Chinese buyers fuel boom in price of top-end liquor
OPINION: Want to make money? Liquidate your assets – and put the money in booze.
But not the stuff you buy from the supermarket: the high returns are for the finest French wines, cognacs and Scotch whisky.
Little noticed by most punters have been the soaring prices of the finest French Bordeaux wines and highly rated European spirits at wine auctions at Dunbar Sloane and Webb's in Auckland. The sad news is that the dozen top Hawke's Bay red or Australian shiraz bottles you have resisted drinking for a decade are likely to be worth less than you paid for them after inflation. And you won't get a skerrick for a 10-year-old Speights.
The soaring price of the best French wines, Scotch, cognac and armagnac is a global phenomenon, and has been fuelled by the new rich in China, the rising numbers of millionaires who have the money to indulge themselves in buying the best the West can create.
Simon Ward, wine consultant to Webb's, says Kiwis who bought a case of really good French wine a decade or more ago are getting back many times what they paid. A surprising number of Kiwis speculate in wine, which explains the large number of quality wines that turn up at Webb's 600-lot auctions held eight times a year and other sales in Wellington and Christchurch.
Most of the wine is carefully cellared in purpose-built facilities to keep it in premium condition. Mr Ward says some vendors like to look at their collections and show them to friends. Others store them in banks of temperature-controlled wine coolers, like big household fridges.
Investors also store wines at commercial facilities in Wellington and Auckland.
Most buyers are Chinese. Christine Palmer of Dunbar Sloane says numbers fly into town for each sale.
"They have no qualms about paying surprisingly high prices, and keep their hands up till they get what they want. But they only buy good stuff."
At the latest auction a bottle of La Tache Monopole fetched $4515, a Chateau Latour $1460 and a bottle of Krug champagne $1400. They often pay in cash: one settled an $18,000 bill in real money, and then invited Palmer and a colleague for lunch. "Sadly we had to decline."
Mr Ward says buyers ship their purchases back to Hong Kong, which has become the centre of the liquor trade after the government removed duties and taxes. He doesn't think buyers intend to resell it.
"They drink most of it, but also give it away to friends or as corporate gifts."
Observers say Chinese buyers are becoming more discerning, and few would now dream of adding Coca-Cola to Chateau Lafite.
They also attend schools where they learn to taste wines.
John Authors, a noted financial writer with the London Financial Times, says there is logic in people investing in top quality liquor, and other real assets including art, gold and silver at a time when it is difficult to find rewarding investments in bond and sharemarkets.
Increasing corporate regulations are a further discouragement to traditional investments. He says investors see wine as a "good play" on the continuing Chinese growth. However, he says the surging prices are being driven by the spending power of a small super class. French wine prices can also be extremely volatile, and a bubble, similar to what happens on the sharemarket, could occur.
The soaring prices have spawned a new word for alternative investments: SWAG, for silver, wine, art and gold. All are booming, to varying degrees. Someone recently paid US$120m (NZ$150m) for the painting The Scream by Edvard Munch. The problem with these investments is that they don't produce an income, and are most unlikely to get a big tick of approval from the retirement commissioner.
In his book SWAG - Alternative Assets for the Coming Decade, John Roseman says quality wine ticks all the boxes. It is scarce – every time a vintage bottle is drunk, the supply is reduced; it can be purchased in small amounts, and there are price guides. In the past decade, indices of wine prices have tripled, while sharemarkets have been flat.
Sizeable investments are being made. Scotch whisky sales have risen 50 per cent in the past five years and British liquor giant Diageo, owner of Johnnie Walker and Guinness, is spending 1 billion (NZ$2b) increasing production to meet surging demand in emerging markets including China and Brazil.
Some estimates: Webb's expects to get up to $6000 for a bottle of 1975 Romanee-Conti, and $5000 for a bottle of 2000 Petrus Pomerol at its next sale. A bottle of Richard Hennessy cognac, made from 100 brandies stored since the early nineteenth century, could fetch $4000.
However, estimates for Australian Penfolds Grange seem little changed from a decade ago at between $350 and $500.
Te Mata Coleraine is regarded as one of the better investments in New Zealand wine, though price rises seem to have matched inflation over the past decade, and other labels have lost ground.