Michael Vaughan
Friday, April 18, 2008
The abbreviated version appeared in the March 15, 2008 edition of the Financial Post – to see click here

Almost thirty-five years ago in a Financial Post feature entitled “Some vintages are worth their weight in gold”, I expressed my astonishment with ever-spiraling world wine prices. One year later in 1974 the market crashed. At the time, Bordeaux was the center of the universe. Speculation, scandal and the rather dismal 1972 vintage, followed by the enormous but mediocre 1973 harvest resulted in the average spot price per Bordeaux tonneau (1,152 bottles) collapsing from $858 to $385 or from 78¢ to only 33¢ a bottle, amazing by today’s standards.

Even fine collectors were not unscathed. The wildly overpriced 1972 first growths were being dumped along with the now much reduced ‘73s. At Chateaux Mouton Rothschild, for instance, 50 cases of 1972 were being given away free with each 100 case order of 1973.  To see the original August 3, 1974 article click here

As two-thirds of all wine investment is concentrated in Bordeaux, the question today is whether this collapse can happen again. The answer: perhaps. The reason is that more than ever before, classic Bordeaux first growths are no longer being purchased by end-drinkers; they have pretty much become the exclusive domain of speculators. As blue chip investments, they have become hideously expensive. How many are aware that the average individual Canadian after-tax income will only buy you 6 bottles of 2005 Chateaux Petrus annually?

Of course, 2005 Petrus quoted at $4,975 US a bottle may be the extreme example; after all, a bottle of Chateau Latour will only set you back $1,110 (at current US prices). While some of these wines may be drunk, the vast majority is bought as a “status” investment symbol. Certainly one has to wonder whether the thousands of cases squirreled away at these heady prices can continue their upward spiral.

Is the 100-point Chateau Petrus worth the price? As a trained economist, I can say on one hand no, at least not for me personally; and, on the other hand, yes at least in terms of supply and demand. One has to keep in mind that the latter relates to wine as an investment commodity, not as something you would necessarily drink.

A glance at current Wine Spectator scores, however, tends to confuse. There are three 100-point wines from the 2005 vintage coming from the Pomerol region: Petrus at $4,975, Chateau Lafleur at $2,000 and Chateau L’Evangile at $260 a bottle. Why would any imbiber choose to buy Petrus when they can get 19-bottles of the identical-rated L’Evangile?

In fact, why not buy the 95-point Chateau Providence, also from Pomerol, which will set you back a mere $93. So is it one Petus or 53 bottles of Providence? For selling purposes, we all know Petrus; but who knows Providence? That may not matter as Petrus has now become so expensive that there may no longer be much of an upside. The huge gains of the past may be exactly that – past. A bottle of ’82 Petrus, which cost about $300 upon release, today fetches $4,500 – a 15-fold increase over 25 years. In 2003, that ’82 Petrus was only $2,460 US, which sounds cheap by today’s prices. Of course, that was in US dollars and the exchange was $1.49 Canadian, which translates to $3665 CAN – great for Canadian sellers. 

Here is Parker’s 2005 Petrus profile: The uncontested star of Pomerol, there are 2,400 cases of the 2005 Petrus, which appears to be the finest wine made at this estate since the 1998 ... and that's saying something. It boasts an inky/blue/ruby/purple color along with an extraordinary bouquet of sweet mulberries, black cherries, cassis, vanillin, and spice box. While powerful and full-bodied with high tannin, it displays no aggressiveness or austerity. This massive, rich, super-intense Pomerol will be at its finest between 2018-2050. It is another brilliant achievement for Christian and Jean-Francois Moueix. (Robert Parker - Wine Advocate - Apr-2007) • Drink: 2018-2050 • Parker Score: 98-100/100 • Jancis Score: 18.5/20 • Wine Spectator Score: 100/100

Of course, there’s the rub for Canadian collector-investors. How do Canadians realize their windfall gains? There are very few auctions here. The only one organized annually in Ontario is by the LCBO via Ritchies. It has significant fees/taxes than can bump the price of acquisition up by almost a third. 

I called ex-Torontonian Peter D. Meltzer, author of Keys to the Cellar: Strategies and Secrets of Wine Collecting and Wine Spectator commentator. He said that if you have stuff to sell, the US auction market is still on fire. In 2007 sales were up 23% totaling $210 million out of a $300 million global market. The leading US house was Acker Merral & Condit with $59 million in sales. Its meteoric rise is attributable to the fact that it doesn’t levy a consignor’s fee. With the softening US dollar, this may not be as attractive as in the past. For selling prices, check out www.wine-searcher.com

As for what to buy, find an internationally renowned authority whose palate you trust. Let me suggest that unless you have very deep pockets, you should pass on Petrus – at least at its current price.  Why not try some of the well-priced earlier releases, such as the stunningly delicious 2003 Chateau de Pez, which is only a Saint-Estèphe Cru Bourgeois Exceptionnel (released last November in Vintages at $51.55 and still available in more than 40 stores).  From my vantage point, such “lesser” undervalued estates offer serious drinking/investment value.  de Pez, for instance, probably deserves to be a third growth, but then it would certainly cost more. For investors, it’s readily available in the US at the $35 mark, which makes investing in it here in Canada challenging. FBTI Supporters can explore my tasting note database, which details some 845 Bordeaux wines that have been listed in Vintages. They won’t make you a millionaire but hopefully you will find some selections worth acquiring. To see my Vintages Bordeaux database click here.

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