Part of my job (and part of the fun as well) is to find stock of the most sought after wines, at good prices. Often you need to go out and find cases as and when there is demand for them. Sometimes though, the best way to get hold of well priced stock is to anticipate market movements.

 

 

 

 

 

 

 

 

 

 

 

Note that whilst Lafite has increased 4 fold since release, Carruades has by a stunning 8 times! Of course, it doesn’t come much better than this, Lafite being the most coveted wine of the last 2 years and the second label released at just 200 pounds or 20% of the "grand vin".

Now, let’s have a look at the same pair of graphs for Mouton:

 

 

 

 

 

 

 

 

 

 

 

Here, both Mouton and Petit Mouton have more than doubled in the same time frame. Although Mouton at below £800 was less expensive than Lafite on release, Le Petit Mouton at over £300 was more expensive than Carruades. Therefore – even if Mouton will follow the same route as Lafite, it’s highly unlikely that Le Petit Mouton will ever increase 8 fold, like Carruades did (this would take the price to £2,400 pounds....)

Also note that since the price fall stopped earlier this year, Mouton has seen the same percentage increase as Lafite. But Le Petit Mouton hasn’t...

Which leads me to an attempt to predict the price of Le Petit Mouton. Have a look at this:

First growth	2004	RP	Second label	2004	RP	%
Lafite Rothschild	£3,750	95	Carruades de Lafite	£1,850	90	49%
Latour	£2,400	95	Forts de Latour	£850	90	35%
Mouton Rothschild	£1,950	92	Le Petit Mouton	£640	NA	33%
Margaux	£1,850	93	Pavillon Rouge	£500	89	27%
Haut Brion	£1,750	92	Bahans Haut Brion	£440	88	25%

This shows, again for 2004, the First Growths and their second label, their prices and the value of the second label as a percentage of the first.

I think that Mouton will keep on increasing in price. I also think that Le Petit Mouton will start closing the price gap to Mouton and therefore above percentage will go up. Possibly not quite to 49% like Carruades, but let's say 40%. When keeping the price of Mouton constant, this would lead to a price of £800, up 29%. If Mouton would increase to let's say the current price of Latour, Le Petit Mouton would be worth £960 or up more than 50% as compared to the current price.

Now, this is by no means a scientifically justified assumption, but it is quite educational and shows how much and why prices can go up. Wine investment funds do similar comparisons between wines to identify undervalued wines.

I started off by mentioning that part of my job is to find stock of the most sought after wines, at good prices. I think this Mouton and Le Petit Mouton are a good bet and therefore, it won't come as a surprise we have good stock of various vintages of both wines. Check out http://www.dittonwinetraders.co.uk/wines.asp and see for yourself.

 

What do Lafite and Mouton have in common? Amongst I’m sure a lot of other things, they share first growth status, fantastic quality, huge following around the world and most importantly, the name Rothschild and the joined family crest with the famous 5 arrows.

And now, for the first time ever they joined together to produce, not a wine but a champagne! 

Under the name "Champagne Barons de Rothschild", 3 champagnes have been launched: a Brut, a Rose and a Blanc de blancs. They are currently being introduced in the UK, in Germany (acting as a base for several European countries) and in Japan. There is very little marketing behind it – the route to market seems to be to quietly introduce them to high end wine merchants such as ourselves and let the brandname do the selling. Should work, I’m sure!  Have a look at below gorgeous bottles:

Here’s some technical information provided by Barons de Rothschild: A high proportion of Chardonnay grapes, 40% reserve wines. The wine is aged in cellars for a minimum of 3 years before disgorging. Dosage is subtle and light – sugar g/l: between 10 and 12 (the Blanc de blancs contains slightly more sugar). Post disgorging period is 6 months minimum, giving the wine a rare elegance, lightness and refinement.

And their tasting notes: To the eye: pale yellow gold, very fine and long lasting bubbles. On the nose, fresh and delicate with floral notes. On the palate: smooth and harmonious, perfectly structured to last long in the mouth. It’s a blend of 50% Chardonnay (from Vertus, Avize en Le Mesnil) and 50% Pinot Noir/Meunier (from Verzenay, Hautvillers and Mareuil sur Ay).

