Fake Lafite in China

It is well known that the sale of counterfeit wine is a rampant problem in China. A Forbes article estimates that 50% of wines retailing for $35 or more in China are bogus. Empty bottles from brands like Lafite “fetch up to $1,000 a piece on the black market, which are ultimately re-corked and re-sold to unknowing buyers.” These bottles are often filled with Chilean wine, which incurs almost 0% import tax (vs. up to 50% for most wines), or wine from local Chinese vineyards. One of the only ways of avoiding counterfeit wines is to purchase “ex-cellar,” i.e., sourced directly from the cellars of producers like Chateau Lafite Rothschild. Otherwise, auction houses selling these wines cannot guarantee the provenance of the bottles.

I find the coverage about counterfeit wines interesting, particularly in the context of Lafite’s strategy to produce wine in China. On an obvious level, the retailing of fake wine is brand damaging. A person who spends up to tens of thousands of dollars on a wine that turns out to be fake may be unlikely to do so again. Even worse, a person who spends this sum on fake wine and does not realize the counterfeit may have a lasting negative impression of the brand’s quality.

While the sale of counterfeit wine is clearly a huge problem for wine collectors, I wonder whether the risks to the brand are slightly overblown. Firstly, major producers would generally never capture the upside of these massive price tags – since most wine is sold en primeur, they do not capture the value from wine sales on the secondary market. While one could argue that counterfeit wine is brand damaging in the same way as a fake Louis Vuitton might be, I don’t believe these are analogous. The purchaser of a Louis Vuitton, for the most part, can find out whether they are buying a real or a fake. The purchaser of a 1959 Chateau Margaux cannot (unless purchased ex cellar). The second article describes a collector who opened three of such bottles at a dinner party before he found one that he thought was genuine. He remarks, “What can you do? Enjoying old wines means taking risks.” This ability to take such expensive risks - whether the wine is no longer good or was never real in the first place – is an extreme luxury that enhances the status of the collector. I wonder whether the prevalence of fake wines actually increases the allure of the real thing.

I question whether the play to provide more accessible, Chinese grown wine has more brand damaging implications for Lafite. Unlike Lafite’s other markets (e.g., Chile, Argentina), wine from their Chinese vineyards is being produced for Chinese consumption. Particularly for a set of consumers that tend to spend money while traveling and place a premium on “old world” provenance, I suspect that prevalence and accessibility will dilute the exclusivity that makes Lafite a luxury brand. Perhaps Lafite should spend less effort worrying about counterfeit wine and more revisiting their strategy to prevent brand dilution.

Source: https://www.forbes.com/sites/pamelaambler/2017/07/27/china-is-facing-an-epidemic-of-counterfeit-and-contraband-wine/#2dbb4e995843

https://www.forbes.com/sites/jeanniecholee/2016/06/04/how-to-avoid-fake-wines-at-auction/#c7f91cb5113a