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Pop Goes the Lafite?

2011 March 17
by Mike

Talk about temptation: I read the other day that empty bottles of 1982 Château Lafite Rothschild are fetching as much as $1500 in China, and among the empty trophy bottles staring at me as I write this post is, yes, an 82 Lafite. It doesn’t take much imagination to figure out what those bottles are being used for in China, and having written at length about the wine fraud issue, I certainly have no desire to contribute to the problem. But $1500 for that dusty keepsake sitting on my desk? Oscar Wilde said that the only way to get rid of temptation is to yield to it, but I think I’ll just remove the bottle from my office and put it in the basement.

The booming market for Lafite empties certainly suggests that China’s mania for this Bordeaux First Growth has become a bubble. More possible evidence comes in the form of an all-Lafite auction taking place this weekend in Chicago. Hart Davis Hart is putting 400 lots of Lafite on the block; over 3000 bottles, ranging in vintage from 1961 to 2006, will be on offer, and the pre-sale estimate is $4.3-$6.5 million. Although HDH has not joined the stampede of auction houses to Hong Kong and continues to hold all of its sales in Chicago, there is no doubt that this Lafite extravaganza was conceived with Chinese buyers in mind—the Chinese characters for “Lafite” are even on the cover of the catalog. As far as I can tell, the Chinese are pretty much the only ones buying Lafite these days: everyone else seems to be unloading their bottles to cash in on the soaring Chinese demand.

But is the Chinese demand sustainable? Bubble-spotting can be tricky—just ask Alan Greenspan, the man formerly known as Maestro. China’s Lafite fetish sure looks irrational. On the back of Chinese buying, prices for Lafite have surged 500 percent in the last five years. Even crazier, the chateau’s second wine, Carruades de Lafite, has seen a 1,300 percent price increase during the same period and now often trades at a premium in China to the four other First Growths, Latour, Mouton, Margaux, and Haut-Brion. When Lafite recently announced that bottles of its 2008 grand vin would be marked with the Chinese character for “8”, which is considered a lucky number in Chinese culture, the nod to Sinic superstition immediately sent the price of the 08 soaring an additional 20 percent.

No one has come up with a conclusive explanation for why Lafite enjoys such cachet in China. Sure, it’s a prestigious wine, but so are the other First Growths and their Right Bank equivalents (Pétrus, Cheval Blanc, Ausone).  Some suggest that it is a linguistic issue—that Chinese oenophiles have an easier time pronouncing “Lafite” than other names. Economist Andy Xie, who claims that 70 percent of the Lafite consumed in China is counterfeit, believes it is just a classic snowball effect. He points out that in China, fine wine is very much a status symbol; Lafite was well-known and expensive, and for whatever reason, it became the “It” wine for the mainland’s newly affluent, which served to drive up prices and make Lafite even more desirable. We do know that brand loyalty in China sometime rests on a dubious foundation. Take Château Beychevelle, a Fourth-Growth Bordeaux that commands marginal interest everywhere else but which has also become a hot item in China. And what accounts for its popularity there? Evidently, the dragon boat on the label is the big selling point; in fact, Beychevelle is known in China as “Dragon Boat Wine.”

It’s easy to be condescending about this stuff, to mock Chinese wine enthusiasts for their excesses and lack of refinement. But as Matt Kramer points out in his latest column for the Wine Spectator, it wasn’t so long ago that we Americans were the wine newbies. And, really, what’s the difference between China’s Beychevelle jones and our critter label craze? Perhaps we’re not quite the wine sophisticates we imagine ourselves to be (even if we have now surpassed France to become the world’s largest wine-consuming nation—go team!).  Whether or not China’s fixation with wines such as Lafite and Beychevelle proves to be transitory, this much is certain: the wine boom in China and the rest of East Asia is real, and the effect on supply and prices is going to be profound.

12 Responses leave one →
  1. March 22, 2011

    Giles, I could not agree more with your two succinct lines:

    “The core price has moved, if you ignore the odd crazy trades prices are firm. The bubble cannot burst for older vintages, wine is not equities, it is unique. ”

    Of course most will think that these statments have to be taken with a grain of salt from two wine merchants but it is what it is.

    Mike, thanks for this enjoyable discussion.

  2. March 19, 2011

    Giles,

    That’s very interesting regarding Brazil. I’d heard murmurings to that effect; thanks for the confirmation.

    Thanks, too, for the kind words regarding the blog, and I look forward to receiving more comments from you.

    Mike

  3. March 19, 2011

    Hi Francois,

    I suppose if Lafite fared poorly in enough blind tastings, a few people might question whether it really deserves the premium it now commands. But if Andy Xie is right, quality is not necessarily the paramount concern with Lafite. If quality were the overriding consideration, Haut-Brion would surely be the most sought-after of the First Growths–but that’s just my palate talking! Thanks for stopping by.

