Wine Talk

Snooth User: dmcker

Where the market is now on certain prestige labels: the HDH auction case

Posted by dmcker, Jun 2, 2011.
Edited Jun 2, 2011

 

OK, add together Parker's influence over the past decade or two, Chinese money over the past few years, and a little bit of marketing acumen by LVMH, the Bordelaise and even the odd Southern Californian. What results? Hopefully a bubble in prices that can't continue indefinitely, after an event like the likely Chinese bubble burst within a couple of years.

So here's a snapshot: the usual Bordeaux and Burgundy suspects, with some Napa and Santa Barbara and Tuscan interlopers breaking their way into the group (also the pretty usual Grange from Oz). N.B.: in past HDH auctions, the pre-bidding estimates have been low.

Oh, and apologies for the likely poor formatting transfer into this text editor...

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Online Bidding for the June 24 & 25 Auction is Now Open

An Auction of Finest & Rarest Wines

Our June 24th and 25th auction is a collector's dream. The live auction will take place at Chicago's award-winning TRU restaurant, beginning promptly at 9:00am on both days, and will feature private cellars from all areas of the United States.

Multiple cases of benchmark Bordeaux, essential to any collection, form the cornerstone of this auction. In addition to an enticing array of the heralded vintages of 1982, 1986, 1989, 1990, 1995, 1996 and 2000, other regional rarities abound. Burgundy lovers will be impressed by 53 lots of Burgundy from Domaine de la Romanée-Conti including a rare jeroboam of 1990 La Tâche (estimated at $11,000-$17,000), as well as seven lots of DRC Montrachet, regarded by many to be the finest of all white wines.

Additional highlights include vast offerings of Sine Qua Non, featuring 38 lots estimated at $58,010-$87,250, including a double-magnum in OWC of the 100-point 2002 Sine Qua Non Syrah, Just For The Love Of It. Encyclopedic offerings from Screaming Eagle are also featured throughout the sale with an exciting 68 bottles and 3 magnums on offer, spanning every vintage produced from 1992 to 2007.

We hope you can join us in Chicago for what should be a fantastic weekend. Please feel free to contact us if you have any questions about the bidding process or specific lots.

Our catalog is available online, fully searchable and specially
designed for secure bidding. To view photos of the top lots, click here.

Highlights from the Auction Include: Lot   Wine   Estimate

112 1990 Château d'Yquem (8 bs)   $2000-3000

159 1991 Chambertin, Clos de Bèze, Armand Rousseau (9 bs)   $9500-14000  

173 1996 Bonnes-Mares, Georges Roumier (6 bs)   $3500-5500  

401 1982 Château Lafite Rothschild (12 bs)   $40000-60000  

434 1982 Château Pétrus (12 bs)   $42000-65000

451 1982 Barbaresco Riserva, Santo Stefano (9 bs)   $4000-6000

770 1990 Côte Rôtie: La Turque Guigal (2 bs); La Landonne Guigal (2 bs)   $1900-2800

1097 1996 Château Léoville-Las-Cases (12 bs) (owc)   $2600-3800

1184 2005 La Tâche, Domaine de la Romanée-Conti (6 bs) (owc)   $15000-22000

1314 1990 Krug, Brut (8 bs)   $2000-3000

1320 1997 Masseto, Tenuta dell'Ornellaia (6 bs)   $2400-3500

1437 1997 Abreu Vineyards Cabernet Sauvignon, Madrona Ranch (12 bs)   $4800-7500

1508 1999 Montrachet, Domaine de la Romanée-Conti (2 bs)   $4800-7500

1519, 1520 2007 Hundred Acre Winery Cabernet Sauvignon, Deep Time (12 bs) (6 owc)   $3500-5500

1521 2002 Sine Qua Non Syrah, Just For The Love Of It (12 bs)   $8000-12000

1652 1998 Penfolds Grange (12 bs)   $3000-4500

1815 1996 Dom Pérignon Brut (12 bs)   $1900-2800 

 

Bidding Information:

Absentee bids may be submitted online, via fax at 312.335.9096 or by phone at 312.482.9996. Live phone bidding can be arranged in advance by contacting HDH at 312.482.9996. Live online bidding is available in real-time over the internet; visit HDH Live for more details.

