Last week, New York magazine published an article about an unnamed Lehman Bros. trader coping with the firm's sudden demise and his lost riches. One thing caught my eye: On the day it became clear that Lehman was kaput, the trader pulled a 1997 Barbaresco Santo Stefano out from under his desk, and he and some colleagues proceeded to drink it from paper cups. The producer went unnamed (Santo Stefano is a vineyard), but the story said the wine cost $700. I e-mailed the writer, Gabriel Sherman, who told me the bottle was a double magnum. Piecing together these details, I'm reasonably certain that the Lehmanites were numbing themselves with the 1997 Bruno Giacosa Barbaresco Santo Stefano. Giacosa is a winemaking god, and reading about the shabby treatment accorded his wine—stored under a desk! drunk from paper cups!—prompted the first real schadenfreude I've felt since Wall Street went on life support. But the sacrilege of a few desperate vulgarians aside, what does the turmoil in the financial sector and the souring economy mean for the wine market?
It is a question very much on the minds of auctioneers, importers, retailers, and restaurant owners. Wine writers have already rendered their judgment: For months now, we have been peddling advice about drinking well on the cheap, a trend obviously grounded in the belief that oenophiles are becoming increasingly budget-minded. At the same time, many observers have been expecting prices for the most sought-after wines to sink in tandem with the economy. So far, though, that hasn't happened, nor has there been much if any softening of demand for the everyday stuff. Why the buoyancy?
It could be that the pain just hasn't filtered down to the wine market yet. But the firm prices may also indicate how deeply rooted America's wine culture has become—it is possible that many people simply aren't willing to let a tanking economy come between them and their favorite cabernets.
Judging by the auction scene, you'd certainly never guess that Wall Street was imploding. The weekend before last, Chicago's Hart Davis Hart recorded the fourth-largest sale ever, unloading 1,746 lots of trophy wines and pulling in more than $11 million, significantly more than the pre-auction estimate. The two largest U.S. auction houses, Acker Merrall & Condit and Zachys, have also had successful sales in recent weeks. The Liv-ex 100, an index comprised of blue-chip wines, is up 9 percent this year, and prices for a number of top Bordeaux and Burgundies remain at or near record levels. Clearly, there are enough players impervious to the economic downturn to keep prices steady for the moment. And according to an article in yesterday's Financial Times, it is possible prices may even rise; amid all the carnage elsewhere, some investors are touting the fine-wine market as a safe and rewarding place to park one's money. Evidently, wine cellars are now fulfilling the same function that mattresses once did.
Indeed, despite the housing bust and the gyrations on Wall Street, demand for custom-built wine cellars is holding up rather well. Jim Deckebach, the CEO of Cincinnati-based Wine Cellar Innovations, says business has slowed a bit since the onset of the credit crisis last summer; the total dollar value of the company's sales has dropped 6 percent to 7 percent in the last year, and some customers have scaled projects back or put them on hold. According to Deckebach, this is the first slowdown that Wine Cellar Innovations has experienced since he founded it in 1984. Even so, the firm is still doing its usual 20-45 cellars per week, each with a price tag of between $5,000 and $350,000, and he says it just had one of its best weeks ever for new orders.
But enough about millionaire wine drinkers; what about the rest of us? Chistopher Ruhm, an economist at the University of North Carolina-Greensboro, has studied the relationship between alcohol consumption and recessions and says that people tend to ease up on booze during lean times, either because they have less money to spend or because they fear that their jobs or incomes may be vulnerable. "There is pretty clear evidence that when the economy weakens, alcohol sales fall," he says. Ruhm thinks one reason for the reduced intake might be that people are less inclined to go out to bars and restaurants; they'll continue to imbibe at home but will cut back elsewhere (if true, this may explain why drunken-driving fatalities also decline during recessions). Interestingly, though, wine seems less sensitive to economic downdrafts than either beer or spirits, which suggests to Ruhm that there is a socioeconomic dimension to oenophilia—that the people drawn to wine tend to be older and more affluent.
And so far, at least, things seem to be playing out almost exactly as Ruhm's research indicates they would. According to Nielsen, bars, restaurants, and nightclubs have seen a sharp falloff in business, and many proprietors report that the customers who are showing up are purchasing fewer alcoholic beverages and less expensive ones (i.e., draft beers and house wines). At the retail end, however, wine sales appear to be galloping along. In a Nielsen survey released in June, 86 percent of respondents said the slowing economy has had little or no effect on their wine buying (similar numbers were reported for beer and spirits sales). The most recent sales data published by Nielsen confirm this: Total wine sales in dollars were up 4.7 percent for the 52-week period ending Aug. 23, and turnover in some price categories showed even better growth—10 percent in the $9-$11.99 range, 8 percent for wines $15 and above.
In addition to its auction business, Zachys has a huge retail operation in Scarsdale, N.Y., which is home to many financiers. Jeff Zacharia, the company's president, says that he has seen no decline in floor traffic to date. Certain wines are having trouble attracting buyers; some high-end California cabernets ($100 and up) are struggling, but their problem seems to be sticker shock more than anything else. "The prices were pushed too quickly when the quality wasn't there," says Zacharia, "so there's a shakeout taking place." But he says other categories, such as 2005 Bordeaux, continue to sell well and that while customers may be opting for less expensive choices, they are not inclined to reduce their wine consumption in the face of all the grim tidings on Wall Street. "Wine is a staple for people now; it's part of the lifestyle," he says. "Instead of buying a $40 bottle, maybe they'll go for a $25 bottle now, but they want wine on the table."
That will no doubt change if the more dire predictions about the country's economic outlook come to pass. But if the bottom really does fall out of the barrel, at least there's a Depression-era song that can be easily updated for our straitened circumstances: Brother, can you spare some wine?