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Since the late 1980s the Australian fine wine investment market has experienced phenomenal growth. This is the story of that market, the pivotal role Langton’s has played in nurturing it, and some of the key wine investment lessons to be learned.
The Australian wine investment market has grown significantly over recent years. Penfolds Grange, once the only serious investment wine, now leads a remarkable list of Australian fine wines regularly traded for profit and pleasure. The market is in rapid evolution. New players, new market mechanisms, international recognition and new wines make the market more complex and hazardous than ever before. The fine wine market is today’s spice trade. Limited supply, reputation and sheer quality have thrust many of Australia’s best wines onto the world stage. Fuelled by the influential opinions of American wine critic Robert Parker Jr. the market has embraced Australian cult wines. While the core of the market remains overwhelmingly based on established wines, in some cases almost unheard of wines have fetched over AUD$1000 a bottle. Greed, hyperbole and speculation are now part of this dynamic and interesting market. The challenge for the wine investor is to understand the market and where it is likely to go.
A modest start
Until the late 1980s the fine wine market in Australia was small. It was focused mainly on imported wine particularly Bordeaux, Burgundy and Champagne. During the late 1970s and early 1980s the then strong Australian dollar made Australia an important export market for European producers. Things began to change as the Australian dollar weakened. As high quality imported wines became comparatively expensive Australian buyers turned towards their own backyard. The 1980s was a period of rapid growth for the Australian wine industry as it enjoyed a golden age of expansion in technology and capitalization. During the 1980s a remarkable number of enthusiastic, likeable and innovative winemakers, viticulturalists and marketers joined the industry. This was a time of new ideas, new wine regions, a proliferation of new boutique wineries and the beginning of a highly successful export market.
A formative market
The lower Australian dollar effectively incubated the emerging local market focus on fine Australian wine. From a very small base of market performers - principally the great Australian wine icon Penfolds Grange and Seppelt Para Liqueur Port - the number of market performers began to increase. Early winners were Balgownie, Cape Mentelle, Lake’s Folly, Mount Mary, Penfolds, Petaluma, Redman, Tyrrell’s, Virgin Hills, Wynn’s Coonawarra Estate and Wolf Blass. Since the 1980s some wines have gone from strength to strength and others have fallen by the wayside. It is extraordinary to see the evolution in hindsight. Barossa Shiraz - one of the cornerstones of the current market - was considered old fashioned and the Barossa Valley too hot for a premium wine district! Wines with then no apparent future on the market now look important and convincing, many of them based on the concept of low-yielding single vineyard sites and regional diversity.
The beginning of Australian wine investment
In 1991 Langton’s released its first Classification of Australian wine to bring order to this new market and to indicate to wine investors that some Australian wines were emerging as an attractive investment. These included the new essence of Coonawarra Cabernet Wynn’s John Riddoch and recognition of several highly specialized small wineries such as Henschke, Yarra Yering and Mount Mary. In the early 1990s Cabernet Sauvignon was king. Indeed Coonawarra Cabernet was one of the most prominent categories in the emerging market. Langton’s recognized this by putting on the first special event sale
By 1994 the market began to attract a strengthening international following - at first ex-patriot Australians followed by Asian and US buyers. Critical acclaim for Australian wines from influential wine critics and international wine publications helped position Australia as a major fine wine producing country. A feature of the market at the time was a heightened interest in Australian Shiraz, particularly for the Barossa and McLaren Vale styles. In 1996 Langton’s launched its second Classification that recognized the rise in prominence of Australian Shiraz, particularly South Australian Shiraz. Some of the new wines rising to prominence included Cullen Cabernet Merlot, Dalwhinnie Shiraz, Jasper Hill Georgia’s Paddock Shiraz, Jim Barry The Armagh Shiraz, Hardy’s Eileen Hardy Shiraz, St Hallett Old Block Shiraz and Wendouree Shiraz.