We always strongly encourage bidders to submit bids at least 48 hours prior to the auction. Please be prepared to provide bank references, a major credit card, and in some cases, a deposit. Inability to provide this information, may affect your ability to participate in the auction.

Join us in Chicago at Tru for the Auction
Friday, June 24 & Saturday, June 25, 2011
9:00am start time

Contact Us Today to Pre-Register & Reserve a Space

Tru will offer a delicious buffet lunch during the auction ($75) - reservations should be made by calling Gwen Brooks at 312.854.0096 or by emailing her here.

Tru is conveniently located at 676 N. St. Clair Street in Chicago, just one block east of Michigan Avenue. Attendance is open to the public and free of charge.

Replies

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Reply by dmcker, Jun 6, 2011.

So no one else wonders whether these prices are a) absurd, b) unsustainable over time, c) anything else?

How did wine (these labels at least) become something only for the very rich?

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Reply by JonDerry, Jun 6, 2011.

They are absurd prices for those who cannot afford it, which is 99+% of the population.  Sustainability appears to be more or less very possible, if not probable as wine appreciation should continue to be an appropriate activity for the very rich. Whether the pricing drops will be on them.

It's a shame that there are enough people with the disposable income to effectively price many of us out.  These wines are much like homes (terroir) that most of us just can't afford.

The information age figures to have played a hand in getting the very wealthy educated on where their money should be flowing.

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Reply by dmcker, Jun 6, 2011.

I still wonder about the effect on pricing of a Chinese bubble burst. They've put the greatest, most recent pressure on the Bordeaux First Growths, etc., which has supported price rises in other areas (though I'm sure a good business school paper could come out of CA cult wines...).

Very apt point about the role of the Net in driving prices, too (both upwards for these rarefied few where the cachet exceeds the supply, and downwards for comparison shoppers in more budget-conscious sectors). And you're talking about 99.99+ percent. ;-(

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Reply by JonDerry, Jun 6, 2011.

Dm, unfortunately the Chinese bubble would probably have little effect.  They are getting a lot of attention as the new shooters in the market, but they're significantly driving up the price of only a few top Bordeaux labels, and to a much lesser extent Bordeaux in general, and probably as you mention - the CA cult phenomenon.

CA cults?  You have to wonder how much terroir plays into CA cults as opposed to Bordeaux.  Probably much less by comparison.  So what are we left with?  Winemaking & Marketing.  You need to have good wine to be a top CA cult wine, and you need a good name, and you should probably withhold most information in order to make your practices "mysterious".

Burgundy is an entirely different animal.  I have no idea really, but if I had to guess my impressions are old of money, and true wine enthusiasts driving up the prices, with only DRC and Clos having significant worldwide popularity.

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Reply by gregt, Jun 6, 2011.
Edited Jun 6, 2011

D - old story.  People are willing to pay a lot for what they could have purchased more cheaply a little while ago.  Happened to real estate in my neighborhood.

Jon - You have to wonder how much terroir plays into CA cults as opposed to Bordeaux.  Probably much less by comparison.  So what are we left with?  Winemaking & Marketing.  You need to have good wine to be a top CA cult wine, and you need a good name, and you should probably withhold most information in order to make your practices "mysterious".

You've defined Bordeaux.  Why would one imagine that "terroir"  has anything to do w most Bordeaux?  It's never been their argument and isn't now. 

You produce tens of thousands of bottles of wine, you're not talking about your little hillside vineyard.  Napa has the edge here. 

Problem w Napa is that while some of the producers can make the terroir argument, they focus on the winemaker.

Of course, none of that really matters if you want to spend the money.  If that's what one wants to do, that's OK by me.  But I've had enough wine in my life to be comfortable in my assumption that no wine is worth over $100, much less $1000.

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Reply by dmcker, Jun 6, 2011.

Again, it's a case of quality gain to price gain ratio getting harsher the higher up the market you go. Scarcity and cachet value being something meaningful to people who want to consider themselves above the hoi polloi, etc. If you have the money, maybe wine above $100 can be worth it. Above $1,000 and, really, sanity checks may be needed.

