'Red Obsession': How China Is Transforming the Bordeaux Market
I'm not above a glass of Trader Joe's Two-Buck Chuck.
But for those of you with disposable income that invites angst over terroir, or wine's origins—particularly for Bordeauxs—no other fine wine topic has quite ignited passion like China's new wealthy. Their sheer purchasing power has transformed the Bordeaux market, perhaps irrevocably, and shows signs of sustainability despite the 2011 price collapse.
"As the demand for these wines becomes great and greater from this new market, naturally the prices will rise," said filmmaker Warwick Ross, whose documentary "Red Obsession" recently debuted in North America at the 2013 Tribeca Film Festival. The film, co-directed by David Roach, is narrated by actor Russell Crowe.
And oh boy, did prices rise.
Bordeaux Bubble Bursts
During the height of the Bordeaux bubble in 2011, prices for highly sought after bottles soared. Cases of recent vintages of top-tier wines such as Château Lafite were going for as much as £15,000, roughly $23,200 USD.
"The Chinese market has really woken up to fine wines," said Joe Marchant, director of Bordeaux Index US. As China's economic rise minted more millionaires, curious wine buyers from Hong Kong and mainland China have been showing up at chateauxs in France's Bordeaux region. "A lot of people had access to really cheap cash," Marchant recalled.
Created in 1997, the Bordeaux Index is a European fine wine merchant with offices in London, Hong Kong, Singapore and more recently in Los Angeles. They manage clients' wine vaults around the world. In 2008, they also launched "The Bordeaux Index," a real-time index that tracks live changes in the prices of roughly 160 of the most liquidly traded Bordeaux wines. The index serves as a proxy of sorts for the wine market.
"We wanted to explore how wine behaves as a commodity, not just a drink that improves over many years," Marchant said.
The Bordeaux Index peaked at 150 in June 2011. Like many market bubbles, the wine bubble burst and prices have since retreated, with cases of Lafite declining in price by as much as 40 percent.
(Read More: Family Businesses More Resilient Amid Tough Times)
Two Cultures, One Obsession
The documentary at its best mines the tension between meeting—and profiting handsomely from—wine's global demand, while managing estate production quality and inventory. This limited production volume makes the wines rare and desirable.
"The current concern is that this voracious market will decimate the cellar stocks of the older vintages," Ross said. As the film explores, even empty bottles of premium Bordeauxs are coveted and refilled with imposter wine on the black market.
In 2010, Chateau Mouton Rothschild directly courted Chinese buyers. They unveiled Lafite bottle packaging with a red Chinese character for the number eight, and the year 2008 embossed on the bottle. The pronunciation of "eight" in Chinese rhymes with that of the word "fortune." Chinese consumers snatched up the bottles with the special packaging, Wine Spectator reported.
"If your aim is to sell as much of your wine as you can, it might as well be at the highest prices you can achieve, particularly if your stock is irreplaceable," filmmaker Ross said.
But as new Bordeaux buyers broadly snatched up cases and prices skyrocketed, traditional buyers were forced out. Winemakers, who once aggressively courted the new market, began to rethink their marketing strategies, as the film explores. Translation: Good luck if I'll ever taste a drop of the premium stuff.
What You Didn't Know About Chinese Wine Buyers
Meanwhile, not content to just sip foreign-made vintages, China has begun its own wine-making tradition. Yes. Chauteauxs outside Beijing. How about a mainland Cab, circa '95?
(Read More: Gap Widens Between Rich and the Rest)
Ironically, Ross said over the course of filming, he learned that westerners were investing in Bordeauxs. Meanwhile, the Chinese, who were driving prices up through sheer buying power, were either drinking the wines, presenting them as gifts, or serving them to guests to show the esteem in which they are held.
"So, perhaps ironically, it could be argued that the Chinese buyers are honoring the passion and art of these wines more than the western investors," Ross said. "This flew in the face of prejudices that had been expressed by some commentators about the unsophisticated character of the Chinese buyer," he said.
Turns out Chinese buyers may have known all along about terroir. The word loosely translates as a sense of place, and assumes the land from which grapes are grown imparts unique qualities.
While still off the 2011 highs, The Bordeaux Index has rallied about 7.4 percent off 2012 lows, with some individual wines up 20 percent or more, Bordeaux Index's Marchant said.
The market including Chinese buyers has matured. More recently, some French winemakers have cut prices to lure Asian buyers.
"The Bordeaux estates need to realize that China will not mop up overpriced wines," said Jane Anson, a Bordeaux correspondent and expert. "They will still be interested in the same things that Bordeaux offers every wine drinker—good quality, age-worthy reds," said Anson, also author of "Bordeaux Legends." Even in China, wine austerity seems to have set in a bit, with flashy displays of wealth frowned upon.
But that doesn't mean wine merchants, sometimes called negociants, aren't poised for additional prosperity. "Pretty much every classified growth here, and every negociant, has a Chinese member of staff now, which reflects just how much stock they are still putting in the Chinese market," Anson said.
Last year's fourth quarter was the first period since autumn 2010, when Lafite prices showed a positive return, according to a Bordeaux Index investment report. "This is now an environment in which demand flows are led principally by considerations of consumption and value rather than speculative tail chasing," according to the report.
Looking ahead, there's widening out of the wine market in China, with more interest in smaller chateauxs, and in wines from Burgundy and the Rhone region. Said Anson, "there is an awful lot of stock in the system in China right now. But certainly the market is still huge and full of potential."
A final Tribeca Film Festival screening of "Red Obsession" is scheduled for Saturday in New York City.
(Read More: Budweiser Dresses Up Its Can With a Bow Tie)