Volumes at this stage are very small, only 10,000 cases worldwide a year for the Brut and 3,000 each for the other 2. We are therefore very pleased and proud to be able to offer this exciting new product. Please see www.dittonwinetraders.co.uk/wines.asp for further details. Higher volumes might be available on request.

Diageo Chateau & Estate, for years and years the biggest US importer of Bordeaux Crus Classes, have abandoned Bordeaux alltogether.

AFP, the French news agency, the oldest one in the world and one of the three largest with Associated Press and Reuters, wrote this article a couple of weeks ago (apologies for the delay in posting):

"BORDEAUX, France — Even as Chateau Lafite leads a surge for Bordeaux vintners in Asia, US retail prices for the same wines have skidded below wholesale cost as a major importer dumps stocks worth tens of millions of dollars. US importer Diageo Chateau & Estate Wines (DC&E), a subsidiary of the British drinks giant Diageo, has abandoned Bordeaux wine after 35 years, aggressively liquidating its warehouse stock on an already shaky market.

Speaking to AFP, a source within DC&E, who asked to remain anonymous, blamed "enormous stocks" of unsold Bordeaux for their exodus. "It's all about making money. The margins are getting thinner each year and Americans are trading down."

DC&E's turbulent withdrawal, which has heated up in recent weeks, is having a "huge impact on the market," Chris Adams, chief executive of Manhattan retailer Sherry Lehmann, told AFP.

For many years, DC&E was the largest US buyer of Bordeaux, and amassed a colossal cellar. Now famous labels such as Lafite, Haut Brion and Lynch Bages are being offered to American retailers at discounts of up to 50 percent."I have 5.5 million dollars' worth of First Growths in my warehouse that I cannot sell, because I'll be 50 percent more expensive than Chateau & Estate," said Guillaume Touton, owner of Monsieur Touton Selection, the New York importer with annual sales of over 100 million dollars. "A major Mexican importer sent trucks to New York to pick up inventory, because it was 25-percent cheaper to buy it from Chateau & Estate," he said. "No one else can sell their wine. We don't know how long the scenario will last," said Geoff Labitzke, Corporate V.P. of Fine Wine for Youngs Market Company, a California-based wholesaler with annual revenues topping one billion dollars.

The timing is particularly bad. The economic crisis crippled Bordeaux wine sales and "the exchange rate is killing us," chorused several wine merchants. But Adams came to DC&E's defence. "They're exiting the market – and trying to find the correct market price." He said the discount prices "reflect the level of demand for the 2005 and 2006. "But there is a benefit for wine lovers suffering like consumers in general from the downturn. "In general we are passing a lot of the discounts on to consumers," he said.

Today Sherry Lehmann retails Chateau Lafite 2006 at 495 dollars (334 euros) per bottle. Wholesalers bought the same wine two years ago for 310 euros per bottle, shipping, taxes and broker fees not included. Connoisseurs can pick up "vintage of the century" Lafite 2005 for 9,900 dollars (6,674 euros) a case. Just six weeks ago, a New York Sotheby's auction sold the same wine for 14,520 dollars (9,789 euros) a case.

The pricing problems for Bordeaux are not new, nor entirely the fault of DC&E's defection or the economy. Prices soared between 1982 and 2005 under the combined pressure from Asia, speculators and Robert Parker's faithful legions. The problem was exacerbated according to Labitzke, because Costco and DC&E bought huge allocations and hoarded the wine, creating "an artificial level of implied demand from the US -- the wine estates set their prices based on this perceived demand. "Touton agreed. "Chateaux have admitted to me that they had had steady growth for the last 15-20 years because of (DC&E). DC&E was part banker, part Santa Claus. Well, Santa Claus is gone now. "The bubble burst when vintners badly miscalculated the prices for the 2006 and 2007 vintages. Consumers fled. Wholesalers and retailers cancelled orders. And companies like DC&E were left financing overpriced wine.

Aquitaine Wine Company's Harvard-educated CFO Margaret Calvet likened the situation to the classic business school case study, tulip mania. At the end of 16th century, the world was crazy for tulips. They were coveted as the ultimate luxury good. They were sold on futures. Prices climbed to dizzying heights until buyers would no longer follow. The price no longer had any relation to the flower's intrinsic value. In 1637, tulip prices crashed, never to recover. "There is a price ceiling for every wine on the planet," concurred Labitzke. "Beyond that ceiling, the consumer will not pay."

