Most people who buy wine, fine or otherwise, do so because they enjoy drinking a glass or three with meals. Of course, some folks prefer to dispense with the meal and just have a few sips to help forget the day’s tribulations. There are also wines which are meals unto themselves. In all of these cases, however, wine bottles are being opened and the tasty contents are consumed.

For literally thousands of years, wine has been considered a beverage. Today, conscientious wineries do their utmost to ensure fruit is at an ideal state when harvested. Winemakers either minimize their involvement to maximize expression of the fruit or employ their technical skills and spicy barrels to make wine in a style their customers will love.

Despite all of this, there are people who don’t think of wine as nectar of the gods. Instead, it’s a status symbol, an opportunity to diversify their portfolio, or both. This is not a new phenomenon but it has, in my opinion, gotten out of hand now. Covetous acquisition and speculative hoarding by people with loads of disposable cash has driven the price of many wines to ridiculous levels — levels that put these wines well past the point at which a wine enthusiast can buy them to drink or investors might reasonably expect good returns.

Yesterday, Tom Johnson quoted a money manager who used to buy wine as an investment, but now finds the valuations too high. He is not alone. Collectible wines, especially First Growth Bordeaux and DRC Burgundy, are realizing much higher prices in Asia than Europe or the United States. In the West, the recession has not only constricted income and hurt returns on other investments, it has reminded some people that the value of one's stock, house or wine cannot rise indefinitely.

For years, people who invested in “blue chip” wines, essentially Bordeaux First Growths, have been rewarded with handsome increases in value over time. The Liv-Ex 100 Fine Wine Index, the most prominent benchmark for tracking the value of investment grade wines, has tripled over the past five years. More than 90% of the wines followed by that index are red Bordeaux. Much of that increase has been driven by less than 50 wines. The meteoric rise has been going on since 1994 with 12x growth from then until now. Is that type of growth sustainable?

Most of the growth has come during two fairly short periods of time. From 1988 through 1993, the index was virtually flat. Between January 1994 and January of 1998, there was a 400% increase. That was followed by a correction which saw a quarter of the value erased, a recovery over 30 months and then flat values until January 2006. Between 2006 and today, values have nearly tripled, overcoming a steep but short-lived correction during the worst of the financial crisis. The growth seems driven by periods of what Alan Greenspan has called "irrational exuberance" and by the increasing concentration of wealth among smaller and smaller segments of the population.

Stock valuations are driven based by company performance: revenue, growth, profit. As companies add new products and increase sales volume, stock prices go up. Investing in wine is more like investing in commodities, the prices are driven in part by demand and scarcity of supply. But, unlike most investment commodities such as corn and lean hogs, investment wines aren’t “used” on a routine basis nor are their prices moderated by the need to keep them affordable to billions of “normal” consumers. Unlike oil and gold, wine is a renewable resource. Unlike houses, it provides no shelter. Unlike diamonds, wine does not last forever. Like other investments gone wild, wine prices are going up now simply because of recent increases and the belief that it will continue to do so. Cough. Tulip bulbs. Cough.

In the beginning, wine’s investment value was based not just on scarcity and brand reputation but on the desirability of the wine as a beverage. The best investments have been top Bordeaux from great years. They are wines that  improve with extended age and which also offer historical interest. There was a “gold standard” for the wines in that, eventually, the person who wound up with them at the end would drink them and find the experience pleasurable. Because those wines have shown the greatest historical appreciation, they remain the most sought after by investors. But the backup plan, drinking, is no longer viable.

There are certainly people who can afford to pay thousands of dollars for a single of bottle of wine to drink. There are also people who can pay $19,000 a night for a hotel room. But the number of such people is low and the amount of wine available increases every year. And how many of those bottles would they be willing to drink? Due to improvements in viticultural and winemaking techniques, the frequency of great, and thus theoretically investment-grade, vintages is increasing too. There have already been three “vintages of the century,” as 2000, 2005 and 2009 have been declared by pundits, and we’re only ten years in. Perhaps someone is working on a 110-point system for grading wines. Why would a reasonable person pay more for 100-point wine from 2009 than they would for such a wine from 2000? Tom Johnson also has a brief piece about the risks Bordeaux is taking with their 2009 pricing. It is, perhaps, especially dangerous given the grave concerns about en primeur just a year ago.

