April 02 2011
Over the past decade, there has been no shortage of scintillating, single-owner fine wine auctions in New York, London and Hong Kong, several of which might have laid claim to the coveted “sale of the century” title. However, when Sotheby’s unexpectedly announced last year that Baron Eric de Rothschild was going to put 140 vintages of Château Lafite under the gavel, it looked like game, set and match to the London-based auctioneer. For a start, the all-ticket October event was to be held in Hong Kong, now indisputably the world’s number-one auction hotspot. That, of course, meant that it would be convenient for China’s burgeoning billionaire class, for whom Lafite has become the status symbol, trophy wine and drink of choice. Second, these were some of the oldest and most sought-after bottles of Lafite in existence, spanning three centuries. And each one came with pristine provenance, having never moved from its Pauillac cellars.
For most buyers, this was literally a once-in-a-lifetime opportunity to acquire such rarities. The last time Lafite had gone to auction like this was four decades ago. “It wasn’t done for commercial reasons,” said the château’s managing director, Christophe Salin. “We did it to give something back to China. It was in recognition of how important this market has become to Lafite.”
But perhaps what it proved more was just how important Lafite has become to the growing number of ethnic Chinese plutocrats in Taiwan, Hong Kong and the mainland in whose collections these wines undoubtedly ended up. As for the sale, the figures spoke for themselves. In four hours of intense bidding, all 284 lots were hammered down for a massive $8.4m, more than three times Sotheby’s high estimate. For instance, two bottles of the ’45 fetched $49,914 on a catalogue estimate of $5,000-$10,000. A single bottle of the legendary ’29 took $34,316, more than 10 times its high estimate. Serena Sutcliffe, head of Sotheby’s international wine department, jubilantly pronounced: “Wine history was made today.”
The result prompted an avalanche of shock-and-awe comment, with some predicting that these “insane” and “jaw-dropping” prices would redefine the market. Stephen Williams, founder of The Antique Wine Company, urged that “any value-minded wine collector should go immediately to their cellar, count their cases of Lafite and send us instructions to sell”.
Williams himself had already lined up a collection of 19th-century Lafite, including a rare imperial of 1899. And he had no doubt that it would be sold to a Chinese buyer: “Lafite has become an icon in China. Every case and bottle of Lafite that we purchase ends up in China – and this has been the case for the past two or three years. The demand is nothing short of insatiable.”
The “Lafite effect” in China began to drive, shape and ultimately skew the ultra-fine wine market five years ago. It was around this time that the PRC began to flex its economic muscles and develop a taste for Western luxury brands. Naturally, this included a penchant for top bordeaux in general and a raging thirst for Château Lafite in particular. Until then, Lafite had traded at parity with its fellow first growths. But with ever increasing demand from the Middle Kingdom, the price of Lafite began to take on a life of its own. In 2006, the ’82 Mouton and Lafite both cost around £6,000 a case. But they rapidly parted company. Whereas the Mouton has kicked on to £14,000 a case today, its Rothschild cousin now changes hands for just shy of £49,000 per dozen. (Ironically, many critics believe the 100-point Mouton to be the better wine.)
According to Justin Gibbs, director of Liv-ex, the fine-wine stock exchange, similar price anomalies apply to virtually every vintage of all five Left Bank first growths. Indeed, Liv-ex’s figures show that a basket of recent Lafite vintages outprices Latour, its nearest rival, by a whopping 70 per cent. Moreover, it’s double the price of Mouton and Margaux and approaching three times that of Haut-Brion. At one stage last year, Lafite accounted for 45 per cent of all trades by value on the Liv-ex exchange thanks to Chinese demand.
How has this happened in barely the blink of an eye? “The Chinese and Asia Pacific markets want instant cellars of the very best wines, with Lafite usually at the top of their wish list,” says wine merchant and Bordeaux Négociant Mark Walford of Richards Walford. “Most importantly, they possess the most unimaginable spending power.”
This means that the price of Lafite on the secondary market has become virtually bulletproof. For the past two or three years, recent vintages in particular have often registered monthly double-digit growth – even during the 2008 market correction. Massive Chinese demand for the brand became a one-way bet for fine-wine fund managers, speculative investors and Western merchants.
