Penfolds Grange, Henschke Hill of Grace – investing a tricky business

The recent release of Penfolds Grange and Henschke Hill of Grace at record prices raises the age-old question of what they’re really worth. The short answer is, they’re worth what people pay for them. And as Penfolds and Henschke sell out every year, the answer has to be that they’re not overpriced, notwithstanding substantial domestic discounting in the case of Grange.

The discounting reminds us that we don’t all pay the same price. Indeed the gap between recommended retail and price on special may run to $100 or more a bottle. But over time, both wines tend to appreciate in value, though not at an even or predictable rate. So whether or not a purchase stacks up as an investment, as many buyers hope, depends on paying the right price at the right time (and not drinking it while you wait). Achieving this is no easier than picking stock price movements.

A story published in the Canberra Times on 30 May provided a real-life glimpse of Grange as an investment. The story reported prices Jackie Chan is said to have paid on a buying spree at Jim Murphy’s Fyshwick store in 1999.

Chan’s purchases included four vintages of Grange – 1991, 1990 and 1989 at $390 a bottle each and 1983 at $300, according on an order form retained by a former Murphy employee. Based on the current retail prices of those wines in the same store, the report concluded, “at least some of his purchases may now be proving a savvy investment”.

Unfortunately for Chan, though, it doesn’t work like that. A private owner has little chance of selling at retail prices. Why? Because people wanting to buy old Grange don’t phone Jackie Chan. If they’re in a rush, they’ll visit a retail store. And if they’re not, they might go to auction and save a great deal of money.

Collectors wanting to sell wine, generally don’t have customers, so they go to auction or to an upmarket retailer. In other words, they sell into a wholesale market. And from my experience as one of those retailers, auction prices continue to provide the best guide to current wholesale value.

So if Chan took the Granges he bought in 1999 to auction today, the result could be sobering. In nominal terms, he’d be ahead on the 1990, 1991 and 1983 vintages and behind on the 1989 vintage. However, after inflation adjusting his 1999 dollars, he’d be seriously behind on all four vintages. The position would be even worse were we to calculate the opportunity cost of money tied up without return for 14 years. The table below shows the detailed estimates.

The same table shows the net price you’d pay as a buyer at auction after adding the auctioneer’s quaintly named “buyer’s premium” and GST. Comfortingly, these prices, with the exception of the 1983, sit well below the retail prices quoted in the Canberra Times report – underlining the value of auctions.

And to illustrate the importance of timing, those who bought Grange1983 at $50 in 1988 could pocket a tidy profit – nominally $377 a bottle, or $325 after adjustment for inflation.

The top of the table shows Langton’s auction prices for various vintages of Grange and Hill of Grace. The generally high prices confirm their desirability. But it also demonstrates an age-old pattern – you can generally buy beautiful mature old vintages for less than you’d pay for a current release.

For drinkers rather than investors, though, there’s comfort in buying and cellaring a wine on release. That way, as the decades tick by, you know exactly where the wine’s been and how it’s been cellared. I suspect this is where Jackie Chan’s coming from.

And Grange and Hill of Grace sit at the top of the auction pile because they will cellar reliably for decades. I reviewed the new-release 2008 Grange a few weeks back, and last week had the opportunity to taste the just-released Hill of Grace 2008.

Ainslie Cellars hosted a customer tasting of Henschke wines, including the two single-vineyard flagships, Mount Edelstone Shiraz 2009 ($115) and Hill of Grace 2008 ($650).

I’ll review the range over the coming weeks. For today, though, let’s consider just the majestic 2008 Hill of Grace, sourced from 150-year-old shiraz vines in the Eden Valley. It’s deeply coloured but limpid and just beginning to show a little age at the rim. The complex, multi-faceted aroma suggests a big, powerful wine, built on intense, ripe black-cherry-like fruit, laced with sympathetic oak. The palate surprises after the aroma as it’s ethereal and elegant in structure, though waves of intense fruit and tannins sweep across the palate. It’s a classy and idiosyncratic shiraz, as gnarled and stately as the ancient vines it springs from.

Penfolds and Henschke blue-chip reds – market prices
WineRRPMean hammer priceSeller getsBuyer pays
Grange 2008$785No saleNo saleNo sale
Grange 2007$425$383$537
Grange 2006$550$495$695
Grange 2005$445$400$562
Grange 1996$475$427$600
Grange 1990$555$500$702
Grange 1986$550$495$696
Grange 1983$475$427$600
Hill of Grace 2008$650No saleNo saleNo sale
Hill of Grace 2007No saleNo saleNo sale
Hill of Grace 2006$445$400$562
Hill of Grace 2005$400$360$506
Hill of Grace 1999$365$328$461
Hill of Grace 1990$480$432$607
Hill of Grace 1986$360$324$455
Hill of Grace 1983$220$198$278
The Jackie Chan GrangesWhat Jackie paid 1999*What he’d get nowWhat you’d pay now
Grange 1991$390/$575$450$632
Grange 1990$390/$575$500$702
Grange 1989$390/$575$320$449
Grange 1983$300/$443$427$600
Auction price sources:
Seller’s price assumes 10% commission to Langton’s
Buyer’s price assumes 15% commission to Langton’s and GST
*Nominal price/inflation adjusted price in brackets
© Chris Shanahan 2013 June 2013

Copyright © Chris Shanahan 2013
First published 5 June 2013 in the Canberra Times and