Yeah it is an old story, but I've got some sort of itchy feeling that maybe this rise can't just continue the way it is now. Am I fooling myself? Bubbles, from tulips through dotcoms, can be fragile things, and their bursting have effects reaching further than expected. This bubble is particularly interesting as it occurs shortly after we saw a large adjustment, including multiple winery failures, post Lehman Shock.

And Greg, there are people who talk about terroir in Bordeaux, both on the Right Bank and the Left....

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Reply by JonDerry, Jun 7, 2011.

Now we're picking up some steam!

Greg, I definitely get what you're saying about Napa terroir, and how some select hillside vineyards are very prominent, certainly more than others. But in Bordeaux the terroir is classified, 1st growth (even though they make 10,000 bottles!), 2nd growths, along with the St. Emillion classification, etc. 

Another problem with Napa "terroir" is that it's rarely found in the wines, and often drowned out by oak, where in Bordeaux it's pretty much always an integral part of the mix. 

@Dm - I certainly hope you're right about the pricing bubble.  It's an interesting idea, and it's hard to imagine prices continuing to rise the way they have.  Unfortunately for us...wine seems to be getting more fashionable, and it's becoming a global sport, seemingly more and more.  People need ways to pass the time, especially the wealthy, and wine is just such a great way to do it, and also in interacting socially with friends, family, and strangers.  What's depressing is even a 40% drop in fine wine prices would drop a bottle of Petrus from $5,000. to $3,000.  The $1,000 level has been utterly shattered. Staying on beverages, who would've ever thought Starbuck's, Peet's, and whoever else would get $5-$10 for a coffee drink?

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Reply by Stephen Harvey, Jun 7, 2011.

Interestingly the price for the 98 Grange which is 250-375 bottle is well below 06 release price 550-600.  The 98 on release was AUD400-450 from memory

Whilst we debate the "worth" of wine in many forums, the reality is we all come from free market economies [well sort of anyway] and price is driven by demand.

The accounting standards which are now globally recognised [except in the US!!!!] define fair value as

"The amount for which an asset could be

exchanged, or a liability settled, between

knowledgeable, willing parties in an arm’s length

transaction"

Sadly the reality is despite any of our views price is driven by what a willing buyer interprets as value.  They maybe right and they maybe wrong at any given time.

Look at fruit and vegetables and I will use my "banana" analogy.

Generally we pay around $3-5kg for bananas, but right at the moment we have a shortage due to the adverse weather we had in Queensland where most of our bananas are grown.  They are currently ~$14kg, and the quality is just average.  But all the available bananas are sold!  So what is a banana worth? Right now in Adelaide if you want a banana you pay $14kg or you don't eat bananas.  My wife, whose judgement it would be unwise for me to question buys 4 bananas a week so that we have bananas so I guess that is their value.

Wine sadly must conform to the market rules, it just means we have to make a judgement on what the value is to us individually.

So if GregT puts his price ceiling at $100 then that is perfectly reasonable, if for dmcker it is $200 and JonD it is $300 then that is also perfectly reasonable for them to take that position.  If Mr Chung newly wealthy Chinese person decides he gains important cultural status from paying $2,000 for Lafite then so be it, he gets the Lafite and we don't.  As for the Rothschilds of the Lafite variety well they have to make a call between how much goes to the Mr Chungs and how much goes into existing markets at a lower cost - short v long term strategy, history favours the short term being selected.

 

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Reply by JonDerry, Jun 7, 2011.

Speaking of which, does anyone know what's behind the affinity for Lafite over all other Bdx 1st growths in China?  

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Reply by Stephen Harvey, Jun 7, 2011.

I think it is because Lafite roughly translates into something representing luck or good fortune

See links below

www.decanter.com/news/wine-news/504771/lafite-2008-price-rises-20-following-chinese-symbol-announcement

www.bordeauxwineenthusiasts.com/viewtopic.php?f=4&t=2049

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Reply by JonDerry, Jun 7, 2011.

Thanks Stephen...good BWE article outlining the situation in China.

"Guests are expected to be impressed by the price of expensive wine, and not the taste."

