Reviews

Wine auctions: sales boom
(fine)wines №4 spring 2008

Two biggest auction houses, Christie’s and Sotheby’s, announced a healthy increase in wine sales last year.

Total Christie’s wine sales jumped by 22%, and Sotheby’s — by 32%. The news was featured in major wine and business publications. Although other auction houses weren’t mentioned, the results in fact reflected general situation with auction wine sales. Two thousand seven was a very successful year for nearly all key market players thus continuing a growth trend of the past several years.

Today auction sales demonstrate such dynamic development that even two year old data is considered outdated. Our core analysis will feature the 2006-2007 auction sales and the wines sold at them.

Historically auctions were a meeting place of winemakers or their agents and wine merchants where the former sold goods to the latter. Sea ports with great trading activity were common venues for wine auctions. As wines were usually shipped in barrels and transported by large consignments, this restricted the sale to private buyers. Wine trade remained the key client of the auctions for many centuries. A new chapter in wine auctions was opened when people started to use bottles and corks. Bottled wines kept and developed much better. From then on wines acquired status enjoyed by works of art and other collectibles. Under this influence the audience of the auctions changed and expanded to include private collectors, investors or simply wine lovers.

The bottom idea of wine auctions remains unchanged nowadays. Like before, the function of a wine auction is to sell wine, but contrary to the medieval model, contemporary auctions serve not the primary, but the secondary market. Modern centres of auction sales were formed under the influence of several factors. Firstly, they are concentrated in countries with established wine culture. Secondly, auction sales are most successful in the markets with a certain buying power of population. Globalisation, though, is gradually erasing this condition and is changing the focus to the availability of wealthy international clientele. As a rule, auctions are held in cities known as big financial centres. Another principal factor is the legal base to regulate the activity of auction houses.

Taking into account these factors, it is fascinating to observe modern evolution of the global wine auction scene. Britain was a near monopolist on the market in 1960-1980s mainly because its two leading auction houses — Christie’s and Sotheby’s — opened specialized wine departments. Despite their great financial potential, USA suffered from archaic laws which controlled wine auctions until the end of 1990s. As soon as the market was deregulated, the country’s auction sales exploded. Today the US is a world leader both by volume and value of auction sales. There is no secondary market in Russia at present. While certain preconditions for its formation already exist, including swiftly developing wine culture and a newly formed class of wealthy individuals, the legal base (rather, the lack of thereof) and logistic problems hinder the establishment of commercial wine auctions in Russia.

The customer base of modern auctions underwent qualitative change in comparison to the original historic auction formats. Today the backbone is made up of private clients, though auction sales continue to attract wine trade. Wine merchants who buy wine at auctions often act as brokers working on behalf of restaurants and private individuals. They may also make purchases to fill up the gaps or expand their own portfolios. Private individuals buy wine at auctions for various reasons. The most common are to buy wine for drinking, for creating or expanding a wine collection or for investment purposes. Human ambitions and desire to confirm one’s status may play a significant role in a decision to acquire wine through an auction.

Based on results for 2007, the current top five wine auction houses are ranked as follows (starting from the biggest) — Christie’s, Acker Merrall & Condit, Zachys, Sotheby’s and Hart Davis Hart. Three out of five — Acker Merrall & Condit, Zachys and Hart Davis Hart — organize auction sales only in the US. The British Christie’s and Sotheby’s work on the American market in alliance with local partners. They are accordingly NYWines and Aulden Cellars. Though the list of leaders remains unchanged from 2006, some changes occurred within. Acker Merrall & Condit was the champion of the previous year, with Christie’s shortly behind. Sotheby’s took the third place, and the fourth and fifth positions were occupied by Zachys and Hart David Hart.

Christie’s, one of the oldest and most prestigious auction houses, was the first to open a specialized wine department in 1966. Once again it confirmed its position as a world leader which it holds with impressive regularity. Total wine sales last year amounted to $71,647,944 (all figures are stated in US dollars). High reputation and a large network of sale room locations contribute to its international success. Christie’s wine auctions are held in nine permanent locations — London (King Street and South Kensington), Paris, Bordeaux (Vinexpo), Burgundy (Hospices de Beaune), Geneva, Amsterdam, New York and Los Angeles. In 2007 Christie’s organized 39 sales on both sides of the Atlantic. European sales accounted for nearly two thirds of the total turnover and grew by phenomenal 45% in comparison to the previous year. Christie’s auctions in the USA were smaller in numbers, but higher in value. Last year the most expensive European lot was a case of Jaboulet Hermitage La Chapelle 1961 hammered off for $247,747 to set a new European price record for a case of Rhone wine as well as for a case of any wine sold in Europe. The top lot of the year in the US was 30 cases of Chateau Mouton Rothschild 1986 for $288,000.

