Daze of Wine & Rises

Peter D. Meltzer - June 2008

Prices have doubled, but wine at auction shows no falloff and plenty of benefits for restaurants.

It's hard to conceive how much the breadth and depth of wines available to the restaurant and hotel community have changed over the past 20 years. Advances in viticulture and winemaking technique have ushered in a host of cellar-worthy new labels from hitherto unexpected regions like Argentina and South Africa. California cult wines like Screaming Eagle, Harlan Estate, and Colgin, now the darlings of expense-account diners, didn't even exist in the late 1980s. Wine auctions, which have become an integral part of the fine and rare wine industry, were in their infancy.

Two decades ago, vintage classics from Bordeaux were usually the purview of high-end establishments which could afford to lay down case-lots of wine upon release. Wine auctions have played a significant role in the enhancement of contemporary wine lists by democratizing the acquisition process. They have changed the way to acquire fine and rare wine by featuring mature vintages that can go straight onto a wine list--often for less money than recent releases that require substantial aging.

Wine auctions had virtually no profile in the 1980s outside the United Kingdom, where the established London firms of Christie's and Sotheby's predominated. In 1994, the amount of collectible wine sold at American auctions hovered at around $10 million. By 2007, however, U.S. wine auctions hit a record $210 million in sales--a 23 percent increase over 2006 and a massive 93 percent increase over 2005. Despite volatile financial markets, a major credit crunch, and declining consumer confidence in 2008, auction prices appear to be recession proof.

At Zachys Wine Auctions (the Scarsdale, New York, retailer which is an independent auctioneer) last January, a case of the famed Château Lafite-Rothschild 1982 sold for $30,940. In 2005, it averaged only $8,064 per dozen. A case of the celebrated Heitz Wine Cellars Martha's Vineyard Cabernet Sauvignon 1974 recently fetched $28,560, more than double its 2005 value. Even more dramatic is Domaine de la Romanée-Conti Romanée-Conti 1985, which has catapulted 321 percent to a high of $237,000 per case.

Classified Bordeaux continue to dominate the wine auction market, but fine Burgundies have captured an increasing share both in terms of volume and price—a reflection of changing consumer tastes. Both categories of wine have doubled in value in just four years. Rhône reds have grown substantially in popularity, and premium California labels have preserved their niche. Select Italian estate bottlings enjoy a strong following. On the other hand, demand for vintage Port has waned.

Auctions proffer cellar-worthy wines at every price point. At the upper end of the scale, Wine Spectator Grand Award winning restaurants vie to buttress their inventory with scarcities such as Ramonet Chevalier-Montrachet 2002 at $694 per bottle or Armand Rousseau Chambertin 1999 at $728 per bottle—labels which would be virtually impossible to find through traditional distribution channels.

In the midrange, "parcel" lots (multiple cases of the same wine) provide numerous opportunities to bolster a list. At an Aulden Cellars-Sotheby's sale in New York City last March, four cases of Château Ducru-Beaucaillou 1995 sold below the presale high estimate for $1,936 per dozen. Savvy bottom fishers can snap up the likes of a dozen bottles of Le Vieux Donjon Châteauneuf-du-Pape 2001, which sold at Zachys in March for $618—well below the Wine Spectator fourth quarter 2007 auction index average.

One obvious advantage auctions pose to a wine-intensive restaurant is that they provide the luxury of unprecedented choice—the chance to offer a broad variety of fine or rare wines in the context of a meal. It's an opportunity to let the customer's curiosity run wild by sampling classic vintages or vintage classics.

"I'm hooked on auctions. Auctions are good for restaurants," enthuses Jeffrey Strauss, owner of Pamplemousse Grille in San Diego. At least 10 percent of his 2,000-bottle wine list was acquired at auction. After attending a Zachys sale in New York, Strauss discovered he could buy mixed lots—typically five to seven different wines, often from the same vintage, or alternatively, different vintages of the same wine. "This way, I can pick up some choice 1959, '61, or '89 Château Lafite-Rothschild without having to buy a full dozen. Whereas it would take years to deplete a complete case of '59, the smaller quantities tend to move quickly."