That will certainly drive prices up.  Will be interesting to see how this develops over time, one would think that they're bound to get more educated and the market should slowly become more efficient.

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Reply by gregt, Jun 7, 2011.

Jon - I'm not sure the terroir is classified in Bordeaux, it's the producers.  That makes a big dif because since the classification in 1855, the wineries have bought and sold vineyards and all the grapes go into their wine.  Those that don't make the cut get put into their second labels. 

And until rather recently, they were adding Syrah and you still see old labels that say "Bordeaux Hermitage" to indicate that Syrah had been added. Nothing wrong with that and it certainly wasn't illegal, but it indicates that terroir was never really a big deal for those wineries.

Lafite Rothchild for example, does nearly 40,000 cases a year.  And the Leyoville wines were originally all part of the same estate but they were broken up by inheritance, not terroir specificity. 

Phelps Bacchus, Ridge Monte Bello, Colgin, etc., are all miniscule by comparison.  Heitz bottles by vineyard - Fay, etc.  But in Bordeaux they don't. 

And none other than Emile Peynaud said that he could make just about the same wine on either side of the river.  I think you're right about the appeal of those wines.  I think you're right about the oak and alc tho, and also I think that in Napa they've focused on the winemaker more than anything else, but that's also true in Bordeaux.  If they wanted to, i think Napa would have more different terroirs, mostly because it's so varied across a small area, whereas Bordeaux doesn't have the mountains that create those great little microclimates. 

I suppose St. Emilion does, but it's also planted so completely that they average it all out in the barrels!

Anyhow, as far as the Chinese being impressed by the price and not the taste, I think that's precisely the case with MOST people. I don't think the American purchasers of those cult cabs and classified growths are really clued in to the point that w/out the labels, they'd know the wine.  Some for sure, but if you ever attend a dinner where the sales reps are buying on the company dime, you see how little taste matters.

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Reply by dmcker, Jun 7, 2011.

From the 2nd link Stephen posted:

"There is little doubt that Chinese buyers, not Wall Street traders, are the force behind this positive trajectory for French fine wine. Bordeaux wine producers are all talking about China and Chinese buyers seem to dominate the en premieur for the 2009 vintage available from next year. In fact Chinese mainland buyers are increasingly pricing out buyers from Japan, Taiwan and Hong Kong in the quest for ‘first growth’ wines."

This supports what I was saying above (and the post quoted was from nearly a year ago, with trends strengthening since then, especially with Japan's travails this spring, through recovery to pre-earthquake mode here is moving at speed). China is poised to become the second largest luxury market in the world, passing Japan (as it did in overall market scale quite recently), some say this year. Considering the size of the population, and the potential for great expansion in the middle class that drives the larger part of that market segment, obviously they've potentially a ways to grow yet. However, structural overheating and contradictions leading to a bubble burst will potentially then have even greater effects on markets than the burst of the Japanese bubble 20 years ago. I don't see anyone picking up all that slack if the Chinese at some point are hors d'combat.

Also quite interesting in the first link (the Decanter article) was this quote:

"Staples said that this latest price rise represented a shift in what influences market prices. 'It shows that it doesn't matter what Parker says - it's completely irrelevant. In China, this wine is now the ultimate gift you can give.'"

Obviously, the engraving of 八 (the character for '8' as in 2008) into the bottle was something that provided yet another hook for the Chinese, and also demonstrated where Bordelaise priorities are. Nothing like that happened vis a vis Japan during their bubble back 20+ years ago, both because European marketers were just learning about luxury market potentials over here, and also I have the sneaking suspicion that Japanese would have viewed that as crass. A very definite difference in mentality and sentiment between Japan and China.

I can remember when bottles of French brandy were the ultimate gift in Hong Kong. Good scotch was, in Japan, at the same time, but scotch was cheap in Hong Kong. The French have managed to keep their cachet, while transferring it to wine.

 

And Greg, I've listened to a number of heated discussions about terroir, definitely in St. Emilion, but also in other parts of Bordeaux....

 

 

 

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Reply by Stephen Harvey, Jun 7, 2011.

