Saturday, April 8, 2017

Questions America Wants Answered: "Why is Domaine de la Romanée-Conti So Expensive?"

From Lucky Peach:

A 1996 vintage of Domaine de la Romanée-Conti sells for an average of $11,054.
The 1996 vintage of Domaine de la Romanée-Conti, released at $1,022 per bottle, now runs an average of $11,054 at auction, according to the Wine Spectator auction database—a 981 percent increase.

By many accounts, Romanée-Conti, the flagship pinot noir from Burgundy’s Domaine de la Romanée-Conti, is seriously good (“It was like discovering Bach for the first time,” said importer Kermit Lynch of the 1961 vintage, in an interview with the New York Times). But for all the praise that has been heaped on it, its most noteworthy characteristic, and the calling card of the other wines from the domaine, has become its price tag.

Wine can be bought at almost all stages of its life: before it’s really wine, via Bordeaux futures; on release, at retail or directly from the winery; and in the resale market, which includes anything from peer-to-peer sales to official auctions. Empty bottles sometimes sell on eBay. And where the DRC wines, as they are more popularly known, really make headlines is in the auction market, where recent records have wine insiders wondering how much higher the price can go. (In October 2014, Sotheby’s sold 114 bottles of Romanée-Conti in Hong Kong for the equivalent of $1.6 million dollars, reportedly the largest amount ever paid for a single lot of wine at auction.)

What drives the collectability—and price—of DRC is a combination of scarcity, its solid track record for quality, and reputation for aging well. The Romanée-Conti wines have long been desired. Monks planted vineyards on what became the RC land in the thirteenth century, and the property gets its name from the Prince of Conti, who paid six times the going price for vineyards in that area in 1760 and kept the wine for himself. In the nineteenth century, the wines were the most expensive in Burgundy.

The family of the current winemaker, part-owner Aubert de Villaine, bought the Romanée-Conti vineyard in 1869, adding it to other holdings in prestigious vineyards including Richebourg and Échézeaux. De Villaine, who took over management in 1974, is thoughtful, passionate, and admired; his steadiness helps to parlay a sense of security, a Warren Buffett-like buy-and-hold approach to winery-running. The wines regularly receive top marks from critics who are invited to the annual press tastings. But there just isn’t that much to go around: about 450 cases a year for each of the single-vineyard bottlings. The process by which the domaine parcels out wine is secretive, but is thought to attempt to favor longtime customers and drinkers over speculators. Still, bottles of DRC make their way to the auction market with some frequency, with price tags that dwarf what the winery charges.

Over the past thirty years, the modern wine auction scene—Storage Wars for the Michelin-star set—has grown from a London-centered niche market to a $352 million industry, with auction locales that read like a guest verse from Pitbull (New York, Shanghai, Hong Kong, Los Angeles). Credit generally goes to the U.S. stock market boom in the 1990s and the growth of the Chinese economy in the 2000s; new drinkers with new money plus dwindling stocks of older wine equals increasingly pricey bottles. And with that success, new parasitic investment products have latched on: investment funds that buy and age cases of wine, databases that track and average price movement in stock market-like indices.

To many long-time wine insiders, this is straight up bananas. (“I want to scream ‘they’re for drinking’” said British wine critic Jancis Robinson in a 2010 Financial Times video about investment-grade wines.) But it appears that fine wine as investment is the new normal, like all those other formerly functional entities—wheat crops, West Village real estate—that have been converted into financial portfolio products.

Despite what the numbers look like on paper, though, making money in the wine auction market is no sure thing—even with DRC. If you want to resell your wines at an official auction, as opposed to at peer-to-peer sites or by offloading your wines to a restaurant, the upfront costs are significant. There is the issue of building a functional cellar; wines that have been aged in temperature-controlled conditions are worth more money. And auction houses don’t want to buy a single bottle from an unknown seller.

Then there are the realized prices. One thing to remember when looking at auction prices is that a record sale is by no means the going rate for the wine: it is a sale that happened once at a price only one person would pay. With concern about fraud and degradation from poor storage, it is often back-vintage bottles sold by the winery itself that bring in the highest prices. Taxes (which depend on where you’re selling the wine), consignment fees (a percentage of the final sale price that some auction houses will charge), and insurance can also dent the rate of return. And in the long time frame you’ll be holding the bottle, your cellar might flood, or popular tastes could change (see: port, which has fallen out of fashion). Or the fear of fraud (not uncommon in the wine trade) can keep buyers away.....MORE
 Possibly related:
"Vineyard-Raiding Baboons Favor Pinot Noir"
What a bunch of wine snob poseurs.
Merlot is just fine, especially if it's dolled up as Chateau Petrus.
Berry Bros. & Rudd is running a special case price, "Buy 6 and save £ 2667.37".
A Romanée Conti (pinot noir) will cost you double or triple. BB&R is price on request.
Either way, possibly more than the average baboon has in petty cash.

From The Big Money's Daily Bread blog:

Wild baboons in South Africa are raiding vineyards. Perhaps they watched the move Sideways or perhaps they just have good taste: Growers report that the baboons favor pinot noir grapes. Not only that, but they "choose the nicest bunches" and leave the sour grapes on the ground, according to one farmer quoted by the Associated Press.
The primates' discernment is expensive for the growers in South Africa's wine country: Pinot sells for more than the merlot and cabernet sauvignon that the tasteful baboons tend to ignore....
News You Can Use: "The Weird World Of Expensive Wine "
Prof. Dimson: "New research reveals that wine outperformed art, stamps and bonds throughout the 20th century"
Dimson et al: "The impact of aging on wine prices and the performance of wine as a long-term investment"
Are collectibles good long-term investments? "The Investment Performance of Emotional Assets"
Alternative Investments With Liquidity: "Fine Wines, Best Value"

Questions America Wants Answered: How Does Brexit Affect the Bordeaux Wine Market?
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