Nonetheless, those who pitch wine as investment and make money through consulting fees or by selling their own inventory are still beating the drum. Consider these comments from Paul Fraser Collectibles, “a new expo this month will show why investible fine wines offer great return for minimal risk.” Has the financial crisis not taught us that there is no such thing as “great return for minimal risk?”

He hints at where the market for these special wines has gone, “The most covetable objects in the world.” These wines are baubles, not beverages. Other items featured on his home page include an auction of “archaic and rare Chinese bronzes” and realized auction prices for the “first ever” Cadillac and a “full slice of Moon rock.” Wine has come to this.

One of the participants in the Masterpiece London show, which will be featuring the collectible wines about which Fraser enthused, is wine merchant Bordeaux Index. They seem to realize what’s going on but, rather than talk people off the ledge, want to assure the punters that there’s still stuff to drink. “Although prices for the very top “blue chip” wines have reached the stratosphere, there are still countless examples of wines to drink that offer exceptional value,” says director Andrew Bruce. Come ogle the Ferraris but don't forget we’ve got Kia out back.

In the frenzy to hype increased auction prices of wine, even auction houses are getting sloppy. In a news release, Christie’s trumpeted the sale of 6 bottles of 1961 Hermitage La Chapelle in May for $98,951 "a new world auction record per bottle." Under the impression this was a record for wine in general, several news outlets picked up the story and it was a big headline for a few days. The sale was heralded as another sign of economic recovery and as fodder for wine as an investment. Sadly, the claim pertained only to that specific wine. I called Christie’s on it. Literally. And, after 3 weeks, rather than issuing a retraction, they simply changed their realized prices sheet to clarify that it was the highest price ever for Hermitage La Chapelle. So, several million people saw the incorrect statement and, maybe, fifteen — plus my faithful readers — will see the correction. The original press release is unchanged on their site. In fairness, it was an exciting price. Almost twice as much per bottle as for that slice of Moon rock!

What harm does all this speculation do? In the end, if a bunch of rich guys lose money on wine, it won’t have much of an impact on you or me. It’s probably been years since we’ve been able to buy a bottle of Chateau Petrus to drink, if we ever could. Inaccessible times ten is still inaccessible. [As I write, I've received a solicitation trumpeting 2008 Chateau Petrus as a bargain at $2,500 per bottle! Better to spend money on this, no need to worry about it being corked and you can keep it in plain sight.] Filling a cellar with wine because it’s a checkmark item in the “how to fit in with rich people guide book” is obnoxious, but not any more so than a lot of the other extravagant expenditures that go with such a lifestyle.

I have three main objections. First, with all of the hype about wine as investment, there will be people who buy in yet cannot afford to lose money. They will very likely get hurt. Second, the prices of the “investment grade” wines are used as justification for increasing the price of others. That artificially escalates the cost of good wines everywhere. It also gives some winery owners unrealistic revenue expectations leading them to make unwise decisions about expansion, renovations, etc. Finally, it’s a shame that so many of the world’s best wines will never be tasted in their prime. They were made to be enjoyed.

If you enjoyed this article, please share it! Icons for popular sharing services are at the right above and also below.

Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on Facebook. Also check outour comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.

This article is original to NorCalWine.com. Copyright 2010 NorCal Wine. All rights reserved. Moon rock photo displayed at Paul Fraser Collectibles without attribution. Housing bubble chart attributed to http://housingbubble.jparsons.net.

Late last summer, there was a bit of a buzz around the concept of biodynamic wine tasting days. The idea is that different aspects of wine are more or less prominent on certain types of days in the biodynamic calendar than others. "Fruit" days accentuate the flavors, "flower days" can bring out aromatics, "leaf" days see wines' vegetal characteristics emphasized and "root" days result tannins that are earthy or astringent, or so the theory goes.

