Chateau Latour: a bargain at $11,600

Jacquie Hayes

Buying at auction involves a buyers’ premium of between 15 and 20 per cent, bringing a $10,000 case of Bordeaux up to $12,000. Photo: AFP

One of life’s great joys is a glass of very fine wine, particularly if you’ve had the opportunity to stand in the vineyard from which it came and meet those responsible for producing it.

Some years ago friends and I were fortunate to visit Domaine de la Romanée-Conti, an estate in Burgundy, France, responsible for producing one of the world’s top wines. Co-owner Aubert de Villaine himself talked us through the science of “terroir” as he walked us through the vines of La Tache before inviting us to barrel taste the 968 Montrachet and the next vintage of Romanée-Conti.

In California I’ve dined with visionary Bill Harlan and been charmed by Texan auctioneer-cum-vintner Ann Colgin, again at the source of their respective Napa Valley wines, both of which enjoy cult-like status.

The problem with wines of this calibre in Australia is they are very expensive. If you’re lucky enough to see a serious Colgin or Harlan on a wine list, they’ll set you back at least a grand, while the DRCs would easily run into the tens of thousands of dollars a bottle.

I see Sydney’s Rockpool Bar and Grill is yet to tempt anyone with its $72,000 bottle of 1945 Romanée-Conti. Co-owner David Doyle says he’s waiting for the return of “irrational exuberance” before that one moves. He knows he’ll be waiting a while.

Still, one of the benefits of dining in restaurants with great wine lists is that they offer wines you might not otherwise see in Australia. The opportunity to try them is enough for many to justify the higher spend.

Those who push back at paying restaurant mark-ups yet want to experience top-tier drops may be better off buying them themselves.

In fact, fine wine – specifically first-growth Bordeaux – is looking like a particularly good investment play right now. Why? Because it’s cheap – relatively speaking. The Bordeaux market had become too frothy and has now crashed. Fine wine prices, as measured by the industry’s leading benchmark, the Liv-ex 100 Index, rose rapidly in the first half of last calendar year but finished 2011 down 15 per cent.

Over the same period, top-scoring first-growth Bordeaux was off almost 20 per cent, a price collapse of a magnitude not seen since August 2008 when Lehman Brothers imploded.

A few things combined to over-inflate Bordeaux. Chief among them has been the growing prosperity in China, where the best French wines have become status symbols on tables in Beijing and Shanghai. Also contributing have been the nouveau riche of Russia, where the show-off wine cellar has become the new must-have accessory.

This intense fascination for Bordeaux pushed prices up too high, too fast. And whenever anything produces price growth which tracks up and to the right like that, it’s time to run for the exit.

The 2008 Lafite demonstrates just how out of control things got with Bordeaux, offering an extreme example of the dramatic price rise and fall over time: it was released in 2009 at £2000 a case before reaching £11,000 in June last year, then falling back to £8000 ($11,800) now.

The correction came when the Chinese shifted their focus away from Bordeaux to Burgundy in search of better value, coupled with uncertainty surrounding the euro.

You may ask why you’d invest in a market that’s still falling, especially as there may be more pain to come. As usual, no one knows where the low will be. But it’s not like these things are bad risks. Consider what you could be buying.

Ditton Wine Traders, a UK-based fine wine specialist, says you can pick up a case of 2003 Chateau Latour for £7800 at the moment, representing a 24 per cent price plunge from its peak of last July and bringing it in line with what it cost in about June 2008.

That still might seem a lot to the layman, but anyone serious about their cellars will appreciate that the 2003 Latour is one of only 10 first-growths since 1981 to be awarded a perfect 100 points from the revered wine critic Robert Parker. The last time he gave a Latour the perfect score was in 1982 and that wine sells for about $30,000 a case today.

Parker’s point system for grading wine is probably the best guide for prospective buyers in the Bordeaux market. Anything rated 95 and above is going to be very good. And the younger vintages seem to offer the best value at the moment.

Even though there may be bargains to be had, keep in mind that wine is not a cost-free investment. Buying it at auction will involve a buyer’s premium of between 15 and 20 per cent, which would bring a $10,000 case of Bordeaux up to $12,000.

If you want to bring it home, it’ll face an extraordinarily high tax burden, including GST, a 29 per cent “wine equalisation” tax plus another 5 per cent duty (apart from US wines which are excluded because of the free trade agreement).

The collective tax would bring your $12,000 spend up to $17,880 ($600 duty, plus $3654 WET tax, plus $1625 GST, applied in that order).

The good news for investors is that you never have to take delivery of your wine but can instead store it at the place of purchase. Storage costs globally are priced at about $1 a bottle a month. The vendor can offload it again on your behalf once the market has recovered in a few years, although don’t expect to see real price growth in the next decade.

No wonder, as one UK dealer was heard to remark recently, that he couldn’t remember the last time he’d sold a case of first-growth Bordeaux for personal consumption. It has become too expensive to drink.

jacquie.hayes@me.com

The Australian Financial Review