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The Down Side of Globalization
Wine as an Investment?

Robert Parker, publisher of the Wine Advocate made 12 predictions about the future of the wine business in the October issue of Food and Winemagazine. What he had to say about the future of wine prices for collector wines, like first growth and second growth Bordeaux, Napa Cabernets, Grand Cru Burgundies, high end Pinot Noir and almost any other sought after, higher priced wines was a little frightening. Here is his prediction:

3. World bidding wars will begin for top wines Competition for the world's greatest wines will increase exponentially: The most limited production wines will become even more expensive and more difficult to obtain. The burgeoning interest in fine wine in Asia, South America, Central and Eastern Europe and Russia will make things even worse. There will be bidding wars at auctions for the few cases of highly praised, limited production wines. No matter how high prices appear today for wines from the most hallowed vineyards, they represent only a fraction of what these wines will fetch in a decade. Americans may scream bloody murder when looking at the future prices for the 2003 first growth Bordeaux (an average of $4,000 a case), but if my instincts are correct, 10 years from now a great vintage of these first growths will cost over $10,000 a case...at the minimum. It is simple: The quantity of these great wines is finite, and the demand for them will become at least 10 times greater.

"OK," is he right? I did some checking and the evidence is ominous. The Japanese seem to have set the precedent for this phenomena. Back in the 80's, as Japan developed a very wealthy upper class, Japan became an important market for European luxury goods. As their spending increased on status heavy commodities, French wines became very popular, especially Burgundies and Bordeaux's. So popular in fact, that many people in the wine business blame the Japanese for bidding the price of Grand Cru Burgundy wines to the astronomical levels they trade at today. If the advent of Japanese affluence did that to French wine prices, just imagine what's going to happen when all these new dollar millionaires in China, India and Russia build wine cellars.

Together India, China and Russia have become the "Golden Triangle" for luxury goods manufacturers over the last ten years. For instance, Cadillac and Louis Vuitton say China is currently their fastest growing market. Louis Vuitton now says that 3% of China's population are now wealthy enough to be their customers. That doesn't sound like much until you realize that 3% is 50 million people, 236,000 of whom are now millionaires in dollars, not yen. In fact there are now about 61,000 millionaires in India and 84,000 in Russia. Porsche just opened its first showroom in India and Cartier premiered their first store in Bejing, so, can a taste for Cabernet be far behind.

It looks to me like Mr. Parker's prediction is dead on... Shafer only makes about 2,000 cases of his Hillside Select Cabernet. If we think $225 a bottle is pricy now, how much will it command when there are thousands more collectors out there looking for it? Can I include First Growth Bordeaux in my 401K? Hold on to your wallets!

March 16, 2004