While Christie’s leads on a global scale, Acker Merrall & Condit holds the title of the auction house number one in the United States, the country with the biggest turnover of wine auction sales. Last year total turnover from 12 conventional format and 12 Internet sales grossed $59,857,976. This is slightly lower than in 2006 ($60,253,690) when the house held the world record auction which realized $24,685,593. In 2007 the biggest event was The Man With The Golden Cellar sale which totaled $15,563,359. Curiously, the company set up an auction department in 1998. Before it was selling wine through a traditional retail channel in a shop in New York founded in 1820. The wine outlet is still open and is considered the oldest and among the most prestigious wine shops in the US.

Zachys is the closest competitor of Acker Merrall & Condit. The house held 13 sales in New York (Manhattan) and Los Angeles with a total of $52,445,415 in 2007. This is one and a half times more than its previous record performance in 2006. The company started its operations in 1994. Founder Don Zacharia played a key role in establishing the US auction wine market. He was among those who lobbied new regulations for auction wine sales in New York. At the beginning Zachys worked in a strategic alliance with Christie’s. The alliance broke in 2002, and since then the company has organized own sales. Like Acker Merrall & Condit, this is a family business. Zachys appears to have chosen a strategy of further expansion on the American market. Starting from this year it will open two new sale rooms in Las Vegas and San Francisco.

Sotheby’s, in eternal rivalry to Christie’s, also concluded last year with a great success. The figures of the previous two years ($37,380,538 in 2006 and $29,141,728 in 2005) were considerably beaten. Total sale in 2007 grossed $49,287,329, of which 42% were achieved in the UK and the rest in the USA. (Curiously that even with such impressive growth Sotheby’s is still lagging behind the individual performances of two leading American houses — Acker Merrall & Condit and Zachys). Sotheby’s lot of the year was a jeroboam (equivalent to 6 standard bottles) of Chateau Mouton Rothschild 1945 for $310,700 at a New York auction. As for the most expensive case, it was Domaine de la Romanee Conti Romanee-Conti 1990 for $262,900 that was also hammered off in New York. Sotheby’s has organized specialized wine auctions in the UK since 1970 and in the US since 1994. The wine department is headed by Serena Sutcliffe MW, one of the key figures on the market of fine and rare wines.

Unlike Acker Merrall & Condit and Zachys whose sales are mainly concentrated in New York, Hart Davis Hart holds its sales in Chicago. Founded in late 2004, the company organized its first auction in 2005 and quickly grew the business. Last year the sales totaled $26,920,140, nearly a double of the 2006 performance. In the first year the figure accounted for $9,503,414. Hart David Hart held 7 sales in 2007 where 99,3% of all lots were auctioned off. The main event of last year was a sale of a private cellar in May for $7,127,613. All of nearly 1,900 lots were hammered off, and the auction set several new records. The company is managed by three veterans of the fine and rare wines market — John Hart, Michael Davis and Paul Hart.

Along with five leaders, prominent positions on the market of wine auctions have achieved American Bonhams & Butterfields and Morrell & Company, British Bonhams and J Straker, Chadwick & Sons, Swiss Steinfels and Dutch Winefield’s. American Winebid.com and Australian Langton’s specialize in internet sales. Four annual regional auctions in Mosel, Bernkastel and Trier are important in Germany.

Auction catalogues feature wines from many classic wine zones of the world, but the upper echelons are dominated by France.

Bordeaux has the strongest positions among all French regions. It accounts for the major share of wine sales globally. The dominance of Bordeaux wines is explained by well known factors such as historic reputation and quality hierarchy of vineyards, as well as by big production volumes which in turn exercise considerable economic influence on the auction market. As an auction expert and observer of The World of Fine Wine magazine Stuart George notes, the houses make more money from selling first-growth Bordeaux than they ever will from the cult (and shockingly expensive) Californian Screaming Eagle. Even Burgundy, the second most important wine region for auctions, can offer only 250 cases of Romanee-Conti — against 20,000 cases of Chateau Lafite, 12,500 of Chateau Margaux or 3,500-4,000 of Petrus. Top demand goes to the First Growths of Medoc and Graves of the 1855 classification — Lafite Rothschild, Latour, Margaux, Mouton Rothschild and Haut Brion. On the Bordeaux Right Bank these are Cheval Blanc and Ausone in St Emilion and Petrus, Le Pin and Lafleur in Pomerol. The list is concluded by Chateau d’Yquem, the only sweet white wine among dry reds.

Burgundy at auctions is synonymous with legendary Domaine de la Romanee Conti. Romanee-Conti is the emperor of the range. Auction catalogues regularly include wines by such producers as Rousseau, Roumier, Henri Jayer, Coche-Dury, de Vogue, Faiveley, Leroy, Leflaive and some others.

