With Low Prices, Should Wine Collectors Take a Sip?

Opportunity?

The current Bordeaux market appears to have found some equilibrium, Gibbs notes.

The Liv-ex 100 index started moving higher in the summer of 2014 after 16 consecutive months of declines. The selling pressure appears to have abated and prices have dropped to levels where they can attract a wider range of buyers, as well. He cites the cost of Chateau Lafite-Rothschild, probably the most recognized Bordeaux.

During the wine bull market, the average cost for a case increased from about 3,000 British pounds (GBP) to 12,000 to 14,000 GBP. The price has since settled back to the 4,000 to 5,000 GBP range.

That price is still out of reach for many buyers, but nonetheless it’s more accessible to a larger audience.

“Now, it might still sound like a lot of money for one of the best wines in the world to be spending 500 quid a bottle (500 pounds), but there are enough wealthy people in the world who might just do that,” he says. “There were far less at 1,000 pounds a bottle, less still at 1,500, if you see what I mean. It’s all about where people perceive value to exist and value would be determined by whether or not they were prepared to pull the cork on a bottle of wine at that level.”

Buyer psychology is another factor underpinning the market because a wine’s price can influence its owner’s behavior. As prices rise, wines purchased for drinking start becoming collectible investments. At some price that generates a sufficient profit, however, investors become sellers and offer their holdings back to the market.

The converse is true, as well, says Gibbs. As a wine’s market value falls, it turns from a financial investment back into a pleasure purchase, which curtails the supply coming to market.

“I think that what’s happening is we’re getting back to a point where the traditional buyer—who had withdrawn from the market, because China had taken prices away from them and in fact, they were selling into that market and selling to this new money flowing out of China. They’re now looking at this and saying, ‘Well, actually, I’m beginning to understand these prices again, so I might tip my toe back in, and I’m certainly no longer a seller,’ ” he says. “So the selling pressure is reduced, and perhaps even there are people beginning to look again and think ‘I might buy this market.’ ”