Auction Mania

“Duty free” … with these two magical words, the Hong Kong Government managed to create a dynamic wine industry out of thin air. In 3 short years, no more than the blink of an eye, an oasis of fine wine has sprout in what used to be a desert. Along the way, Hong Kong ensconced itself as the wine auction capital of the world; having easily left their 2 nearest competitors, New York and London, in the dust. In 2010, the world auction receipts were US$408 million and Hong Kong accounted for over 40% (US$165 million) of it.

Hong Kong has developed a seemingly unquenchable thirst for the finest wines. Apart from demand from traditional collectors and savvy collectors, we have a herd of neophytes migrating to rarer and finer vintages, not to mention our high spending and hard drinking brothers from China. On the supply side, wine shops are cropping up all over the town; running the gamut from high-end chains to mom-and-pop stores. Although auctions are the media darlings, comparatively few Asian consumers are actively buying wines through this venue. There is the lingering perception that auctions are the exclusive provinces of knowledgeable collectors or traders and big spenders (who have not heard of the staggering bid of HK$1.8 million for a bottle of 1869 Lafite). Others are intimidated by the auction process; how do I register, how do I bid, would I look bad if I loose out in my bids ...

In fact, auction is an excellent option for sourcing fine wine. You get a better idea of where the wine came from, how it has been stored; information that is crucial when you buy fine wine. Although there are constant caveats concerning fakes, you have to remember that an auctioneer’s credibility is his only stock-in-trade. If buyers should doubt the provenance of the wines being offered by the auctioneer, he would be out of business soon enough. Therefore, it is in his own best interest to ensure that he sells wines of good pedigree, to give you as much information as you need or may ask for, and to take back the wine if there is a problem. Since fake or bad wines are notoriously hard to spot, having an expert pair of eyes to look over your purchases is your best insurance. Let your auctioneer perform your due diligence and the service is free.

The most persuasive argument for buying at Hong Kong auctions is that it is great fun. This argument is less persuasive if you were attending auctions in London or New York. Auctions in London are a traditional platform for wine merchants to buy and sell their stock. The “day in the office” mentality is translated into the way these auctions are conducted. They are held during business hours on weekdays; seating is uncomfortable; there are no refreshments and you buy your own catalogues. So if you are attending an auction, you would be sitting stiffly in a sterile room surrounded by a dozen glum-looking Englishman for a few hours. This makes it about as much fun as attending a lecture on the intricacies of accounting double-entries.

The Americans make a far more serious effort in courting the buying public. Attractive catalogues are freely circulated to a substantial mailing list. The auctions are held at a few selected starred restaurants in New York City. Those attending are encouraged to bring their own bottles and there is a free tasting of various wines. Scheduling auctions on Fridays and Sundays is meant to ensure that those attending are ready to let their hair down. All this and a flow of alcoholic beverages usually produce boisterous and lively sessions. There is only one slight catch, you have to register and pay for your food, usually less than US$100 per head. As the saying goes, there is no such thing as a free lunch (at least in New York).

Hong Kong is unique and it is fitting that auctions in this town have developed a style of its own. Bidders in Hong Kong now expect to be feted like royalty. Lavish catalogues are freely distributed, the venue should be a 6 star hotel, free wine and food is expected. For whales (the truly big spenders), a pre-auction dinner with Michelin star cuisine paired with the best wines is a must. Those who scrimp on these expected freebies would quickly disappear from the buyers’ radar-screen. Auction houses who are best able to stage this type of extravaganza has seized the lion share of the market.

Auctions are now played before full houses and there is lively bidding from the floor. Enthusiastic, and frequently aggressive, live bidding is a special feature of Hong Kong auctions and is a main driver behind the runaway financial success of these sales.

Notwithstanding these standards, there are variations in style between the New York and London auction houses. Although the Londoners have reluctantly adopted the wine and dine style for their Hong Kong auctions, remnants of the no-frills practice from the UK remain. The servings of their free meals are perfect for dieters. The wines are poured by the thimbles. You almost feel like Oliver Twist : “Sir, can I have more?”. The rationale is hard to understand. In a 2-day auction in January 2011, a London auction house reported sales totaling HK$110 million. At a buyer’s premium of 21%, the bidders alone poured premiums of over HK$19 million into the pockets of the auctioneer. Serving more generous portions of wine should hardly make a dent against this bounty.

In contrast, the New York auction houses have gone the Las Vegas route. Their glossy and finely bound catalogues which can grace any coffee table are freely distributed. There is a sumptuous buffet and a good flow of wine. The only discordant note is their application of the Las Vegas “comp” system for bidders. In Las Vegas, your freebies are dependent on how much you gamble. For New York auction houses, the wine that you are served depends on how much you bid and buy. It obviously makes a lot of business sense. However, it does feel like being invited for dinner and finding out that you are being served with soup and sandwich whilst the next table is feasting on filet mignon. Somewhat surprising when you consider one such auction house trumpeting sales exceeding HK$86 million from one auction in January 2011, thereby pocketing at least HK$15 million in premiums.

In November 2009, Spectrum, a new auction house from California joined the fray. They are backed by a parent with deep pockets, a listed company which specializes in auctioning collectibles, and are determined to crave a share of the wine auction market. As of March 2011, they have held 6 auctions in Hong Kong. As an upstart, there has been teething problems such as trying to hold simultaneous auctions in both Hong Kong and San Francisco. Thankfully they have abandoned this experiment and selected Hong Kong as their live auction site. When you are playing catch-up, you try a little harder.

They have a friendly and helpful team. They pay attention to details that make a difference to the buying experience. For example, you can view the wine on their website in 360˚ rotation, the catalogue is available in either a bind version or in a ring binder (which is easier to flip through), each lot is given a single estimate rather than a range. The most impressive, and pleasurable, part of the experience is that they serve a well-thought out selection of wine to all bidders. At their last auction in March 2011, the bidders had a chance to taste a continuous stream of wines including stellar offerings such as :-

If they can continue to be such thoughtful and generous hosts, the Californian style may become the preferred style of auctions in Hong Kong.

Notwithstanding what has been said about the approach of auctioneers in enticing customers through their doors, one must bear in mind that they do not owe you dinner and drinks. Admission is free but you should observe a few rules of etiquette. The main rule is that you should be interested in buying at least some of the wines being offered when you step into the auction room. Go through the catalogue, check out whether any wines are of interest, and if so, check out whether the estimates are in your ballpark. Set a budget for yourself and if the price is right, bid. Auctioneers know that all it takes for a successful auction is if there is more than one bidder for each lot. Each incremental bid means a higher price and a higher probability of a sale. So if you bid but the lot goes to another bidder, the auctioneer can expect no more.

If you love fine wine and have not attended an auction, you should not miss the experience. One word of warning, it could be addictive!