A book, which I shall not mention or link here, was published around then espousing this view. A number of prominent wine web sites made mention of the concept generating said buzz. [And all of the most vaguely positive comments from those mentions were swept into the online marketing campaign for the book.] Two large UK supermarket chains, Tesco and Marks & Spencer, jumped on the bandwagon, saying they had conducted (non-blind) tests and concluded that there might be something to the concept. They decided to restrict their wine tastings to days that would show wines in a favorable light. I don't believe the tests were particularly scientific, but it generated a bit of attention for the stores.

Now, the 2010 London International Wine Fair, which started yesterday and runs through tomorrow, is making a big deal about the concept on its website. "For the first time in over a decade, the show falls on the near perfect combination of tasting days in the biodynamic calendar... the Top 100 will incorporate a biodynamic tasting booklet, allowing visitors the opportunity to compare their tasting notes across the three biodynamic days. Key biodynamic exhibitors will also be organising on-stand activity to highlight the influence of the calendar." This is all on the site's homepage by the way. Well over half of that page, and virtually all of the text, is dedicated to the idea of biodynamic tasting days.

To be fair, the site does mention that some people are skeptical. And the page itself does not whole-heartedly back either the skeptics or those pushing the concept. [The emphasis is clearly on those supporting the concept.] Rather, we are invited to attend all days of the fair, look at our tasting calendars and decided for ourselves whether we taste what those who espose biodynamic tasting days say we ought. That seems even-handed but is actually totally dreadful from a scientific perspective.

The tasting not blind and people are essentially being told what they should be perceiving. In such circumstances, people overwhelmingly taste and smell what they are told they should. That is the way the human brain works. For an experiment showing this phenomenon, check out this video from Dan Ariely, the James B. Duke Professor of Behavioral Economics at Duke University. [I linked to this yesterday is well. I'm not pushing Mr. Ariely for any particular reason. However, he does excellent work and the video does a good job of illustrating my point. It's a coincidence that today's and yesterday's articles touch a bit on how perception can be manipulated by expectation. That said, buy his book. It's really good.]

Back to the LIWF. What that organization has set up is a circumstance in which a large number of people are having their perceptions colored without realizing it. The end result will likely be that a whole bunch of people are going to leave the fair convinced that the biodynamic tasting day theory has been proved true. A number of them will buy that book (the biodynamic tasting one, not the Dan Ariely one) and also tell their friends. The friends will then conduct non-scientific "experiments" at home and the cycle of bad science will continue while "knowledge" about the "truth" of biodynamic tasting spreads.

Having not conducted blind experiments in this area, nor seen the results of any such tests, I do not have a committed opinion about biodynamic tasting days one way or another. It is my nature to be skeptical so you can put me in that camp if you like. But, regardless of whether this theory, or any other, is true or not, I have great concerns about "bad" science being used to "prove"  ideas. There are already far too many people who think that truth is what they have been taught to believe, not what has been proven to be true.

Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on Facebook. Also check outour comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.

This article is original to NorCalWine.com. Copyright 2010 NorCal Wine. All rights reserved.

There's an interesting discussion going on within the Wine Business Network over at LinkedIn in the Wine Business Network. The premise is that small, local wine shops are suffering due to increasing competition from online resellers of wine. Whether or not this premise is even true will depend whether or not the state a given local shop is in allows shipment from out-of-state online resellers. Some states make that illegal, others make it incredibly difficult. And one can also debate whether such prohibitions benefit consumers. However, for the sake of this article which is an expansion on the comment I left in the LinkedIn discussion, we'll just assume the premise is true and momentarily set aside the consumer-choice issues.

I think that laws, both state and federal, have given many small or local wine shops a substantial break. I'm not saying that they aren't facing difficulties now. However, those they do face are coming later and are, in many cases, much milder than those faced by local shops of other types. The most obvious example is bookstores.

