Ditton Wine Traders’ fine wine blog

I have commented on prices of Lafite many times in this blog. More than any other wine, it catches the imagination at the moment. It might become slightly boring, but the story hasn't ended yet.

Take a look at below graph, courtesy Liv-ex:

It shows the price development of Lafite – vintages 2000-2006. Of all the investment wines, Lafite is the the only one that has managed to achieve a higher price now than at the previous high of July 2008. To illustrate this point, have a look at below graph, which depicts the average price development of the 100 best traded Bordeaux wines:

As you can see, the average price of top Bordeaux is still significantly below its previous peak. Where July 2008 showed an index of 263, it's now at 225 – after having dropped to 205. Moreover, the increase in the wider index is largely due to Lafite. It makes one wonder, is the Lafite saga ever going to end?

Kevin Hassett has written an article on Bloomberg.com, where he states there are good reasons indeed for the Lafite bubble to burst. His argument hinges on the assumption that, at some point, investors/consumers won't support the price difference between Lafite and equally (Parker) scoring wines.

Interesting. Very interesting. For him to be right, some fundamental changes in perception need to happen.

The Chinese are and will be very "status" orientated. This won't change and Lafite is the current status symbol. Some other wine needs to take its place. The most likely way for some other wine to take Lafite's place is through a combination of a change in perceived quality and kudos. In order for that to happen, Chinese consumers need to get more educated in the quality of wine. Either by adhering more relevance to Parker and/or by adopting their own, local and widely followed "wine advocate". If they do, I should think we will see a rebalancing of prices.

So, what is the likelihood of above happening? Over time, I think it's likely. In the end, price/quality will always prevail and it's out of sync at the moment. Also, hypes have – by nature – a tendency to end. In the short run though, I don't think this will happen. It will take time to 1) educate the Chinese wine lover and 2) for public, status-orientated opinion, to catch up with this new found knowledge.

Suppose we get to this point though. Suppose Lafite is no longer the talk of the town. What will the effect on prices be? Will Lafite plummet? Will a new star emerge and leave all other Chateaux behind? Or will other high scoring wines with a reputation similar to Lafite merely catch up in price while Lafite stays where it is?

That's where the law of supply and demand comes in. If Asia, and China in particular keep being being passionate about wine, supply of top rated Bordeaux will always be lower than demand. Lafite produces about 20,000 cases a year of their Grand Vin and is one of the larger Chateaux. Lafite is already so hard to find that prices are out of control. If other wines will become more en vogue, they will likely follow the same price path as their illustrious predecessor. Simply because supply won't be able to keep up with demand from such a massive population that are so into their wines.

The only thing to stop prices going up is when Asia stops buying.