A coming of age
By the late 1990s Australian wine had established itself internationally. The Australian Shiraz juggernaut continued unabated, attracting extraordinary attention particularly for the international brands Penfolds Grange and Henschke Hill of Grace. Reflecting this interest, Langton’s embarked on a programme of promoting Australian wine internationally through a series of special event auctions. The
Great Wine Estates of Western Australia, Shiraz Australia I
Golden Summers: A Vintage Australian Decade 1990-1999
attracted significant interest resulting in buoyant sales and increased interest from overseas buyers. Released in 2000, Langton’s Classification III recognized the heightened interest in Australian Shiraz and the emerging importance of regional wine styles such as Margaret River Cabernet and Chardonnay as well as Barossa and McLaren Vale Shiraz. Wines appearing for the first time in Langton’s Classification III include Coriole Lloyd Reserve Shiraz, Elderton Command Shiraz, Howard Park Cabernet-Merlot, Katnook Cabernet Sauvignon, Peter Lehmann Stonewell Shiraz and Vasse Felix Cabernet Sauvignon.
A new market force
With the arrival of the new century it was the turn of the marketplace itself to undergo rapid change. In early March 2000, The Australian newspaper predicted a cyberspace battle between traditional wine auction houses and the new dot.com ventures.
The preceding year had seen more buying and selling activity in the market than ever before. Wine investment had surged to prominence. With it a raft of e-commerce initiatives, aggressive investment strategies and new entrants challenged the marketplace in an extraordinary way. While the full effect of these changes is still playing itself out, it is already clear from the ‘tech-wreck’ of April 2000 and the subsequent failure of many dot.com start-ups, that they have paved the way for established businesses to take the lead.
Langton’s has made a significant investment re-engineering its business using the latest technology. We are now able to trade without the constraints of geography and serve the Australian fine wine investment market as never before. Langton’s have emerged in the new century with the most advanced wine auction service in the world.
As for the wines of the new century, the market now embraces the established blue-chips of Langton’s Classification as well as the new categories of emerging and cult wines. Robert Parker Jr., the world’s most influential wine writer, has championed several previously unheard of wines. Clarendon Hills Astralis, Torbreck The Run Rig, Three Rivers and Wild Duck Creek Duck Muck Shiraz are just a few examples of wines that suddenly attracted a storm of interest from his readership among Asian and US buyers. The sheer strength of this interest at one point suggested that Australia’s top marques could lose their investment shine. However, by the end of 2001 Grange was again shining brightly as the cult wines market waned under the crushing uncertainty post September 11. Regardless of market conditions however, these wines and many others like them, now represent a new shift in the direction of the market. Today Australian fine wines are more diverse and interesting than ever before comprising an astonishing array of beautifully made wine.
The market now attracts serious wine investors as well as the more traditional wine enthusiast. Most wine investors are extremely knowledgeable and have a passion for fine wine. Many recognise the opportunities represented by a rising and increasingly more organised market. They have broadened and challenged almost every aspect of buying and selling fine wine.
The release in 2002 of Langton’s Fine Wine Index (LFWI) demonstrates for the first time with a credible index what many wine investors have known for some time. Endorsed by Access Economics, Australia’s foremost independent economic forecaster and analyst, the LFWI tracks the performance over time of a basket of 28 leading blue-chip Australian wines. The LFWI reveals that fine wine investment throughout the 1990s far outstripped the return on investment in blue-chip Australian shares.
The development of the fine wine market underscores - even validates - the achievements of our best winemakers and producers. The movement to wine as an investment commodity reflects the belief of many that Australia is able to make some of the finest wines in the world. We are simply seeing unprecedented levels of confidence in Australian wine, from an entire generation of Australians and, indeed, an enthusiastic and growing international following. Why shouldn’t a Barossa Shiraz or a Margaret River Cabernet be as good as a Vosne Romanee, first growth Bordeaux or a Napa Valley Cabernet?
The complexities of the global wine market and varying national and state government liquor laws, especially in the US, will no doubt continue to hinder the growth of the world market for Australian investment-quality wine. At the high end, however, buyers are prepared to pay the extra duties and freight to obtain what is perceived as great wine. While the fine wine market is value-sensitive, it might not be price-sensitive. International investors are often prepared to pay more than domestic buyers simply because their perception of value is dictated by their own market and currency.
The wine investment paradigm has moved on to embrace the enthusiasms of new and younger buyers, the idiosyncrasies of emerging Asian markets (some preoccupied with status) and the palpable expectations of building personal wealth. In a world that seems obsessed with ownership and money, greatness is only too often measured by price and value. Nevertheless, it has ever been thus, with wine at least, since Roman times.
Stewart Langton & Andrew Caillard MW, Langton's
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