at our London offices via email or phone +44 (0) 20 7359 1109.

Will Buckland, Wine Investment Analyst
The Antique Wine Company

On my flight from London to Hong Kong last week, I dedicated a great portion of my twelve hours in transit to reading commentary on the continued rise of fine wine values and, in particular, the value of Chateau Lafite-Rothschild. Many of the individuals who penned these articles described the market as approaching a "bubble-type" scenario. Having carefully read the material and having drawn a few conclusions of my own from personal experience, I thought I might relate some thoughts on the reality of the market and whether this "bubble" actually exists.

First, I think we need to define what this term actually means. According to the Collins English Dictionary the definition of "bubble" reads "a film of liquid inflated by air or another gas." The principle feature of this definition is that if the bubble bursts, it evaporates into nothing.

In financial terms, a bubble is described as "a price level that is much higher than warranted by the fundamentals."

In recent history the dot-com bubble of the late 1990s saw many online companies with little or no revenue traded on the NASDAQ at values far greater than their intrinsic worth (which was fundamentally proven to be almost nothing), a situation which ultimately lead to the market difficulties of 2000/2001. In the 17th Century the Dutch economy suffered through Tulip Mania, a speculative bubble which was created when a single bulb reached a price ten times that of the average worker's annual salary. This portended the eventual, total and utter collapse of the tulip market.

This raises the question of whether the rising value of fine wine is due to market speculation or market fundamentals and whether we are or are not reaching a "bubble".

Asia and Market Fundamentals

It doesn't take looking much further afield than Asia to recognise some of the major market forces currently at play.

As I am writing from Hong Kong I decided to see if I could find a proper representation of all the talk surrounding the "Lafite Bubble", and finally I located a suitable image! As you can see it has a hard skin which required a knife or fork to crack into it. Inside the bubble was a rich desert prepared by a Michelin-starred chef, rather than the air or gas I was expecting. Breaking it did not result in a total collapse but a piece by piece treat. Truly, bubbles are unpredictable phenomena.

Contrary to common belief, China is not exactly a new starter in the wine market. In fact China is ranked the seventh largest producer of grape-based wine in the world. It is a market of one billion people but currently its per capita wine consumption rate is only 0.5 litres per person per annum. For comparison, the average consumption per person per year in the USA is 18 litres and in France it is 55 litres.

According to the latest figures from International Wine and Spirit Research (IWSR) as commissioned by Vinexpo, the consumption of wine by China and Hong Kong increased by over 100% between 2005 and 2009, from 46.9m to 95.9m cases. IWSR predicts that this figure will increase by a further 20% by 2014, to 126.4m cases. If just 10% of the Chinese population starts consuming wine at the same level as consumers in the USA, then this would suddenly create a new market that is double the size of the French domestic market.

Every day now our Hong Kong office receives visitors, enquiries and orders from new clients and the numbers are accelerating. One noticeable change with our Asian clients is transaction size. Compared to when I started this business over 20 years ago (when a $20,000 order was something to celebrate) this new breed of client does not hesitate to place early stage orders which are ten times that size. Be this as it may, it is also pleasing to see that every day brings new consumers who really love wine; enthusiastic clients who pull corks and drink the wines they purchase.

Other emerging markets are displaying similar dynamics. Brazil and India, both countries with exceedingly high import taxes, are still showing a significant uptick in the import of fine Bordeaux wine. Earlier this month The Antique Wine Company handled another record-breaking transaction supplying a single bottle of exceptionally rare white wine for a sum exceeding USD 100,000 to a restaurateur in Indonesia! But more on that later...

The American Fine Wine Market

On the other hand, we have seen a severe contraction in the US market. I do not believe that this is a result of a change in fashion or appetite, but simply a consequence of austerity. As fine wine merchants we should be thankful for this trend. Had the US market maintained the pace of the previous decade we would now be looking at prices far north of where we are today. Now it seems likely that the American market will return, probably in line with their greater economic recovery.

The Global Market

The wines that have been subject to such significant increases in value cover perhaps 30 top chateaux/domaines. These estates are entirely French and are strictly limited in production. In fact, quality focus means these wineries are producing less today than at any time in their 200+ year histories.

Therefore, I don't think we are looking at a value situation which lacks the support of a fundamental market condition. This fundamental is obvious – there is a static level of production that is faced with soaring demand - and I find it hard to foresee any circumstances that will change that fundamental.

When we explore further, we continue to find data to support the view that the current value of fine wine is unlikely to simply burst and evaporate.

An IMF Viewpoint

A working paper recently produced by the International Monetary Fund entitled "A Barrel of Oil or a Bottle of Wine" suggested the value of oil and fine wine were correlated. I'm highly sceptical about comparisons made between a commodity of need (oil) and a commodity of desire (wine) that is purchased by consumers entirely from discretionary income. We should also bear in mind that oil is pretty much the same stuff with no variation of quality in its crude form no matter where it is extracted from.

