A Lafite Bubble in China?

Oct 24, 2010 7 Comments by

Lafite, « Lafei » – 拉斐 is the most famous wine in today’s China. Being one of only five wine-producing Châteaux earning the “First Growth” Appellation together with Château Latour, Château Haut Brion, Château Margaux and Château Mouton Rothschild, Château Lafite Rothschild is maybe one of the most famous wine in the world but above all the reference in China. And being the reference in a market as new as China has something special. What is better than being the referent brand on a market where the brand is the key?

But, we could wonder if there is any speculative bubble due to Chinese demand on Lafite. I have compared the evolution of the price of a bottle of Lafite Rothschild 2000 with the evolution of these 4 other “peers” earning the “First Growth Appellation”, 2000 being an exceptional year:

Source: Idealwine

We can see that the price of a bottle of Lafite 2000 has increased of 574% between 2001 (en primeurs) and 2010 compared to an increasing of only 199% if we calculate an average of the evolution of the 4 other. As for the IR of a bottle that you would have bought “En Primeurs” in 2001 and that you would sold now, it is also almost twice the IR of the other “First Growth”

.

Why have Lafite prices increased so much? There must be something. And this something is China. The Chinese government has pushed the consumption of red wine promoting it as a healthier “alcohol”. “Baidu” consumption, this traditional Chinese spirit made from distillation of cereals, has then declined during official and/or business dinners (business and official dinners being often related). Red wine has replaced Baidu. But not any wine. Lafite Rothschild more than any other. And why? Because it was and still is the more expensive. Actually during official/business dinners, one proves his respect for his guests pouring expensive alcohol. Chinese consumers have therefore naturally turned to the most expensive wine more than to the one they preferred because of the lack of education in wine.

One could claim that this evolution is natural because it just relies on supply and demand. Quite natural to think that if Lafite Rothschild prices are soaring up, this is because it is more demanded than other First Growth. And that this trend will keep on in the future.

I don’t think so. This might be more probable than in the future, education for wine in China will make that the demand will be more price sensitive because drinking wine will be more about enjoying wine than about impressing guests. Japan has gone through such a cycle. Chinese demand will therefore turn to other famous wines that will also have built a brand image on the Chinese market.

The second deciding factor is that the production of Lafite Rothschild wines is limited. If today, the solution seems to be the existence of a huge fake market of Lafite Rothschild within China (70% of Lafite in China would be fake), it is logical to think that in the future this huge demand will be filled with original wines more than fake wines. Lafite Rothschild has for that matter developed its second wine focusing Chinese market more than any other: Les Carruades de Lafite. Xiao Lafite. 小拉斐 Little Lafite in chinese.

What we still do not know is how this trend will impact prices? Will Lafite Rothschild prices get down to its peers’? Or will other First growth wines follow the Lafite’s path and will evolve comparatively? When one see the trend for 2009 first growth, it is more likely that all first growth wines prices will skyrocket. Today, a bottle of Lafite 2009 “En Primeurs”, (meaning that the wine is still in the barrel and that you will not receive the bottle before two years) was priced to €1,300 on Wine Watchers. As for the “Little Lafite”, it is now around €299 the bottle. More than Lafite 2000 “en primeurs” when it was released in 2001. “Thank you China” is probably what Eric de Rotschild might be thinking right now…

Ari for Zhongguo Wine

See other related articles:

-The Advantages of the International Supermarket Channel

-Importing Wine in China: An Oligopoly?

-Focus on the Wine Distribution in China

-The Wine Sign: Impacts on the Wine Business

-Wine Industry Value Chain

-The Wine Market in China: Overview

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7 Responses to “A Lafite Bubble in China?”

  1. jon says:

    There was news yesterday that the Chateau Lafite 2008 increased in value by 20% on news that the bottle will display a chinese symbol.

  2. j.li says:

    I agree your point somehow but still feel confused that why Lafite, why exactly this single brand became famous other than all the rest wines that satisfied all the reasons you listed such as high-price, supply<demond. Is there anyother reason that paly important role in accelarating the growth and fame of Lafite?

  3. Lafite in China | Zhongguo Wine says:

    […] -A Lafite Bubble in China? […]

  4. anthony says:

    from what I understand Lafite is a massive wine in China and Hong Kong, there is a great following there they have put the symbol on there as the number 8 is very lucky. I am looking at buying en primeur 2009 and I am being adviced http://www.wineinvestmentadvice.com/dj_lafite_2003_promo

  5. Real Estate in France Attracts Chinese Investors | Zhongguo Wine says:

    […] and the economic opening of the country. The main consequence is that prices are soaring. Château Lafite Rothchild’s bubble is the first expression of this recent Chinese […]

  6. James Oliver Swann says:

    Buying en primeur reviewed

    Is buying en primeur actually a good deal?

    It certainly can be, but much depends on the vintage, your allocations and on available alternative wine investment strategies.

    http://www.dittonwinetraders.co.uk/blog.asp

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