China/HK: New 'vanity' market for Bordeaux

global recession hit, wine markets have dipped and are making a recovery, led by countries with growing middle classes that have escaped the recession. A key example: the "vanity" market for Bordeaux in China and Hong Kong.

Bordeaux marketing

I have tremendous respect for Bordeaux marketers. They have not allowed Bordeaux to be commingled with other Cabernet Sauvignon or Merlot wines in the eye of the buyers.

Just look at the price differentials. For wines rated 92, 93 or 94, Bordeaux sells for more than five times Cabs that are not from the Bordeaux region. This is even more amazing given that "individuals who are unaware of the price do not derive more enjoyment from more expensive wine. ... the correlation between price and overall rating is small and negative, suggesting that individuals on average enjoy more expensive wines slightly less."

The U.S. market for Bordeaux
Evidence of a declining U.S. market comes from Shanken News Daily:

• "I spent years selling Bordeaux. Now their wines are priced for a market like China, but not mine. The last vintage my customers could really afford was the 2000. But we can't sell Bordeaux at $1,000 a bottle today," says David Breitstein, owner of the Duke of Bourbon in Canoga Park, Calif.
• "Bordeaux commanded half of all premium wine sales in 1990. Today its share is 20% and shrinking ... I've sold less than half of my 2009 Bordeaux futures," says Jim Arnold, owner of Kahn's Fine Wines & Spirits in Indianapolis.
• Johnson Ho, owner of the Pantheon Wine Shoppe in suburban Chicago, is advertising 2009 Latour and Margaux at $1,200 a bottle each, but demand has withered. "I buy a fraction of the Bordeaux I once got," Ho says.
• Ron Junge, president and owner of Brown Derby Stores in Springfield, Mo., got one-fourth of all his wine sales in Bordeaux in the 1980s. Today that share has been reduced to less than 5%. He says young shoppers rarely ask about Bordeaux. "For them, buying classified Bordeaux would be like reaching for the stars," he says

This has happened because of increasing awareness of U.S. buyers of excellent wines from other parts of the world at lower prices, but also because the U.S. is not yet out of the recession.

Auction/futures prices
Auction sales have recovered since the global recession, Wine Spectator says. Global auction sales were $408 million last year, up from $233 million in the recession year of 2009. Prices for expensive wines are also up sharply. The Wine Spectator Auction Index increased by 15% over one year, surpassing its 2007 record high.

Hong Kong has become the worldwide center of wine auctions, which are dominated by Bordeaux sales, outgrossing London and New York combined.

Wine Spectator reports that U.S. auction totals rose strongly last year, totaling $154 million compared with the previous year's $107.6 million. But it says much growth in U.S. auctions, "primarily for first-growth Bordeaux and top Burgundies, is from Asians bidding by fax, phone or streaming Internet to U.S. sales rooms."