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In mid-March, a Chicago-based  freelance writer (Michael Austin) called to ask what I thought was behind the rise in wine's increased popularity.  His story, Aging Well - Heard on the Grapevine: Americans' Wine IQ is Soaring (free registration required), appeared in the April 29, 2007 Chicago Tribune Sunday Magazine.  Here’s a more in-depth summary of what I replied:

1. People want “experiences” - Drinking wine is a sensory experience, like food, and wine offers a wide range of experiences based on different choices in grape types, regions, and wine-making styles.
2. Affordability - Despite higher prices for collectible wine, wine is broadly affordable relative to other types of “experiences.”
3. Quality is up - The average quality of wine has improved at all price points, particularly among lower-priced wine options.
4. Greater purchasing access - Access to a diverse selection of wine at competitive prices has been facilitated by the Internet and direct shipping.  The historic dependence on what's often a more limited local selection at higher prices no longer exists (in most states).
5. Consumption is growing rapidly - Per capita wine consumption is on the rise with a 17% increase from 2005 to 2006 according to the Wine Market Council of St. Helena (in Napa Valley).
6. Enjoyment factor - Wine preferences are highly subjective and personal which helps drive debate and conversation amongst friends, creating an “enjoyment factor.”  In general, wine has become part of many people's lifestyle.
7. Socially acceptable - Drinking wine is more socially acceptable than ever as historical pretensions surrounding wine have largely dissipated with broader market acceptance.
8. Health benefits - The health benefits of wine consumed in moderation relative to other forms of alcohol have become clearer in the past 5 years.
9. Proliferation of wine cellars - A “wine cellar” (either a small cooling unit or a custom-designed room) has become standard issue in new mid-to-upper-end home construction.  If you have one, you need to learn about wine to know what to fill it with.  See my prior post: 4.3 million wine “cellars” in the U.S.
10. Celebrity “endorsements” - The “celebrity factor” has helped popularize wine, whether the celebrity is a winemaker (akin to celebrity chefs) or TV/movie celebrities profiled in Wine Spectator or other publications.

What are your theories explaining wine's increased popularity?

The UK's Antique Wine Company (AWC) just started promoting the "The Great Antique Lafite Rothschild Collection" comprised of 48 bottles from 39 vintages (see full list and bottle sizes) including:

• 4 vintages from 1787-1799
• 21 vintages from the 1800s
• 11 from the 1900s (7 of which are 1982 or later)
  
• Plus 2000, 2002 and 2003

Expected sale price: $1 million to $3 million.  If you're interested, visit this page and let them know as bidding/negotiations commences May 1, 2007.

Authenticity testing reaches news heights

While this seems like an amazing collection (although I wouldn't call the youngest 10 vintages "antique"), what caught my interest more than the wine and money involved was the proactive approach taken to verifying authenticity for which AWC should be applauded.  See Decanter.com's story of today: "Most extensive collection of Chateau Lafite to be tested prior to sale."

I suppose it's not surprising given that the press has been full of stories about counterfeiting of wine.  While most of us cannot afford to do nuclear isotope analysis to assess whether we bought the real thing, in this case, the expected sale price covers it.

What about the "chain of provenance"?

While I'm sure AWC is diligent in tracking the storage history and ownership of these bottles to the best of their ability, these details are not disclosed on the site or even referenced.  The bottle glass and wine might be tested for age but what about whether any bottles were "cooked" by heat exposure sometime in the past 100-200 years?

The Decanter.com story only mentions that the wines were "assembled over the past two years from restaurants, hotels, and private cellars."  Personally, I have varying degrees of confidence in all three of those categories of wine owner based on knowing the source, where they got the wine from, how it was stored, how long they've owned it etc.

No doubt some of these questions are impossible to answer given the age of many of the vintages.  The assurance of a guarantee on the wine's condition is highly unlikely to be provided either.  But then again, collections like this are a high stakes game and anyone playing it is sure to appreciate the risks.

P.S.    The label image is from the Antique Wine Company web site. 

Certain wines have achieved the status of "luxury items".  The other day, Robert Frank's Wealth Report Blog in the WSJ had a post titled "What counts as "luxury?" in which he says "luxury by definition should be exclusive.  So the idea of mass luxury... is a fiction.  If everything is luxury, nothing is luxury." 

Why is fine wine susceptible to being treated as a luxury item?

1. Rare, hard-to-find bottles from sought-after producers (even from current vintages much less 1947) are essentially exclusive goods as they are made in finite quantities that become even scarcer as they are consumed.
2. Fine wine possesses characteristics that drive consumers to be willing to pay a significant premium.  The willingness to pay a premium, as described on the book jacket of Trading Up: The New American Luxury, occurs when a product or service is emotionally important to the consumer and delivers "the perceived values of quality, performance, and engagement."  Sounds like great wine to me.
3. Prices have climbed steadily for highly-rated wine as demand appears to be growing faster than supply.  For evidence, read my prior market-related posts in this blog.  One driver is the rapid pace of wealth creation.  E.g., the number of U.S. households worth $5 million or more (not including one's primary residence) rose 23% in 2006 to a record 1.14 million.  Read more in another recent post by Robert Frank called "Five million is the new million."
4. Even with higher prices, wine is still a relatively "affordable" luxury within the financial reach of many more than just households with $5+ million net worth.
5. Merely owning certain wines confers a halo of prestige upon the owner.  It's almost as if being willing to pay a high price signals that you have the sophistication to value the nuances of the wine.
   

High prices alone don't deliver "luxury" status

Drinking a $150 bottle of lousy and generally available wine wouldn't be considered a moment of luxurious self-indulgence.  To "qualify" in the luxury category, the wine must also be relatively scarce and of high absolute quality (often due to a respected reviewer's rating) to make you feel that you're having an out-of-the-ordinary experience.

