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Has the Tide Turned with the Year?

By |  March 11 2016

After four consecutive years of decline for the Liv-ex 100, 2015 saw the index stabilize. In the interest of positivity, I’m going to ignore decimal places and report the index flat, with zero movement year on year. (For the pessimists among you, the index was actually down by 0.1 percent.) For an even more positive spin, note that the index outperformed stocks and commodities in a challenging economic environment (fig.1, below).

Fig1

Even first-growth Bordeaux lost less than 1 percent (the Liv-ex Fine Wine 50 closed the year down 0.7 percent), and the broader Fine Wine 1000 index rose very slightly (fig.2, below). In other words, fine-wine prices across the board were pretty flat in 2015, with only three exceptions. These were older Bordeaux, Burgundy, and the "Rest of the World." However, even in these cases, the gains were in the order of less than 3 percent (fig.2). This suggests to me a market that has rationalized, one where different regions and prestige brackets have found their relative positions and have settled into them-temporarily at least.

Fig2

Sharing the limelight

No single category notably pulled ahead of the pack in 2015. It makes sense that older vintages of Bordeaux should have regained some ground on their more recent, more overpriced counterparts. (The rationale for this trend was outlined in these pages 12 months ago.) Burgundy’s acceleration away from Bordeaux is slowing, and the gap is unlikely to widen further. As for Liv-ex’s Rest of the World index, the rise of just under 3 percent was led by ultra-cult Californians Scarecrow and Screaming Eagle, which gained 20 and 15 percent respectively. It’s hard to say whether this is indicative of an upward trend for California, US, or even New World wine in general, or simply the result of two super-rare tearaway brands.

A more balanced and steady-state market is also indicated by a more even distribution of regional market shares. When Bordeaux was undergoing stratospheric price rises, it was dominating trade like never before, representing more than 95 percent of sales on the Liv-ex exchange (fig.3, below). Now it is back down to 2004 levels, to below 75 percent, continuing a trend seen over the past five years. Whether due to a weaker market for Bordeaux, a stronger demand for other regions, or a combination of the two, the manifest outcome is that other regions have gradually enjoyed increasing visibility and trading volume over this period.

Supporting an assessment of greater equilibrium in the fine-wine market, no single region has filled the space created by Bordeaux’s retreat. Where Burgundy was the main beneficiary in 2012 and 2013, the additional limelight in 2015 has been shared pretty equally between Italy, Burgundy, Champagne, and Rest of the World, with 6.7, 5.9, 5.8, and 5.0 percent share of trade respectively in the course of 2015 (fig.3). In fact, the latter two categories more than doubled their share on 2014, further evening out the picture. Is this a sturdy foundation for a more confident fine-wine market in 2016? Most will certainly hope so.

Fig3

2015 auction round-up

Auction statistics from 2015 are slightly less encouraging. The Wine Market Journal 150 index declined by 4.9 percent during the year. Worldwide, wine-auction revenues fell by 4.4 percent to $335 million in 2015 (fig.4, below), 30 percent below the peak of the market back in 2011 ($476 million). US growth slowed from 28.6 percent in 2014 to just 3.3 percent. Meanwhile, Asian revenues began to shrink at a faster pace, by 11.4 percent, following a modest decline the previous year. Furthermore, Europe’s revenues continued to nosedive, now less than two thirds what they were two years ago. Europe hosted the most auctions of the three regions, but largely single-day sales, averaging less than $1 million, compared to more than $3 million per sale in Asia and the US (fig.5, below).

Fig4

 Fig5

The best-performing geographies (fig.5) were Cannes-up 43 percent to $3.7 million for the year-and New York-up 26 percent to $110 million-representing more than 30 percent of global revenues. As Beverly Hills, San Francisco, and Boston lagged, all with revenues down more than 50 percent on 2014, the Big Apple helped the United States retain its newly reacquired dominance. The super-power hosted more than half of 2015’s live auctions by revenue, whereas in June 2011, the whole of the United States made up only 30 percent of global wine-auction revenues, and Asia more than 50 percent (fig.6, below). "Not since Wally’s Inaugural Auction in November 2013 has the New York wine market seen an auction escalate to this level of buzz, fanfare, and success," said Wally’s managing director Julia Gilbert following its November auction in Celebration of La Fête du Champagne.