Wine however has considerably diverse levels of quality, style, and appeal with the commodity being fragmented into different origins and brands. Each of these individual brands is associated with various degrees of costs, appeal and market position. Even in the upper-echelon Fine Wine category these differences create internal micro-economic fluctuations within the sector itself. Ultimately, the report concludes that:
"Demand is the dominant factor in determining the price of both." A rather obvious conclusion!

Of greater interest to me was an exercise performed by Liv-ex which rebased its Liv-ex 100 Index of Investable Wines against various global currencies and commodities. Their results demonstrated that the market has only just now reached its pre-2008 highs (when compared to the Euro) and it still remains under water when rebased against the Renmimbi (see graph), Yen and Gold.

Speculation or Consumption?

Just like a field of mushrooms, new wine storage facilities are springing up around Hong Kong on a daily basis. Wandering around these new facilities, with their hundreds of meters of racked Original Wooden Cases, novices might be astonished to see this and wonder how long it will take the market to actually consume all this wine.

Personally I don't see this as being much different from when I first wandered around the London City Bond facilities twenty years ago. Wine is, and has always been, a commodity that is matured and consumed over time. Its changing nature provides enthusiastic collectors and consumers with the interesting pastime of tasting vintages at various stages of their maturity. The fact that consumers in Asia are now experiencing this joy is no different from what has occurred in more advanced fine wine markets for the past three centuries.

Increasingly we have also seen wine funds being established. These are proving quite successful and it means that the nature of wine merchant's businesses has changed. Traditionally, merchants played the role of purchasing en primeur and holding stocks long term for future release. These duties have now been replaced by large investment funds and been made somewhat redundant by en primeurs being sold directly into the market. The Wine Investment Fund, which was established in 2003, recently paid out its latest returns on funds raised in 2005 and it successfully provided its investors with a 15.2% per annum growth rate. Over the same time period the FTSE100 provided an average return of just 0.48% per annum.

The Wine Investment Fund, which was established in 2003, recently paid out its latest returns on funds raised in 2005 and it successfully provided its investors with a 15.2% per annum growth rate. Over the same time period the FTSE100 provided an average return of just 0.48% per annum.

As recently as this week I received a new London Stock Market AIM flotation prospectus intended to raise €30m to invest only in wines more than twenty years old. Collectively, European-based wine investment funds now have a combined asset value of approximately £300m. Currently I am engaged as a consultant by another Asian-based fund that intends to raise $300m purely from Asian investors. These stock holdings seem relatively modest when compared to the estimated global fine wine stocks of €5bn-€6bn held conventionally by merchants, negotiants and the chateaux themselves.

Which wines?

In the emerging markets, without a doubt the strongest demand is for the First Growths. What effect does this have upon their siblings further down the classification hierarchy? It is feasible that the second wines of the Firsts, (Pavillion Rouge/Carruades/Forts de Latour, etc.) and other aspiring chateaux of appeal to Asian buyers will continue to see rising demand. However, demand for the other classified growths is also now rising in these markets. It is therefore likely that the extreme successes of these upper-tier classified growths (and their associated brands/labels) in emerging markets will inevitably lead to other markets 'trading down' to lower classifieds.

Unique Products

The fine wine business should also be kept in perspective and reviewed alongside other luxury goods, although these goods certainly have the enviable position of much greater supply elasticity. During the past five years the Asian market sales of Hermes leather goods has risen from €305m to €495m. Further, the Louis Vuitton Moet Hennesy group have increased their physical presence in Asia from 338 stores to 495 and the high-end Swiss watchmakers are all doing great business in the region. The demand for luxury is all part of a lifestyle product growth trend.

No Cooling Off

As we move into 2011 and the "Year of the Rabbit" there is no sign of the market cooling off. The value of wine auctions in Hong Kong reached $120 million in 2010, almost double the $64 million achieved in 2009 and four times the amount generated before the city cut duties on wine two years ago. In the run up to the Chinese New Year, we've already sold four more cases of the treasured Lafite-Rothschild 1982. These cases have each achieved just short of £50,000 apiece. Per usual these prices are less than recent auction prices but they are certainly not showing any signs of a price decline. In fact, they were sold at an all-time high.

For me, all of the above points support the view that it is highly unlikely that the value of fine wine will suddenly fall, and it makes me certain that even if it does, it will not evaporate into nothingness. Hence I don't consider the description "bubble" to be applicable to the present market conditions.

Personally, I am still very much in the market to buy Lafite Rothschild, and will be maintaining a strong stockholding position on all of our Grand Crus for the foreseeable future. If you are tempted to sell, I encourage you to contact us now.

Overview -

It’s likely that those who have invested in fine wine over the past few years were able to enjoy some great bottles during the holiday season; 2010 was another boom year for wine investors.

Economic circumstances over the past several years have had relatively little impact on the overall value of upper-echelon fine wine. This is because during times of prosperity demand for fine wine is driven by consumption. However, during more economically adverse periods, fine wine may also be considered a safe haven thereby resulting in an inflow of capital from investors as they switch to tangible asset classes.