Louis Roederer Cristal remains the strongest auction player for Champagne. Vintage champagne from Dom Perignon, Krug, Bollinger, Roederer, Laurent Perrier, Salon and several other houses are also regularly present at auctions.

The Rhone Valley is the fourth most prominent French wine region whose wines often appear in international auction sales. Classic Rhone lots are Jaboulet Hermitage La Chapelle, three wines by Guigal — La Mouline, La Landonne and La Turque and Jean-Louis Chave Hermitage from the Northern Rhone; Chateau de Beaucastel Hommage a Jacques Perrin, wines by Chateau Rayas and Henri Bonneau from Chateauneuf-du-Pape. High Parker points made wines from such Chateauneuf-du-Pape estates as Domaine du Pegau and Domaine de la Mordoree regular participants of American auctions.

The second biggest share by value at the US auctions is normally taken by the so called cult Californian wines. Auction prices for them are beyond any logic, but negligible production volumes, support of influential American critics and, after all, fashion force the market (though only American) pay astronomic sums for them. Screaming Eagle, Harlan Estate, Heitz Wine Cellars are but a few producers making cult wines. Phelps, Silver Oak and Shafer are among classic Californian wineries with stable demand at auctions.

Interest to Italy and Germany has noticeably risen in the past two years; however, their total share is still very small. The strongest Italian player is Sassicaia by Tenuta San Guido. Other supertuscans are also often present in sale rooms, especially Ornellaia and Masseto by Tenuta dell’Ornellaia, Solaia and Tignanello by Antinori, Cepparello by Isole e Olena. Other popular Italian wines are Brunello di Montalcino from Tuscany; Barolo and Barbaresco from Piedmont — by Gaja, Bruno Giacosa, Luciano Sandrone, Giacomo Conterno and some others. German lots at auctions are pradikat wines, usually starting from auslese level, of such great producers as Egon Muller, JJ Prum, Donnhoff, Christoffel and some others.

Spanish presence in the sale rooms is limited to several renowned producers, primarily Vega Sicilia, Alvaro Palacios and Dominio de Pingus to whom a number of Riojan wineries can be added — Artadi, Muga, Marques de Murrieta.

The biggest auction demand in the category of fortified wines goes to vintage ports from Taylor’s, Fonseca, Croft, Graham’s, Warre’s and madeiras from Barbeito, d’Oliveiras, Justino Henriques.

Except for Australia, New World wines seldom appear at auction sales. Blue chips of the Australian winemaking are best presented in the Langton’s classification. The top rank is given to Penfold’s Grange.

Wine hammer prices increase, sometimes by several times, for best vintages and large format bottles. For example, the most traded Bordeaux vintages of the late 20th century are 1982, 1982, 1985, 1990, 1995, 1996 and 2000. Best old vintages for the first half and middle of the century can be sold for astronomic prices on condition of their impeccable provenance and storage. Large format bottles are highly valued at auctions — from magnum (1,5 litres) to rare nebuchadnezzar (15 litres). They fetch much better prices than equivalent volume of wine in standard bottles.

All players and experts admit that the wine auction market never developed as dynamically as in the past two years, both by breadth of the offered range and by value. The main contributing factors are strong wine market in US; increased concentration of capital among a certain group, including people from Asia, Latin America and Russia for whom a fine wine cellar is a status symbol; a number of big auction sales with unique private collections; finally, a new era of super-premium pricing following the futures campaign for 2005 Bordeaux wines which made the market increase prices for older vintages.

Despite the fact that the wine market is extremely fragmented, its top segment remains very small. In addition, wine is the only auction good with expiry dates whose stocks deplete with consumption. Demand for the world’s finest wines continues to grow. It means that auction houses who sell premium wine lots may look to the future with optimism.

Christie’s
Year founded: specialized wine department opened in 1966
Locations: London King Street, London South Kensington, Paris, Bordeaux
(Vinexpo), Burgundy (Hospices de Beaune), Geneva, Amsterdam, New York and Los Angeles Turnover in 2007: $71.647.944
Information: www.christies.com

Acker Merrall & Condit
Year founded: auction department opened in 1998
Locations: New York and various locations in California
Turnover in 2007: $59.857.976
Information: www.ackerwines.com

Zachys
Year founded: 1994
Locations: New York (Manhattan), Los Angeles, Las Vegas and San Francisco
Turnover in 2007: $52.445.415
Information: www.zachys.com

Sotheby’s
Year founded: specialized wine department opened in 1970
Locations: London and New York
Turnover in 2007: $49.287.329
Information: www.sothebys.com

Hart Davis Hart
Year founded: 2004
Locations: Chicago
Turnover in 2007: $26.920.140
Information: www.hdhwine.com