Has the wine auction market bottomed?
One thing we’ve learned the past few weeks is that markets love a good bottom. As the stock market has bounced off a low on March 9, the financial news is full of bottom talk–“the bottom is in,” cried euphoric trader! “Baby’s got back,” shouted another! (Oh, wait, that wasn’t from the trading pits.)
The wine auction market followed other asset prices in a sharp descent over the past six months. The theory that wine was a different type of asset class, immune from corrections, has suffered.
But in three auctions last weekend, the market showed signs of stabilizing. In Chicago, Hart Davis Hart sold 100% of lots for $2.2 million, toward the high end of estimates. In New York, Christie’s sold 95% of lots for an aggregate of $1.27 million. In Hong Kong, Acker Merrall boasted over 95% of lots sold for $4.36 million gross. Press releases for all three talked about how “it seems the wine market has sprung to life” (Christie’s), how it “sizzled” (Acker), and “it’s been a long
time since I’ve seen such spirited competition as we saw today†(Hart Davis Hart).
In my casual observation of a catalog, it seemed to me that the estimates were priced according to the recent sell-off, that is to say, lower. I even submitted a couple of low-ball bids, below the low estimates, and was not successful.
So has the wine auction market touched bottom? While it was the first place to pick up deals in the fall as the economy took a nose dive, it seems to be perking up now. But is this a false dawn? My guess is that it pretty much follows the equities markets and the macroeconomy.
On April 3rd, 2009 at 3:14 pm ,Michael wrote:
That’s a really good question. To which I will respond with a hearty “I sure hope not!” I think that release pricing still needs to drop, especially since people must be getting used to paying super reduced prices at retail, which also reflects the discounts producers have passed on to retailers. I think some areas, and particularly Bordeaux and Napa, need to wise up and drop prices, and I hope that if they don’t, and I mean big time, that the result is hundreds of thousands of lost customers, reduced demand, and eventually pricing that makes sense. In the meanwhile I am soaking up deals on Burg and Piedmont wines like a sponge.
On April 3rd, 2009 at 3:55 pm ,Lyle Fass wrote:
The wine market is just not auctions. It is such a tiny part of the market. You have to ask questions like are retailers still discounting to the extreme side of things, what will happen with the 2008 Bordeaux futures campaign, are restaurants still closing, are prices dropping from winery door, etc. It is a complex market that cannot just be measured by auctions. They are a world of their own. Most wine sold in the world is at retail.
On April 3rd, 2009 at 7:24 pm ,Dr. Vino wrote:
Michael – I’ve found that retailers, on the whole, have been slow to mark wines down. Where have you found your deals? If you don’t want to divulge all, then are they from local or “national” stores, or individual cellars?
Lyle – Good point. In all the talk of bottoms, I forgot to underscore that my comments here were just about the auction market and I have adjusted the post to reflect that. Out of curiosity, have you found deals at retail?
On April 3rd, 2009 at 7:54 pm ,Ned Hoey wrote:
My instinct is to not pay much attention to press release type comments made by the auction houses, It’s in their interest to beat the optimism drum, pretty much no matter what. I find it difficult to believe THE BOTTOM has been reached and is even behind us. Wine is a lagging indicator and not even indicative of much if you are talking about auctions. This a hobby for wealthy collectors and as such isn’t really tied to the economy or their ability to pay.
The wine business has tried to whistle its way through this, hoping things would turn around fast enough that they wouldn’t be forced to lower prices. That simply put them behind the curve, I’m seeing all kinds of previously hard to get wines turning up in email offers, but prices remain much higher than pre 2005 prices. A lot fewer people are willing to treat these price levels as acceptable.
On April 4th, 2009 at 7:56 am ,Michael wrote:
Tyler, I have been finding ridiculously good deals, but then I spend a lot of time looking. But there are a few trends I think. First, regular “bricks and mortar” wine shops have been slow to discount, like you said. Most can’t really. They paid for the stock, so unless their distributors are willing to pass retroactive discounts on to them they are really in a tight spot. It’s not like these small shop owners were showing up to work in their Bentley to begin with.