    Mike

  4. March 18, 2011

    Hi Mandy,

    Thanks very much for your comment and for the kind words; much appreciated.

    I lived in Hong Kong in the mid-1990s; I got my start as a journalist there, covering the last years of British rule. So it’s a place I know well and adore, and even back in the mid-90s, it had a vibrant wine scene. The mainland was a different story, of course, but Hong Kong had some very good merchants and a lot of passionate oenophiles. Indeed, it was home to some of the biggest collectors in the world.

    Whether or not the Lafite mania proves to be a case of irrational exuberance, a dynamic wine culture has taken root in China, and that is not going to change. As you point out, people in Hong Kong and on the mainland are mostly drinking their wines, not buying them for investment purposes. The condescension is unfortunate, and I think Matt Kramer
    very effectively exposed the hypocrisy behind it. I recall that some years ago, the French critic Michel Bettane visited Japan and was blown away by the level of wine knowledge he found there and also by the care and respect with which fine wines were served and consumed. I suspect people will be saying the same thing about China soon enough. I would imagine that Hong Kong is a very exciting place to be a wine merchant these days.

    Thanks for stopping by.

    Mike

  5. March 18, 2011

    I think the same goes for bottles, they become art, a trophy to put on the wall or decorate a restaurant with.

    The Chinese have come into the Primeur market, but I agree its instant gratification they are looking for. It’s going to be interesting how Japan will soften prices but you need to watch Brazil, they are buying a lot of wine!

    I have enjoyed your blog, you will see hear more comment from me!

    Giles

  6. March 18, 2011

    Hi Giles,

    Thanks very much for the comment. I think you are right about older vintages, though the fact that I can sell my empty bottle of 82 Lafite for $1500 is certainly suggestive of a bubble. For whatever it’s worth, the Hart Davis Hart auction includes 257 bottles of the 82.

    From what you’ve seen, are the Chinese buying en primeur? It is been said that they do not buy on futures, that they want immediate physical delivery, but I’m just curious to know what you’ve seen.

    Thanks for stopping by.

    Mike

  7. March 18, 2011

    The core price has moved, if you ignore the odd crazy trades prices are firm. The bubble cannot burst for older vintages, wine is not equities, it is unique. Once it’s gone it’s gone, we will however see a rationisation of Primeur prices when the Chinese work our they will be tying up capital for at least 10 years!

  8. March 18, 2011

    Hi Mike,

    First off, congrats on your blog. I’ve enjoyed it a lot so far and have followed quite a few of your other writings in Slate.

    I’m a wine merchant in Hong Kong. We sell mostly fine and rare. We started off our business with some everyday drinking organic and biodynamic wines that we pitch as house wines but we are finding Lafite *is* a house wine for some, many, here in Hong Kong and China. Many buyers are investors here but more are drinkers.

    I really liked this post in particular because I find a lot of writers are condescending (and I understand where that comes from) but from my experience so far there are a lot of wine collectors here and in China who want nothing but to experience wine properly and thoughtfully. Its just from the top down.

    Best, Mandy

  9. mauss permalink
    March 18, 2011

    Maybe a solution, as we did in HK, is to start there some blind tastings with Lafite inside. It may help…

  10. March 17, 2011

    Hi Toby,

    Thanks for the note. Fair point regarding Greenspan, who obviously failed to take away the punch bowl when he should have.

    Regarding the First Growths–the wines are made in substantial quantities and a lot of the buying has indeed been speculative, which would certainly be consistent with a bubble. But as you point out, bubbles often show remarkable staying power. I’m reminded of that famous Keynes quote–the market can remain irrational longer than you can remain solvent. I assume Lafite will fall back to earth at some point, but it could be years before that happens. A First Growth glut? Now there’s a thought!

    Take care,

    Mike

  11. March 17, 2011

    Hi Mike – I don’t think there’s much doubt that we’re dealing with a bubble here. And I don’t agree that bubbles are hard to spot (Greenspan was blinded by ideology, plenty of other people saw the crunch coming, if not the exact cause).

    The really difficult question is: how long will the buble last? They always seem to inflate for far longer than a rational observer would believe possible. As I asked in a previous thread, who is drinking this wine? If the majority of the market is made up of investors/speculators (I believe it is), what is going to happen to the value of these wines when they start to cash up their investments? Unlike, say, gold, even first growths don’t last forever, and without a really large number of people regularly drinking $2,000 bottles of wine the supply of these wines is going to increase over time. In ten years time are we going to be experiencing a first-growth glut? Hey, one can dream….

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