Fig6

Auction houses between them held 133 live auctions during the year-two more than in 2014-spread across 162 days (fig.5). However, with 5.1 percent fewer lots in each sale, selling for 1.6 percent less on average, this did not prevent a decline on the previous year’s global revenues. Even so, the fourth-quarter revenues were up on the equivalent period in 2014-the first fourth-quarter rise in six years, which could suggest a turn for the better (fig.7, below).

Fig7

Reports from the auction houses are promising, even in Europe: "In respect of sold lots and achieved prices compared to the estimates, this was our best auction for a long time," enthused Marc Fischer, owner of Steinfels, with regard to its November 21 auction in Zurich, which was 97 percent sold. "The interest was huge, and bidders submitted their bids from all over the world," he continued.

The auction market also showed signs of embracing a broader set of regions. "Our core business remains high-end Bordeaux and Burgundy, but we’ve set huge prices for Champagne, German wines, and Italian wines as well," reported Zachys. Although the top ten producers for the house in revenue terms were the usual suspects-Domaine de la Romanée-Conti, followed by Bordeaux first growths and equivalents (Petrus, Cheval Blanc, and Le Pin), and rounded off with Leroy-Zachys also set records for 12 bottles of 1964 Barbaresco Santo Stefano di Neive Riserva Speciale from Giacosa ($41,096, versus a presale low estimate of $24,000), and for a magnum of 1952 Philipponnat Clos des Goisses ($7,350, versus $3,400). Marie Keep, managing director at Skinner in Boston, observed that, "long overdue, Port is selling beyond expectations, and we believe this will continue throughout 2016."

Heritage Auctions set a world record for a case of rare 1985 Ponsot Clos de la Roche ($91,500, versus a low estimate of $38,000). "Overall, Burgundy dominated the top ten, and strong demand for the very finest and rarest from the Côte d’Or has not waned," reported Frank Martell, director of Heritage’s wine department.

Asia, despite its falling share of the global market, was still the continent home to the most expensive lots, at $5,600 on average, not quite double that in the United States, nor quadruple that in Europe. However, sell-through rates in the Far East fell significantly-from 92.3 percent in 2014, to 88.6 percent in 2015-suggesting reduced demand. They fell in the USA, too, by a smaller margin, and rose very slightly-from a low base-in Europe (fig.5).

Two auction houses managed to weather this overall decline with aplomb: Zachys grew revenues by 23 percent year on year, and Acker Merrall & Condit (AMC) by 12 percent (fig.8, below). Both are US wine merchants with specialist wine-auction divisions and have significant business in Hong Kong and none in Europe. While Sotheby’s was top of the wine-auction leaderboard in 2014, revenue decline of 7 percent, to $60.5 million, allowed AMC to claim the number-one spot in 2015, bringing in $69.3 million and selling the most expensive lots, at $4,600 on average. Sotheby’s average lot price was just over $4,000, though it held the two auctions with the highest average lot prices of the year, at around $16,000, one of which was ex-château Mouton Rothschild.

Fig8

Zachys moved up from fourth place to third, with $55.6 million from just ten auctions, ahead of Christie’s, which held 20. Hart Davis Hart was consistent, deriving $41.4 million from just the one city and just seven sales, only 3 percent down year on year. The Chicago-based house held the largest wine auction of 2015, at a stonking $9.6 million over two days in December. The furthest faller in 2015 was Wally’s, making half what it did in 2014, at $12.4 million, but just retaining sixth place, a whisker in front of Bonhams at $12.1 million. The race is on for 2016.

WFW Drinkers’ Index, by WMJ

The World of Fine Wine has partnered with Wine Market Journal (WMJ), the leading online source for wine-auction prices, to create an index designed for connoisseurs and drinkers of fine wine. WMJ compiles trading data from all major live wine auctions dating back to 1997 and from Internet auctions since 2008, allowing professionals and enthusiasts alike the opportunity to track performance trends for any wine or vintage commonly appearing at auction. For more information, please visit www.winemarketjournal.com

The WFW Drinkers’ Index was conceived as an antidote to today’s "benchmark" indices containing only very expensive Bordeaux classed growths that few wine lovers could hope to enjoy on a regular basis. The World of Fine Wine’s editor has painstakingly selected 50 wines that he enjoys drinking and that he hopes many WFW readers will also have the opportunity to savor. The wines are all approachable now and can be found at auction for under $100 per bottle. We have only included wines where at least 50 bottles have traded at auction in the past three years, to ensure you can realistically hope to come across them in future auction catalogs. The index is price weighted and is calculated quarterly.

WFW Drinkers’ 50 Index performance

For the complete version of Liquid Assets, please refer to Issue 51 of the print magazine.

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