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Château Lafite-Rothschild bottles. (Adam Lechmere/Decanter)
Château Lafite-Rothschild bottles. (Adam Lechmere/Decanter)

Collecting

Wine: an investment that ages well Add to ...

It’s 3 o’clock in the afternoon and a line has started to form at the main BC Liquor store at 39th and Cambie. By dinnertime it has grown still longer, and by 6 a.m., liquor store staff start passing out order forms to the gathered masses.

They are not gathered for some once-in-a-lifetime sale – far from it, as it happens every fall when Bordeaux is released. And while some in those lineups are die-hard oenophiles, the motivation for time spent for an increasing number is to snag a bottle because it’s rare, lauded and sure to increase in price.

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They’re not drinkers – they’re would-be investors. They’re paying everything from $3,800 for a single bottle of Petrus to $600 for a case of Château Chasse-Spleen in the hopes that the next decade will see the same increase in price that the previous decade has.

Experts generally agree it was the 1982 Bordeaux vintage – and the wine critic Robert Parker Jr.’s hyping of it – that changed everything. Prices shot up, so did demand and the process of securing the bottles one wanted became both more expensive and more difficult – the perfect combination of market forces that can attract those interested in making a buck. In 1982 a case of Château Latour sold for about $400. That same case currently sells for about $33,000, for an increase of about 8,000 per cent. Château Lafleur has increased about 21,900 per cent in the same period.

The vast majority of wine “investors” are like those lined up outside the liquor store. Bit players with a few bottles here or there who may trade or sell a few bottles to friends or family, but not much more.

Those serious about wine secured their Bordeaux more than a year before that lineup started by buying futures, or en primeur, the process whereby individual chateaux generate cash flow by offering wine while still in barrel at a discount to the price the wine will sell for once bottled. The mechanics of the process have been around for a while but it’s only in the past three decades that end-consumers and individual investors have had ready access to the system through local liquor boards or individual wine merchants.

And while the process is also used on a smaller scale by vintners in other wine regions, it’s only in Bordeaux where the process has become large-scale and commonplace enough to attract the investor.

Peggy Perry is the vice-president of marketing and purchasing at Calgary, Alta., private wine retailer Willow Park Wines & Spirits. They’ve offered futures to their customers for almost 20 years, and she has seen a decided increase in those purchasing for investment.

“I’d estimate that almost half our consumers are purchasing for some sort of investment,” she says, although she notes that many of those take the form of canny wine lovers who buy a case, hold it, and then sell half of it on release.

In most years – Ms. Perry notes that only about one vintage in 10 goes down in value from the futures price – that will cover the cost of the future, so “they get half the case for essentially free. It’s a great way to subsidize a wine habit.”

So if futures generally appreciate, why don’t more Canadians invest in them? Mostly it’s the extreme difficulty of selling your wine in Canada to capture any of the heretofore-liquid profits. Unlike a stock or even a car, a private citizen in Canada cannot sell liquor to another private citizen or, until recently, even ship it from one province to another.

There is currently only one commercial auction in the country – the one put on by Waddington’s in concert with the Liquor Control Board of Ontario – contrasted with the multitude of options in the United States or Europe. To the extent there are individual Canadians investing in en primeur, they invariably buy the futures in either New York or London and have the bottles professionally stored in a controlled facility until the time comes to dispose of them. But then there are storage fees, insurance and the eventual auction premiums eating into your eventual profit margin – which you’ll have to pay capital gains on.

If it all seems like a tough way to make a buck, you’d be right. The logistical difficulties have spawned a plethora of wine funds such as London, England’s Wine Asset Managers or the Toronto-based Wine Investment Fund, where wine experts run the fund like any other investment. Potential investors should be aware the fund is unregulated and the money is locked in for five years, and there are management fees and potential early redemption issues.

But investing in wine has the benefit of being a hedge for traditional investments, given fine wines’ traditional insulation from the stock or bond markets. The Knight-Frank Luxury Investment Index, for instance, put 10-year wine price growth at 166 per cent last year.

Still, given the costs and constraints for individual investors, what’s a wine lover to do?

Paul, a Torontonian who now lives in Calgary, is an orthopedic surgeon who has been diligently investing in wine since the early nineties. He tells how he is going to deal with his cellar stocked with pricey spoils of some well-chosen gems: “I was thinking I’d drink them,” a sentiment that may become increasingly novel in the future.

What Wines to Buy

Once the decision to invest in futures is taken, which wine is the next question. Bordeaux remains the benchmark here and you have to balance prestige and preview. For prestige, the Bordeaux start with an 1855 classification of the wines of the Left Bank that’s surprisingly still hugely relevant. The first growths – Lafite, Latour, Haut-Brion, Margaux, Mouton Rothschild – are joined by a handful of prestige wineries on the Right Bank – Petrus, Le Pin, Cheval Blanc, Ausone – to form the platinum standard of investing. The key is to blend this reputation with the reviews of the influential wine critics – Robert Parker Jr., Wine Spectator, Decanter – who taste the very young wine still in barrel before the futures are released. All the above is broken down in clear little columns on the sites of most retailers offering futures – the Liquor Control Board of Ontario (LCBO)’s is particularly well organized. Finally you add whatever supplementary information you can glean – the particular love of the Chinese for Lafite, the hiring or firing of a winemaker, the sale of a château – into a mélange of information before buying. And if you apply such rigour, you realize that it’s not so different than analyzing the newest crop of tech IPOs to find the next Twitter.

Bottles worth seeking out

1 All the First Growths – Lafite, Latour, Haut-Brion, Margaux, Mouton Rothschild – are rock solid. But, like Berkshire Hathaway, blue chip doesn’t come cheap. The excellent 2009 Margaux is currently $1,995 at the LCBO (the futures price for the less heralded 2012 is $549). The 2010 Smith Haut Lafitte – given 98+ out of 100 points by critic Robert Parker Jr. – is currently $288 at the BCLDB, a relative bargain. Château Poujeaux 2010 is $53 at the LCBO, an actual bargain.

2 For up-and-coming Châteaux look for a multi-year upward trending of critical praise. Pontet Canet has been a great overachiever in recent years. Smith Haut Lafitte looks to continue an upward march and châteaux such as Poujeaux and Teyssier are relative bargains that could make the transition to the next level.

3 Burgundy is even trickier as there is a far less measured approach to both wine making and to reviewing. The big names – Domaine de la Romanée Conti chief among them – never go down and make only high-end, sought-after wine. Look for a smaller producer – such as Anne Gros – who is well regarded by her peers.

4 California is all about getting on wine lists and receiving an allotment. The price you pay for Screaming Eagle, should you be allowed to buy, is always below retail, but immediate reselling is frowned upon. A good list to try to get on would be Washington’s Quilceda Creek – its cabernets are among the best reviewed in the world, and the entry point is only about $140.

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