In an era when check deposits clear in one business day, why does payment for a successful wine auction sale take 30-60 days or longer?  Stories of much longer payment periods (6 months or even a year) are not uncommon.  Read this thread titled “Auction question – float” on the Mark Squires Bulletin Board on eRobertParker.com for some examples.

3 Factors explaining delayed payments

1. Risk of buyer rescinding purchase – As possession of your money provides some protection from the auction house being stuck with the cost of resolving buyer claims (e.g., regarding authenticity, quality, or title), delaying the seller’s payment provides time for potential buyer claims to be raised.
2. Buyer’s money may not have been collected – Virtually all sale contracts require collection of monies from the buyer before payment to the seller.
3. Reimbursable expenses may need to be calculated – Charges for shipping and other reimbursable expenses may need to be gathered as these are typically deducted from any sale payments.

Bottom line: 

1. Read the sales contract!  All of these payment details are spelled out in the sale contract you're required to sign.  Contracts I’ve seen from major auction houses state 35 days in one instance and 50 days in another.
2. Consider superior substitutes to auctions such as Vinfolio’s personal selling service where payment is guaranteed in 0-7 days after the sale.  Note that immediate payment occurs for larger cellars that are bought outright.  Inspection is performed at the customer’s location and funds are wired and received before wine is removed.

The wine retailer Premier Cru in Emeryville, CA, doesn't think so.

Premier Cru stopped accepting returns of open bottles two years ago according to Daniel Sogg in his story titled "The right to return?" in the May 15, 2007 issue of the Wine Spectator.  The rationale offered by co-owner John Fox in the article is "It's the lack of knowledge by the consumer...most people who say a wine is corked are confusing it with something else, like [the leathery, earthy character of brettanomyces], or they just don't like it."

While some consumers may get it wrong, it's not likely 100% of them do which is what Premier Cru's policy assumes.  On the other hand, perceived "unfair" treatment is one issue which riles consumers and drives them elsewhere.  So even if the consumer is wrong occasionally, the value of retaining the customer outweighs any cost of a return.

For more behind the Vinfolio philosophy, see my prior post, Returning faulty wine to retailers. In addition, read our current wine guarantee and returns policy.

If you're a wine collector and haven't been to the annual Napa Valley wine auction, pay attention.  The 2007 auction is scheduled for June 7-10.  Invitations were mailed in late March but you can also visit the auction home page of the Napa Valley Vintners and register directly. 

This event will sell out so don't dawdle.  The full weekend package is $2,500 a person and a daytime package of events is $1,000 a person.  Read about what's included in each ticket package.  The ticket prices may seem high, but keep in mind it's a charity event to benefit Napa county health, youth, and low-income housing non-profit groups.  

Vinfolio co-sponsors Auction kick-off event 

Vinfolio just agreed last week to co-sponsor a kick-off food and wine tasting event at the Beaulieu Garden Estate in Rutherford on Thursday night, June 7th, in conjunction with Departures magazine, the Mandarin Oriental hotel group, and Blackbird Vineyards.  All auction ticketholders for the full weekend package will be invited (200 person capacity).  There'll be about 15 top wineries pouring their wines; plenty of great food from Paula Leduc catering and Mandarin Oriental hotel chefs from New York, Miami, and San Francisco; and Vinfolio's Doug Wilder will be pouring a range of his favorite Napa wines (as will I and Vinfolio's executive wine specialist team).

Meet me there

My wife and I are attending the full weekend's events and would love to meet any blog readers or Vinfolio customers who plan to attend.  Please feel free to email me to let me know (use the "Suggest a Topic" email link in my blog located under my photo).

A couple of news stories in the past month focused my attention on the potential impact of unleashing pent-up global demand for fine wine that is now impeded by high import taxes.  Specifically, Hong Kong decided to cut its wine import duties in half and South Korea concluded free trade agreement negotiations with the U.S. which look likely to result in a complete elimination of its high wine import duties (see Korea Trade Agreement Moves Forward: Wine Industry to be a Major Beneficiary).  As pricing is about supply and demand, sudden reductions in taxes could cause demand to rise in a world of relatively fixed supply of fine wine.  

See the chart below for a quick overview of major Asian countries' wine import duties in comparison to the U.S.  The basis of import duties and taxes varies by country, ranging from the value of the wine to volume and alcohol levels.  The data below is based on a single case of wine valued at $1,200.  While Hong Kong's and South Korea's dramatic future tariff reductions are impressive, their economies are relatively modest.  The bubble size in the chart represents the relative GDP among the countries shown, and therefore the potential purchasing power which could be released to impact wine prices.  The two countries combined represent less than 5% of the U.S.'s GDP so the planned wine import cuts are not going to redefine price levels on their own. 

"What if" scenarios for China and Japan

1. China - What's more interesting perhaps is China's high duty combined with its purchasing power (about 60% of U.S. GDP and growing faster).  What if China were to cut its 49% duty to zero?  Given the growing number of millionaires in China (now in the 300,000-400,000 range), you can bet a such a change would impact fine wine prices (see my other recent post, China's long-term impact on fine wine prices, and Selling wine to the affluent Chinese).
2. Japan - Japan's fine wine market is already very strong and while a reduction of 15% is much less than 49%, one can imagine a more immediate impact given the far more established channels of selling fine wine into Japan.

Bottom line: The stage seems set for long term price rises for fine wine.  Wine collectors need to keep in mind that the world of fine wine is a very global business in which trends or market discontinuities elsewhere will impact their wallets and/or investment approaches.