The most dramatic example of this feeding frenzy occurred just prior to the October auction when the château announced that a tiny Chinese symbol of the figure eight was to adorn every bottle of the 2008 vintage. “We added it for two reasons,” says Salin. “First, it was the year we decided to plant vineyards in China and the symbol in Mandarin looks like a vineyard hill. And second, the number eight is lucky and auspicious in Chinese culture.” Significantly, it’s also the symbol for infinity.
What followed was extraordinary, even by Lafite’s inflationary standards. Within days, the 2008 doubled to £16,000 entirely on the back of Western speculation because the news had barely any impact in Beijing or Shanghai. However, that state of affairs didn’t last long. The 2008 now seems set to become one of the most valued Lafite vintages in China. Anyone who had bought the same wine en primeur would have seen it increase by 500 per cent in 18 months. “What other investment can provide returns like this?” marvelled Williams. “And who would have believed that the Rothschilds would be such marketing geniuses?”
The image of Lafite is now second to none in China. “There’s a mystique and reverence that surrounds the Lafite label, the like of which I have never seen,” says Sutcliffe. “What’s also fascinating is the way its reputation has spread like wildfire among the country’s elite. As a luxury good and liquid asset, its value and kudos are beyond compare.”
To date, very few Chinese have bought for investment purposes. Most have focused on conspicuous consumption. Not least because Lafite’s phenomenal “face value” has made it the ultimate gift.
“For some people, the staggering expense of the wine is an attraction, not a deterrent,” observed the FT’s chief foreign affairs commentator, Gideon Rachman. “If you are trying to impress your father in-law or a business partner in Hong Kong, what better way than to serve a wine that is known to be mind-numbingly costly?”
Indeed, Lafite has almost become a currency in its own right, used to celebrate any decent-sized government contract in the PRC. “You can’t afford not to serve Lafite at a business dinner,” says Nick Pegna, MD of Berry Bros & Rudd in Hong Kong. “It has to be on the table.”
One can only compliment the Chinese on their good taste. First, Lafite is one of the greatest names in the fine-wine firmament. Second, it has probably never made quite such exquisite claret as it has in the past 30 years, and particularly in the past 10. But few believe that the actual taste of the wine has much to do with China’s affection for it. “Its very dry, almost austere, racy, elegant style must be difficult for newcomers to wine,” says FT wine critic Jancis Robinson, “and torture to drink with most of the food served in China.”
All sorts of reasons have been put forward for its fame and fortune. One is that it comes top of the original 1855 classification and so was perceived in China as the leader of the pack. Others point to explanations as diverse as the Rothschild banking connection, an advantageous phonetic translation and positive references in hit movies of the 1990s. “One of the most plausible reasons was the groundwork that the Domaines Baron de Rothschild [DBR] did in China 20 years ago, well before any of their competitors,” says Robinson. “Another was a successful piece of early speculation which raised its price and profile. But I’m afraid it’s a myth that its popularity has anything to do with ease of pronunciation.”
While Lafite (or “Lafei” as it is known in China) is clearly delighted to be the darling of this massive and lucrative market, nobody could possibly accuse it of profiteering. In fact, Lafite has tried to keep the lid on prices by not ramping up its en primeur release prices, either for its Grand Vin or its second wine, Carruades de Lafite. However, this might not have had the desired effect. Some have argued that Lafite has actually priced its wine far too fairly, fuelling even greater speculation (and profits) by the secondary market.
Nor has Carruades been immune to the Chinese love-fest. Dubbed “baby Lafite”, it too has surged in value thanks to its direct brand association. Consequently, it is now impossible to find a single vintage of Carruades for under £3,000 a case. Some vintages trade for a higher price than the Grand Vins of Haut-Brion and Mouton, regarded by oenophiles as a ludicrously incongruous state of affairs. Equally surprising is the way in which the biggest price increases of both wines have come from lesser, “off-prime” vintages such as 2004, 2006 and 2007.