Strauss says that another advantage for the restaurateur at auction is the "owc" (original wooden case) phenomenon. "Retailers and dealers tend to make owc a prerequisite for resale, shunning binned bottles which consequently sell for considerably less. What do I want with a wooden box in my cellar? I may save up to $250 per case on a rare wine that is not in its original container.

"If you want to commit to a first-class wine list," Strauss continues, "you needn't go out and spend a fortune. Prices are great at auction. We started with a $10,000 inventory. Create a limited list with a lot of variety that you can build at auction. Adopt a modest approach to mark-ups. But if prices creep up at auction to a point where they exceed what you can comfortably charge on your own list, you can always sell the balance to pay for the original investment. In other words, auctions serve as a two-way street for buying and selling."

On the surface Le Charlot, a minuscule but highly popular bistro on Manhattan's Upper East Side, is an unlikely place to encounter Château Pavie 2000, Château Cheval Blanc 1995 or Château d'Yquem 1990. But thanks to owners Bruno and Thierry Gelormini's enthusiasm, Le Charlot has fast become a wine destination. Recalls Bruno, "In 1998, we took our first $5,000 in profits and bought fine wine at a Sotheby's auction. Now the inventory verges on the $300,000 mark, with 20 percent of our stock coming from auction."

In addition to classic Burgundies from Henri Jayer and Rhônes from Château de Beaucastel, Bruno took a position in premium California wines that didn't have a major following in French restaurants, such as Joseph Phelps Insignia and Silver Oak Cabernet Sauvignon. "They proved to be outstanding values. The wines we buy at auction have an extra appeal to our customers because they generally aren't available on everyone else's list."

As wine director of Manhattan's Wine Spec­tator Grand Award winning Cru restaurant, Robert Bohr is in the big league of labels. He presides over a 150,000-bottle cellar with a 4,500-bottle wine list and roughly 30 wines available by the glass. Acker Merrall & Condit conducts its monthly wine auctions on the premises, and Bohr is a regular. He says the principal attraction of wine auctions is the availability of mature wines and highly allocated or scarce younger wines, which are otherwise difficult to obtain in sufficient quantity for a list.

"Price discrepancies also provide the opportunity of buying DRC La Tâche for less," Bohr adds. However, he says that competition from cash-rich private collectors has made the market more competitive. Asked why he thought there weren't more restaurant buyers at auction, Bohr replied, "It's a big-time commitment, and there aren't any payment terms (you have to pay before you get the goods), whereas buying from distributors gives you a 30 day float." What's more, unless there is something patently wrong with your purchase, you are buying as is.

Bohr's advice to neophytes: Do your homework. "If possible, go to the auction warehouse and inspect the wines you're interested in buying. Check the wine's level, the color, the label (does it show any drips, indicating some leaky bottles or other damage). Examine the cork and capsule to see if it is depressed or protruding.

"Cross-reference estimates against recent realized prices. Set up a price maximum for each lot so there is less of a temptation to outbid and overpay. If possible, attend the sale in person. Written bids and phone bidding are good alternatives, but you have a better chance to be certain about your purchases if you are there. Plus, you might find some of those price imbalances."

As an alternative to live auctions, John Kapon, auction director of Acker Merrall & Condit, suggests exploring Internet sales. "I think they're a great way to build breadth on a list, as there are usually smaller quantities available and purchases can be spread out more effectively. Sometimes only one bottle is needed if it is appealing enough! Auctions are the only way to cost effectively offer older wines even if they are only five years old."

Paul Hart, president of Hart Davis Hart auctioneers in Chicago, feels the restaurant constituency for wine auctions could be expanded. "We've noticed that some restaurateurs don't take advantage of the auction market—particularly the newer buyers—because many of them are simply not familiar with the auction process."

Hart says that time constraints and budgetary concerns often mean that the absentee bidding process works best for restaurateurs. "They can enter a bid online or by fax and set individual lot limits and overall spending goals. They can also utilize live online bidding or, alternatively, sign up for telephone bidding. There are always opportunities, and market shifts happen quickly, but restaurant buyers need to be involved to benefit from these prospects."