D - I think your observations are spot on and you have to admit it is an interesting challenge when you find a new market place which is willing to pay a substantial premium for your product.  I think we both know what our respective corporate masters would expect us to do if faced with similar circumstances

Whilst I expect China to come off the boil at some time the question as I have posed previously is whether the Communist Party can stage manage a "soft landing" or not.

Would like a crystal ball on that one.

The more interesting question is whether the current obsession with Bordeaux Ist's will continue or manifest itself into a bigger wine culture or just slowly dissipate?

At least with a strong AUD I can buy some other interesting wines from overseas at a more reasonable price

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Reply by gregt, Jun 8, 2011.

D  - I"m sure they talk about it.  I've heard those conversations too, even had some with the producers.  Just don't think it matters all that much - the Médoc is flat swampland that the Dutch drained in the late 1600s. It rises ever so slightly in Pauillac, so that was probably drier than the surrounding areas for hundreds, perhaps thousands of years.

Compare that to Piedmonte, Tokaj, Burgundy, and places like Napa or even other parts of CA where producers like Ridge do single-vineyard bottlings.  Nobody is likely to make single-vineyard or site-specific wines in Bordeaux any time soon.  In that sense, Bordeaux is much more like Rioja, where the house style trumps the site-specific wines.  And that makes sense, since the Rioja model was heavily influenced by the French from Bordeaux.

Still, the curious thing is that despite the Decanter article (quelle surprise!) Parker is kind of a big deal in China.  Although to some degree his influence is waning elsewhere, it's not waned at all in Bordeaux and as the top critic there, the Chinese look to his pronuncements. He's spending a lot of time there these days - sommelliers and merchants want to learn asap.

The emerging market wants luxury goods, the Bordelais at the top end have succeeded in marketing their products as "luxury" goods, and in so doing, they're able to ride the wave, while at the same time they've completely screwed the rest of the producers in Bordeaux. 

Again, no problem at all if anyone wants to spend a million dollars for a bottle.  Since I was never a huge fan of Bordeaux in general, I'm happy those are the wines people vie for, rather than something I like more. Clearly the Chinese are NOT buying the wine for the experience of drinking it, because with most of the dishes I can think of, it's a match made in hell.  The wines that actually would work pretty well, like Riesling, remain fairly priced.  Sometimes the world just works out!

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Reply by JonDerry, Jun 9, 2011.

Greg, to your credit you make a pretty convincing case regarding the terroir debate. Your definition of terroir-driven wines, or at least a major qualifier seems to be the size of the vineyard/vineyards. To me, even if Bordeaux had two wineries producing millions of cases per year, terroir would still be important as long as the wineries produced world class wines considered among the best in the world. With wine being the global sport that it is, and with Bordeaux in total being such a small part of the earth, and producing such a high quantity of top wines at the same time, it's a piece of the earth that's hard to ignore, so count me as a believer in Bordeaux's terroir, and also as one who enjoy's the fact that the soil is an integral part of all the wines. 

Perhaps a better case can be made for the right bank's soil?  Many top wineries there occupy a much smaller space, and specific properties like the iron rich clay at Petrus, or the three pronged effect of Cheval Blanc's vineyard, equally bordering Pomerol, St. Emillion, and Graves, and all that lay between such as neighboring microcuvee Chateau Le Pin, or left leaning Vieux Chateau Certan, Ausone, et. all add up to an impressive portfolio.

At the same time I get what you're saying about Napa, it's intruiging and diverse in it's own right.  We're talking about the best two sites in the world for growing Cabernet Sauvignon and it's not really that close, there are micro-climates there to be sure with all the hillsides and slopes we mentioned, but it's more the marketing of the terroir in the form of single vineyards, estate bottled proclamations, etc. than the quality of soil itself.  Both have great soil, both have diversity. 

By the way, I hear 2010 Bordeaux futures aren't drawing much interest, looks like at least a small correction might be in order.

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Reply by gregt, Jun 9, 2011.

You know Jon - I have no first hand knowledge so whatever I say on the subject is gossip only, but the rumor is that a lot of producers have held back.  Again, I don't know if that's in any way true or not.  But if so, it's interesting.  DeBeers holds back, or used to hold back, diamonds to keep the prices up.  Everyone knows that today, you don't buy futures to save money.