As a commodity, fine wine is rather unique. There is only a finite amount produced by each chateau in each vintage and great vintages get better with the passage of time. Yet, because the product is consumable, while the quality is improving the volume is simultaneously decreasing.

Over a reasonable timeframe this situation can be capitalized on as portfolios can either be partially or fully liquidated and returns are paid out. Additionally, the returns generated may be re-invested into younger vintages, with a few cases skimmed off and consumed for free, having been funded by the profits.

Fine wine investment indices have steadily outperformed the FTSE 100 over the last five years and should therefore be a leading candidate for inclusion in any portfolio as an additional investment class.

2010 Retrospective -

Two topics dominated the fine wine investment conversation over the past year - the much anticipated 2009 en primeur campaign and the effect Asia is continuing to have on fine wine prices.

To say the en primeur campaign was eagerly awaited would be an understatement. Traders, investors, collectors and drinkers alike all held their breath in anticipation. With reports declaring unprecedented quality across the board the big question was going to be what quantities would be available and at what price.  Unsurprisingly, the prices were unanimously high and the first growth wines lead the charge.  Price levels of the very top wines inevitably spooked many prospective investors. This forced those individuals to look elsewhere, often by seeking value lower down the hierarchy of quality. The high scoring ‘Super Seconds’ and the St Emilion Grand Cru Classe wines became areas of heavy investment activity.

One of the unexpected side effects of last year’s campaign was that back vintages of first growths suddenly started to become relatively good values, creating a situation where the en primeur campaign had the effect of pulling up the prices of older vintages. Ultimately, the market illustrated that it was still willing to absorb the high 2009 prices. The question now is, in the short term, whether the wines leading the price charge can keep up the current rate of growth and, if so, will they continue to drag the rest of the market up with them?

As predicted, the Asian market grew considerably over the last 12 months.  The only aspect of the market to disappoint traders, to an extent, was the limited appetite of Asian buyers for the 2009 campaign. On the growth side, the demand for all things Chateau Lafite Rothschild has been unprecedented. This trend was illuminated by the many Hong Kong auctions that brought in stunning sales numbers. The resulting movement in this market sector has had a hugely positive effect on portfolios which include any vintage of Lafite Rothschild or Carruades de Lafite.

Investment Pick of 2010 – Chateau Lafite Rothschild, 2008 – The steady increase in value of this wine over the last 24 months highlights how comparatively undervalued the wine was at release. This growth was only bolstered by the craze created when it was announced that the Chinese symbol for the number ‘8’ would appear on the bottle.  The graph below shows the performance of Lafite Rothschild 2008 vs the FTSE over the last two years.

Looking forward to 2011 -

It is hard to imagine any circumstances that would cause consumers in the emerging ‘BRIC’ economies of Brazil, Russia, India and China to reverse their burgeoning interest in historically Western lifestyle products and symbols, including fine wine.  The biggest of these economies is certainly China. Whilst we currently see China as an abnormal sales market due to the complete fascination with Chateau Lafite Rothschild, we also observe an enormous appetite to learn about wine. As educational programs and opportunities expand there is no doubt that Chinese consumers will begin to appreciate other high-end wines as well.

Which top-tier wines the Chinese market eventually pursues may seem to have a somewhat random nature to Westerner observers. Partly these choices are driven by the translation of the brands into Mandarin and the symbolism of the labels.  In this brand driven environment, it is likely that some of the up and coming wines are going to be estates like Chateau Leoville Las Cases (which translates to “wine of the lion”), Chateau Angelus (“golden bell”), or Chateau Beychevelle (which has a ship on the label not dissimilar to a Chinese dragon boat).

It is also interesting to note that current per capita wine consumption in China is half a litre per person per year. This compares to 55 litres in France and 18 litres in the US.  In the event that Chinese consumption increases to just half of US per capita levels then the whole wine business, on a global scale, will change dramatically.

As we move fully into 2011, it appears that the popularity of Lafite Rothschild in Asia will continue unabated. Be this as it may, I predict that the other first growths will start to enjoy some of the same popularity over the coming months.  Following on Lafite’s tip of the hat to the Chinese market with their 2008 bottle, Mouton made a similar move by offering their 2008 label design to Chinese artist Xu Lei. This acknowledgement of the importance of Chinese consumers will go a long way towards fostering goodwill in the marketplace and increasing demand.  At this stage Mouton is still looking undervalued compared to the other first growth estates, creating an investment opportunity which could prove to be a shrewd long-term move.

Having spent considerable time with Chateau owners and winemakers in Bordeaux over the past 6 months, the word at some properties is that 2010 is reckoned to be an even better vintage than 2009. Yet, given the successes of 2009, are 100 Parker Points going to be enough to sell through the available stock of the 2010 campaign? At this point we have yet to taste the wines or get a solid feel as to whether the market still has deep enough pockets to absorb another top vintage. Although, if the rumours are true, we could be looking at another pair of successes along the lines of the famed fin de siècle vintages of 1899/1900, which would offer investors further opportunities to enhance their portfolios.

To all of our fine wine investors in 2011, here’s raising a glass to a successful coming year and many great returns.