The Party May Be Over Soon

by Oliver Klimek on October 29, 2012

We have been getting used to the press releases of whisky producers bragging about ultra-expensive bottles being sold at auction or in travel retail outlets. Macallan Cire Perdue, the Dalmore Constellation Collection, Glenfiddich Janet Sheed Roberts Reserve, the list could go on. So it may have come as a surprise to some that the recently announced 54 year old 1957 vintage Bowmore failed to sell at auction, not only once, but twice.

Bonhams had offered a bottle each in Edinburgh and New York, but at neither auction a bidder was willing to pay the £100k/$160k reserve price that the distillery had set. Not even the trusty old charity incentive managed to open the wallets of wealthy whisky people.

Many commentators have called the recent development on the whisky market a speculative bubble, with the ultra-luxury segment only being the tip of the iceberg. Collectors and investors alike have been jumping on the bandwagon, pushing up the prices for Scotch whisky significantly upward. Especially older expressions are affected by this, I will take a closer look at this development in another article soon.

Of course it is too early to tell if the Bowmore incident really is the writing on the wall that may lead to the whisky bubble bursting or at least deflating. But it clearly shows one thing: Whisky makers cannot just slap fantasy price tags onto their bottles anymore and be assured that some fools will come along to buy them. Bowmore’s plan was quite cunning, actually. Of their twelve bottles the first two should be auctioned for charity for a staggering sum which would then justify the remaining ten to be sold for a massive profit at a similar price.

Bonhams whisky specialist Martin Green was quoted: “The skill and patience that has gone into the production of this product has not been appreciated by the market.” This statement displays an arrogance that is difficult to top, to put it mildly. I am sure that most if not all people potentially interested in buying a bottle like the 1957 Bowmore are aware of the time, skill and passion it takes to create such an outstanding whisky. But this does not mean one can ask any price for it. Overpriced is overpriced, and evidently the whisky was regarded not to be worth the money.

In a slowing down market for luxury goods the failed Bonhams auction fits the picture. And to regard whisky as an investment opportunity at current price levels could become a dangerous game, the term Investment Grade Whisky coined by Whisky Highland may well turn out to be a myth. A clever investor would have bought a bottle of Ardbeg 17 ten years ago, when it was in the shops for less than £30, or a Black Bowmore 1964 when it was released first for less than £100. A 20 year old Dalmore for £2000 as it is offered now as the ‘cheapest’ bottle of the Constellation Collection will never give you such returns, even though or just because it is marketed as a whisky to invest your money in.

Some argue that whisky investment still has potential because it has not reached the ‘maturity’ of the wine market yet. But when seasoned wine investors turn away from it who had managed to buy the first growth Bordeaux wines back in the 1980s when they were dead cheap, only to tell you that in the end they may have had a single digit annual return, I am not sure if whisky will do so much better in the long run.

There is nothing to say against a ‘pension stash’ a whisky lover may accumulate over time. There definitely is a fun aspect to it, and the choice to sell or drink a bottle after some years has its very own charm. But will your return really be higher than with a traditional investment?

And for serious investment the “you can always drink it” argument also has its very own pitfalls. Usually it is used to demonstrate the perceived superiority of whisky in relation to other forms of investment. But still a failed investment is a failed investment, and drinking a bottle of dearly purchased whisky will turn a partial loss into a complete one. “You can always drink it” can become an acknowledgement of personal failure then. It is the ephemeral nature of whisky – just like wine – that sets it apart from ‘eternal’ values like gold or diamonds. It is volatile, it can evaporate in a sealed bottle, it can be tainted from a bad cork, an expensive bottle can break – or be a fake.

I am convinced that sooner or later the market will come back where it belongs. But if the bubble will burst or simply deflate has not been decided yet.

Read on: How Bonhams Helps To Inflate The Bubble – A Case Study

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{ 5 comments… read them below or add one }

kallaskander October 30, 2012 at 4:46 pm

Hi there,

if the failure to auction the Bowmores is a sign of whisky prices stopping their eternal ascend it would be a good sign.

But as long as LVMH – The Luxury Company – and I am not talking about Ardbeg and Glenmorangie here – is growing that fast I doubt the luxury market is really coming down.

http://www.lvmh.com/uploads/assets/Com-fi/Documents/en/Press_release_PDF/LVMHHalfYearResults2012.pdf

And whisky will go on riding high.

Greetings
kallaskander

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John W November 2, 2012 at 5:25 am

It’s difficult to draw conclusions here. The whisky bubble is a complex one involving many different market segments. Just because the oligarchs or Mahesh Patel did not buy the 1957 Bowmore, doesn’t mean the market has collapsed overnight. Are we seeing a downward trend yet with “regular” premium bottles (e.g. Port Ellen, Ardbeg, etc…)? I think not. Just wait for the next 70s Ardbeg “one of the last of its kind” appears. Will be curious to see how quickly the PE 12th release disappears (or not) from the shelves at its new RRP. Surely the new price will flush out a number of speculators/hoarders (myself included in that last catagory).
I also think it will really depend on the overall economic situation globally, even though we have not yet seen evidence of this yet. If the economy continues to stutter or decline, prices will have to stabilize or decline also at some point. However, if there is a recovery in sight (in the next 1-2 years), I think we will see the whisky bull run continue to ever more absurd levels.

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kallaskander November 2, 2012 at 12:24 pm
Tim Nicholson November 4, 2012 at 9:58 pm

Uber-bottles aside, I see no firm evidence that the ‘bubble is anywhere near bursting’. Just take a look at SWA’s hammer prices from tonight’s auction for proof. “PC5″ at £450, “Ardbegs” galore selling for top dollar, “SMWS Kilchoman 129.1″ (released this year) £350.

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Oliver Klimek November 4, 2012 at 10:06 pm

That’s just it. When prices are ridiculously high, the bubble is still intact. Nobody knows exactly when it will burst (or deflate). The pepole who bought Yahoo shares for $100 (currently at $17) in early 2000 didn’t think either that the ‘new economy’ bubble was going to burst soon.

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