Faced with challenges from Amazon and others online plus big-store brick-and-mortar chains, particularly Barnes & Noble and Borders, the mom-and-pop bookstores are almost all gone. Even stores which seemed like invincible institutions in bookish towns, such as Cody's in Berkeley, have disappeared. It seems that only those shops with a particular niche (rare books or depth in a single topic) are hanging in there in any volume. And, unlike wine in states such as NY, best selling books and magazines can be sold in grocery stores and on any street corner.

In the long run, wine shops do face virtually the same threat though. I'm not a shop owner and haven't thought for countless hours about the issue, but one fairly obvious tactic for the local shops is to offer customers things that they value but can't get online. I would suspect that these include: excellent personal service AND a personal, human-to-human relationship, wine tasting, winemaker dinners, wine education, wine descriptions that go beyond tags with Parker Points, help with specific food pairings, specialization in local wines, and the ability to provide wine (chilled if need be) that can be consumed in 30 minutes (rather than the customer needing to wait until after the next UPS delivery). Of course, many local shops offer a lot of this already. They are probably more successful than their competitors who do not. And some of these techniques can also help the small shops compete against large brick-and-mortar stores, such as BevMo and Costco, as well as supermarkets in those states that allow them to sell wine.

I think it's also essential that the small stores reach out to those customers who may be online-oriented through that medium. Not doing so means a huge loss in mindshare. One question on the LinkedIn message thread was from a shop owner who wondered if he should list his stuff online even though his price on a given wine might be $2 higher than that of other online outlets. It seems clear to me that, while he might not gain every sale of that wine to his regular customers because of the price delta, not selling online guarantees that he won't get any of the sales at all. Some is much better than none. And, while services like wine-searcher.com make it easy to comparison shop, if he does a good job of driving his storefront customers directly to his site and adds additional value there, most will not bother with comparison shopping. But don't just go online, get on Facebook too. [A study released today showed that Facebook reached 52% of active social network users in February and that time spent there by the average user was six times higher than that of the nearest competitor (MySpace).]

Online shopping is not only about price comparison. It's about convenience and selection. I shop online when I don't have time to go to a store. I shop online for things I might not be able to find locally. And I especially shop online when one of my favorite stores sends me a note about something really interesting. I rarely compare prices and never do so on bottles that are less than $20. When I do shop online, I do it with a store where I also feel I've established a genuine relationship. (My preferred online store also has a local physical presence.) By engaging with existing customers online, via email and via social networking, local shops may well be able to hold their own. And they might be able to broaden the apparent breadth of their inventory by offering products that they don't stock but can reliably source through distribution. It's much easier to sell people on future delivery online than in a storefront.

I'd love to hear your thoughts on this topic.

This article is original to NorCalWine.com. Copyright 2010 NorCal Wine. All rights reserved.

Follow NorCalWine on Twitter for breaking wine news, information on events and more. Become a fan and join the NorCal Wine community on Facebook. Also check out our comprehensive Northern California winery listings. They are very useful for planning a tasting trip or just getting in touch with a winery.

To say that social media applications are hot right now would be a gross understatement. Facebook, Twitter, LinkedIn and (still) MySpace have hundreds of millions of devotees. In February alone, Facebook drew almost 119 million unique visitors who each spent, on average, nearly 6.5 hours on the site. This made them the #3 web brand for the month, behind Google and Yahoo. And compare those numbers to the #4 web brand, MSN/Windows Live/Bing. This Microsoft group had just 3% fewer unique visitors but their time on site was only one hour and forty minutes. So, with almost the same number of eyeballs, Facebook had roughly 9.4 billion more hours of use. That's billion with a "B." [For more Nielsen data on web usage, see this article at MarketingCharts.com.]

Using social media applets on smart phones has also taken off. The combination of a phone's mobility and its ability to determine location has spawned a new range of social media applications that make it easy for you to tell all of your friends not only what you're doing but where you are. The first of these apps I remember seeing was Loopt, but Gowalla and especially FourSquare seem to be the market leaders now. FourSquare alone claimed to have more than 500,000 users a week ago and it appears that they've added an additional 100,000 users in the past 10 days, in part due to SXSW check-in mania. Personally, I've found that it is an easy way to interact with my friends and that FourSquare check-ins generate comments.