What this suggests to Gary Boom, MD of fine-wine merchant Bordeaux Index, is that Lafite has effectively become commoditised in China. “People are buying into a luxury brand based almost entirely on affordability. It’s nothing to do with the connoisseurship, quality, vintage or Parker rating.”
Of course, what has been very good for Lafite hasn’t been entirely bad news for the other firsts and super seconds, which have begun to look better and better value as the price of Lafite passed out of the troposphere and into the stratosphere. At Cos d’Estournel, general manager Jean-Guillaume Prats is “extremely proud and happy that this has happened to a wine from Bordeaux that happens to be my neighbour. To me, it is all extremely positive.”
Consequently, Lafite’s competitors are doing all they can to close the gap in China. Most recently, Mouton announced that its 2008 label would be painted by a Chinese artist, while Margaux has installed general manager Paul Pontallier’s son Thibault as its brand ambassador in Hong Kong. At the same time, Lafite has hardly been complacent. Apart from promoting its cru classé wines throughout the region, DBR has been busy building up shipments of its less-exalted wines from Chile, Bordeaux and the South of France. And Lafite has an ace up its sleeve with a winemaking project in Shandong province, developed in conjunction with CITIC, the country’s largest state-owned investment company. The target is to produce 10,000 cases of red wine. “Naturally, we want it to be the greatest estate-grown wine in China,” says Salin.
Against that, not everything is going swimmingly. Counterfeiting remains a challenge. Recently, reports came to light of a murky and highly profitable trade in used bottles of Lafite, allegedly acquired from Beijing restaurants. Apparently, these precious empties were fetching up to 2,900 yuan each (about £275). However, the more serious problem for Lafite is the almost rampant trademark infringement on the mainland. Some believe that if this continues unchecked, it could, in time, devalue the brand.
Another concern is the first tentative sign that Lafite mania might just be on the wane. “Anecdotally, we are seeing some more sophisticated collectors move away from Lafite because it is becoming just too obvious,” observed one Hong Kong merchant. Also, with historic ratios looking stretched, several fine-wine merchants and fund managers are predicting that the other firsts will increasingly play catch-up as the Chinese fine-wine market broadens.
However, some observers are suggesting that a more sudden and unwelcome fate is about to befall Lafite. At the end of last year, independent former Morgan Stanley economist Andy Xie asserted that Lafite has turned from true alpha asset into a bubble about to pop. Xie, who is based in Shanghai, blames low interest rates and growing levels of speculative hoarding. Even Chinese billionaires “have been swept up by rising price momentum and would rather continue to hold their Lafite bottles and drink something else,” he says. “In my view, recent monetary tightening in China in response to consumer price inflation marks the peak for Lafite. So now is the time to sell.” In the past 18 months plenty of people have called time on Lafite’s price trajectory, only to be proved wrong. However, Xie has form on his side, having prophesied the 1997 Asian crisis and the 1999 dotcom bubble. He was also right on the money with the 2008 sub-prime mortgage crisis.
Even so, most wine observers disagree that Lafite’s time is up. “Unless someone discovers that it has poison in it, I can’t see how anything will put a brake on its success,” says Robinson. Gary Boom also believes that “Lafite is not in bubble territory. It has merely been the forerunner of all the first growths, which is why it has gone up the fastest. I don’t see it coming off in price unless the whole fine-wine market falls back, which frankly remains unlikely.” But Boom is less confident about Carruades. “Anyone buying Carruades at today’s prices has to be extremely brave,” he warns. “There are better trades to be made.”
Similarly, New York auctioneer and wine merchant John Kapon of Acker Merrall and Condit Asia, which has offices in Hong Kong, argues that the Lafite phenomenon is not going to blow up any time soon. He points to strong, continued demand and low stocks: “People are still pulling corks at a very rapid rate. And as the wine is consumed, the price goes up. That’s the law of supply and demand. Having said that, Lafite experienced a huge acceleration in value last year. So it may consolidate for a time before it goes again. But my firm view is that Lafite will remain the premier luxury brand in the Chinese market for a long time to come. Possibly all time.”