So because it's not about saving, it's only about securing an allocation now.  And if everyone is able to secure some wine, then the entire reason for the futures campaign falls apart. Master marketers that they are, that's supposedly the reasoning behind holding back on the part of some producers. 

Again, I'm far away from that market so I have no direct evidence.  And it applies of course, only at the top, albeit perhaps not the very top. 

Has nothing to do w terroir either!!

The terroir argument is more interesting in a way, as the prices can be explained by basic economics and marketing practice. So I guess it depends on how you define terroir.  Broadly speaking, every single piece of earth on the planet has unique terroir because it's not someplace else.  I completely buy that argument. Consequently, whatever you grow there will be slighly different from the same thing grown somewhere else, simply because it wasn't grown somewhere else. 

However, that's so self-evident that it doesn't need any comment.  So why talk about it at all?  I think that what matters, only because it's visible at a close level, is how different one piece of land is from a piece adjacent to it, or in close proximity to it.  The old guys in Europe or Asia or anywhere didn't really know what was going on over the next hill, much less in a different country.  Maybe the Romans - they travelled a lot and tried grapes everywhere they went, but the locals stayed close to home.  So if they found that one hillside produced different grape quality than the valley or than another hillside, and the grapes ripened better, they marked the hillside.  That worked as long as you kept the grapes separate, and in small towns, perhaps that was the case.

But on vast estates, it was more likely that all your grapes would be mixed up with those of the other peasants.  The nobles wanted wheat and chickens and wine and beans and they weren't about to care for the products of each parcel separately.

Because of its position as a trade center, Bordeaux attracted a lot of money and when those people started to focus on wine as opposed to the corn and wheat that they were growing, they kept the same mentality - more land is better.  The church holdings in Burgundy and elsewhere were broken up but the merchants in Bordeaux were able to keep, or restore their holdings.  Burgundy didn't travel.  Nor did Piedmonte or most of the places where people look for terroir-driven wines today. Bordeaux was big commerce - it's a big reason the English navy was created. In that region, the "house style" was more important than the parcel selection.  

Haut Brion got six shillings instead of four or five?  Then everyone wanted to make wine like Haut Brion. The fact that there might be some terroir differences is apparent in the wines that come from what were once single estates - the Leyovilles for example, or in Barsac, Doisy.  But there are also other factors - are the varieties identical, is the vineyard management identical in all respects, is the vinification identical?

The main terroir differences usually come from extreme soil differences and that usually comes from mountain regions where the strata of the earth is shifted so that instead of being horizontal, it's vertical.  In some of those areas, you can walk for five minutes and visually see strips of white soil and brown and black, etc.  Or you find shells on top of a mountain that was obviously once a seabed.  Overlaid on that you might have rivulets of lava that give separate hills different soils.  Maybe ash blew in from some distant eruption, adding more complexity.  So in a place like Kansas, where it's pretty flat - there are probably some terroir differences as you drive around, but they'd be less apparent than they would in say, Idaho.

Bordeaux is like Kansas, or the Mississipi delta - broad and flat.  The right bank, as you rightly point out (great pun there) is hilly and where I suppose you'd find more terroir differences.  The question is whether people blend them away or not.  Although I guess even in that case, blend A would be different from blend B and one might attribute that to the different terroirs.  But I think that for the most part, most terroir is trumped by winemaking.  And that was the point of Peynaud when he talked about making the same wine on the right and the left bank.  He suggested that with the correct rootstock and varieties matched to each location, he could produce the same wine.  That obviously takes into account terroir, but highlights the fact that it may not be as easy to find in a wine as people may think.  I need to find the specific passage I'm thinking of and I'll post it- no time right now tho, gotta go to work.

Cheers!

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Reply by dmcker, Jun 9, 2011.

Greg, why do you oppose 'winemaking' to 'terroir'?

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Reply by Stephen Harvey, Jun 9, 2011.

www.youtube.com/watch?v=JjfdfU-uaPQ

Not on topic but sometimes you need to laugh?


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