Wine investing ain’t easy

If you think you can make a killing buying wine, think again. Unless you can buy at or near wholesale price and pick the winning vintages, you’re unlikely to turn a dollar. Prices realised at auction by the Penfolds blue-chip reds released in May each year tell the story. On the positive side, the high turnover of Penfolds reds means you can always cash your cellar in, and cut you losses more readily than you can with lesser brands. But the sad truth is, you’re generally better off buying aged Penfolds reds at auction than acquiring the new vintages on release.

Look at Grange. You can buy the stunning, just released 2005 for between $500 and $550 a bottle, cellar it carefully for decades, then enjoy it. But you can pick up the 2004 at auction for about $485 (based on Langton’s most recent hammer price plus buyer’s premium and GST). The magnificent 2002 you can have for just $440. Or for the great 1983 vintage, now in full bloom, pay $436; or perhaps enjoy the supple and lovely 1982 at $345.

Note though that the market demands a little more for some of the acknowledged great vintages: 1998 fetches about $570, 1996 $461, 1990 $635 and 1986 $670. While the sellers of some of these vintages might make a nominal profit, real returns vary considerably and may be negative, especially where the original purchase occurred after the release of the 1990 Grange in 1995, when prices took off sharply.

For example, if you bought the 1986 at $100 in 1991, based on a hammer price of $583, you’d receive about $520 from an auctioneer today – a handy nominal margin of $420, but perhaps a more modest $245 in real terms. But if you’d bought the 1990 for $300 in 1995, you’re nominal margin today would be around $196, probably about $30 in real terms – a poor return on $300 invested fifteen years ago.

And if you auctioned your 2004 Grange, bought last year for $500, you’d walk away with just $380 – goodbye $120! Conclusion: if you drink Grange, buy it at auction. Caveat: talk to the auctioneer, be sure the wine has been well cellared; this becomes even more important over long periods of time.

And what of the other Penfolds blue chips? Magill Estate is a shocker. Cellar door price of the just-released 2007 is $114.99. But the 2006 recently fetched $82.80 at auction, the 2005 and 1996 $74.75. Again, buying mature bottles at auction seems to be the go.

Likewise the auction price of RWT Barossa shiraz, launched from the 1997 vintage, lags the retail price. It’s a fabulous wine, as good as Barossa shiraz get. The recently released 2007 retails for around $175, but you can buy the extraordinary 1998 at auction for about $122 or the wonderful 2002 for around $140.

There’s a glimmer of financial hope for St Henri lovers as word spreads that this elegant shiraz ages beautifully for decades. Last year the 1955 vintage fetched $5,750, the 1957 $8,108 and the 1959 $2,939. Admittedly these fetch a premium for scarcity – but this should be seen against St Henri’s growing reputation and a general rise in is price at auction

However, $89.99 retail for the current release 2006 vintage is quite a premium over the $67 auction price for the 2005. But where the 1983 Grange fetches less at auction than the current 2005 at retail, St Henri 1983 at around $153 is well above current vintage retail price. Similarly 1975 vintage fetches around $170 and 1971 around $674.

This groundswell of support for mature St Henri vintages points to good value even in the current vintage, especially where retailer discounting brings it close to the auction price of recent vintages.

Like Grange, Penfolds Bin 707 Cabernet Sauvignon, took a significant leap in price after the release of the 1990 vintage. However, for years it struggled to maintain the increase, though recent auction prices suggest it’s firming.

The new release 2007 sells at around $190 retail – well over the $147 fetched at auction by the 2006 vintage. However, the 2004 recently sold for $196, 1998 for $231, 1996 for $236, 1990 for $217 and 1986 for $220. These don’t necessarily imply a good return for the seller, but as for St Henri, the mature vintages at auction cost more than the current one at retail.

The real bargains for auction buyers seems to be with the next run down of Penfolds reds. For example, the current release Bin 407 Cabernet Sauvignon 2007 retails at around $55. That vintage can already be bought at auction for about $35, the 2006 for around $28 and the 2002 for $36.

Likewise the solid, juicy Bin 28 Kalimna Shiraz ($25–$34 retail for the 2007 vintage), recently fetched $21.85 at auction. The older vintages, however, move up a little, but not much, considering their ages – 2002 $30, 1998 $47.15 and 1971 $137.

The golden rules for buying at auction are to check the provenance, bid within your limit and don’t forget to add the buyer’s premium of 15 per cent to your bid price as that’s what you’ll actually pay. If you’re selling, negotiate the commission with the auctioneer after shopping around. Alternatively, if you have top quality, well-cellared wines, contact the buying departments of the large retailers as they’ll sometimes buy direct, generally at around current auction price.

The last point reinforces that auction prices are, in effect, wholesale prices for older wines – what sells for $100 becomes $150 retail or even more in restaurants. This explains, in part, why auctions are, in general, better for buyers than they are for sellers.

It also explains why if we’re after a really good old red, like Grange, buying the mature wine at auction can be better than buying the young wine and cellaring it.

Copyright © Chris Shanahan 2010

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