Trading Futures

Peter D. Meltzer - May 2011

Sitting on too much high-end wine? The auction block can be a vehicle for profiting from wines that aren’t selling. Peter D. Meltzer talks to the pros.

In the worst-case scenario, even a well-stocked wine cellar can turn into a wine cemetery. If your high-end wines are not moving, with no respite in sight (many wine aficionados who scaled down on pricey purchases during the recession still haven’t traded back up), you’re essentially tying up valuable capital that could be put to better use elsewhere in your establishment. A simple recourse is to put those “unemployed” bottles to work by consigning them to auction. The process is straightforward and potentially very rewarding.

In 2010, prices for fine and rare wines hit an all-time high at domestic auctions, and in Hong Kong (where taxes on wine and spirits were abolished in 2008), demand is greater still. Worldwide, a record $408 million worth of fine wine was auctioned in 2010 (with Hong Kong accounting for more than 40 percent of the total). Last year, the Wine Spectator auction index rose to an unprecedented 339 points. “I have never seen the auction market as strong as it is now. This seems a perfect time to sell,” says Jeff Zacharia, president and auction director at Zachys, whose firm grossed $57 million at auction last year.

Of all the wines on the auction block, the legendary Château Lafite Rothschild 1982 has enjoyed the most spectacular appreciation. It had a release price of just $480 per case back in 1984 and now commands a staggering $65,000 per dozen at U.S. auctions. In Hong Kong, where the wine is particularly coveted, it has been known to fetch as much as $132,000 per case. Carruades de Lafite Rothschild, the château’s second wine, has also been caught up in the momentum. The 2000 vintage cost about $40 per bottle upon release a decade ago and was popular with restaurateurs. It now averages $248 per bottle at auction—a 520 percent increase. Dominus Estate Napa Valley 1990, which initially sold for $40 per bottle, now averages $140. In other words, it’s possible to be sitting on a trove of liquid assets without even realizing it.

Nevertheless, it’s important to understand that not all wines are auction worthy. Inexpensive bottles with a limited shelf life like Beaujolais, Zinfandel, Pinot Grigio, and Chianti have no place in the auction market. Nor do off-vintages or wines in poor condition. Conversely, six or 12-bottle lots of top Bordeaux and Burgundy are highly sought after. Vintage Champagne and the best producers from the Rhône, Piedmont, and Tuscany also have a following, as do California cult wines. If you have your eye on a Hong Kong sale, the admission ticket is more exacting, although it is expanding. Château Lafite, Château Pétrus, and the wines of Domaine de la Romanée-Conti are the linchpins, and increasingly, other first-growth Bordeaux and select Burgundies from Jayer and Rousseau. The requirements for consignments to the Far East are set higher in terms of average lot value, desirability, and condition.

Jamie Ritchie, CEO of Sotheby’s Wine (whose firm realized $88 million last year), says, “If you’re in the restaurant/hotel industry, focus only on wines that have a resale value at auction and eliminate everyday wines. Send in a spreadsheet of the wines and, where possible, include the cost price, as this will make the transactions more efficient. Be clear about your strategy and communicate your aims—the auction house can help you best with more information, rather than less.” If you’re not sure what to part with, Kimberly Janis, auction director for Morrell & Company. suggests you hedge your bets: “Take the intended allocation of prestige wines and keep half for sale at the restaurant and offer the rest through an auction house. You might invest the proceeds in other vintages more disposed to an immediate turnover.”

For starters, prepare a list of your inventory and, if feasible, indicate the average fill levels (the distance between where the cork ends and the wine begins), which are clear signs of condition. State whether the wines were purchased upon release and how they’ve been stored. Condition and provenance are germane to a successful consignment. If an auction house is interested in your inventory, it will likely send you a provisional estimate along with a reserve price (the privately agreed upon sum below which your wine will not be sold).

Today’s market has become very competitive, so it’s wise to shop around. Submit your specifics to a handful of firms and compare their estimates, reserves, and seller’s fees. The latter can range from 0 to 15 percent of the winning bid and are usually a function of the value and distinctiveness of your consignment. Some houses also set a minimum for a consignment’s worth. The lowest amount is $300 per lot at Bonhams & Butterfields, and the highest is $20,000 per consignment at Sotheby’s. On average, expect a minimum value of $10,000 for consideration. Apart from the exact terms of sale, it’s a good idea to ask how the firm intends to promote and market your collection.

Many restaurant wine directors and sommeliers are not all that well versed in current auction market trends. Charles Curtis, head of North American and Asian sales for Christie’s, suggests a prospective consignor attend an auction in person to get a better idea of what’s selling and where prices are trending. “Restaurant beverage directors will find that there are great opportunities on the buy side as well as on the sell side. The auction market is very strong right now, and auction professionals will work with you to maximize the potential of your consignment,” he says. Adds Janis, “Buying wine at auction is rarely more difficult than buying through a regional wholesaler. It’s often easy to find bargains selling below the going rate.”

Over the years, several prominent restaurants, including Manhattan’s Montrachet, Union Square Cafe, and Le Cirque, as well as Maxim’s and La Tour d’Argent in Paris, have thinned out their cellars at auction, realizing as much as seven-figure proceeds in the process. So if you ever decide to pare down your cellar, you’ll know you’re in good company.