But the larger, internet-based retailers, who probably have more pull with the distributors, the guys who send out email announcements for weekly specials, that is where I have seen deals.
The only problem is that shipping laws may prohibit many from having access.
Finally, a caveat. Certain sectors don’t seem to reflect this at all. Napa on the whole is still ridiculous. This goes doubly for Bordeaux, where I think the larger chateaus should be shunned until their prices reflect reality. And of course, they might. But after the ’00, ’03, ’05 trifecta, the big guys can wait it out rather than cutting as severely as they should. My guess is that a lot of Bordeaux pricing issues will be decided by ’09, and maybe 2010, but more in the vineyards than in the markets. If they have a pretty good year this year then they can leave prices high and hope for economic recovery by the time the wines are ready. If the vintages suck then maybe they have to worry about demand and drop prices to where they were for maybe ’01 or ’02.
I also agree with Ned that wine is lagging as an indicator and will probably, as a result, never correct as far as it should. Prices spiked crazily for a few years there and the frenzy for a limited supply of ever-harder to find wines was extreme. Can the genie be put back in that bottle? I don’t know.
On April 5th, 2009 at 8:40 am ,Dylan wrote:
I’m not a firm believer in speaking too early. Just like it took a month or two to really start noticing the downward spin, I think we need a longer time frame than some recent spiking to be accurate.
On April 6th, 2009 at 8:08 pm ,jcarey wrote:
I wish the premium wine market would go away, and wine would be for drinking not for hoarding.. however i know that is a fantasy world position. So therefore I hope its nowhere near the bottom and all the greedmeisters go belly up and their wine loses all its excess value.
On August 13th, 2009 at 5:56 am ,Stuart George wrote:
Ned is right.
Auction houses are masters of paradiastole—that is, of turning negatives into positives. The wine industry has turned adversity into triumph more often than a Hollywood scriptwriter—and may do so again. It has more ways of saying “successful sale†than there are colors in a cassata ice cream. Auctioneers—more so than retailers—are hypemeisters. Good auction results are reported with the enthusiasm of a celebrity courting the paparazzi. Auctioneers, especially in Hong Kong, still turn up the dial to 11, like Spinal Tap’s guitarist Nigel Tufnel. They torture the statistics until they finally confess and avoid reporting on what didn’t sell just as Perec avoided the letter E in his novel La Disparition.
The figures for 2009 so far look good but the frequency and size of auctions this year is much reduced from 2008. There was just one wine auction held in July 2009 (by Sotheby’s); in 2008, there were six major sales. January to July 2009 saw 58 major wine sales completed; the equivalent period in 2008 saw 68. So it is not surprising that clearance rates have been so good. The tsunami of supply seen over the last couple of years is now just a tidal bore.
Like a newly fermented wine, pessimism breeds upon itself, but confidence cannot be revived without an occasional burst of optimism. We might not be at the bottom of the recession but we might be getting close to it: Recovery often begins when the news is most discouraging and sentiment most gloomy. The direr a situation, the easier it becomes to lose perspective.
Like the art market, fine wine has experienced its greatest and swiftest rise in financial value, followed by its swiftest, if not greatest, fall. As Virginia Woolf describes the chimes of Big Ben in Mrs. Dalloway, “There! Out it boomed. First a warning, musical; then the hour, irrevocable.†The price falls for some wines—especially DRC—were like a bungee jump. For a while it looked as though the rope might not hold. But there has not been an art and fine wine market crash as there was in the early 1990s.
The fine wine market has endured through world wars and depressions (and phylloxera), always reemerging stronger than before. Things only disappoint when you have high expectations of them. Nobody expected much from the fine wine market in the first seven months of 2009, so its results have been a pleasant surprise.