Bordeaux and its partners are, naturally, hoping to avoid the fate of tulips. Brokers and merchants are pressuring vintners to resist the temptation to raise prices on the excellent 2009 vintage. And some merchants have moved to stench the flow of discounted wine on the market as well as replenish their own stock from someone willing to lose 50 cents on the dollar.

Pierre-Antoine Casteja, CEO of Joanne, a 125-million-euro wine merchant firm with a six-million-bottle cellar, confirmed in an email to AFP that he had bought stock from DC&E. Meanwhile, Adams raised the spectre many vintners fear. "There are a lot of retailers in America where Diageo was their supplier for Bordeaux wine." The retailers will continue to stock their shelves, but will it have Bordeaux on the label? "When you pull a bottle off the shelf, another bottle replaces it. You don't get back that shelf space," said Adams.

Casteja has already moved decisively to fill the distribution void with his recent purchases. "The stock already in NY will remain there to be sold by the organisation we have established there."

In the meantime, Bordeaux and its partners in America are bracing themselves for DC&E's imminent sale of the 2007 vintage. In separate interviews with AFP, four wine executives predicted a "bloodbath." "

I thought you needed to be aware of this. So, C&E are dumping Bordeaux. My estimate is that it will be primarily 2006/2007 and to a lesser extent 2005. They are one of the bigger stockholders and as such, one can expect this sell-off to have some effect on the global market. For bargain hunters who don't mind US strip labels (the majority of my customers do mind) this might be a good opportunity to buy cheap.

More importantly, how will this effect the market? I think there will be an effect on the market as a whole, although limited. I have no idea how much stock C&E have been offloading, but let's say it's twice the amount of the biggest UK stockholder, so roughly GBP 30m (50m US$). The total, worldwide turnover of these types of wines is GBP 3 bln. Again, not sure about this figure but let's presume stockturn (turnover : average stock held) equals 2. In other words: every case of investable fine wine changes hands twice a year. Especially for the younger vintages, this number is more likely to be on the low side rather than on the high side.

If these assumptions are correct, C&E's stock would represent 2% of worldwide stock. Enough to cause a ripple for sure if all dumped at once at mentioned discounts and certainly worrying for US wholesalers, who are in direct competition with DC&E. It will likely even spill over to other continents. I suspect the recent lull in demand for UK stock of Lafite 2006 might stem from this.

This effect will be temporary. Until the prop has left the pipeline. And we might be near to that point as the offloading has been going on for a while – we ourselves got offered big parcels of Lafite, from the same source, about 2 months ago.

What might be more lasting is that C&E won't be buying again. And if, as the article suggests, C&E were inflating the US market by buying for stock, we will see an even further diminished demand for en primeur coming from the US. I'm sure other countries won't mind – more allocations in sight of what promises to be a super vintage!

As an aside, why on earth would C&E hold such a firesale? Surely, dripfeeding it into the market would get a far better return. I find it hard to believe that Diageo, an extremely well run company, financially very sound and highly professional, would enter into such a messy situation. Surely it wasn't a financial necessity to dump so aggressively?

Wine critics have the difficult task of scoring wines whilst using a fixed scale. Exceptional wines might and should score the very highest mark. But once that magical number has been granted, what happens to subsequent vintages/wines that are similar, equal or God forbit, better?  Deflation threatens if you hand out top marks too often, not to mention that this would lead to readers attaching less value to a top score.

Top marks are great if they are few and far between. Indeed, if used conservatively, they would strenghten the validity of the scale used and the uniqueness of the particular wine. I’m thinking of Mouton 1945, Cheval Blanc 1947, Yquem 1967, Mouton 1982, Haut Brion 1989 – immortal wines that all score the magical 100 points but seem to have a special status within that pedigree. A bit like "hors categorie" in the Tour de France. And then some. I mean, the Tourmalet, for all its splendor and grueling distance is just not the same as the Mont Ventoux, is it? Yet both have the same score.

I’m intrigued by what Robert Parker will do with the imminent dilemma of 2005, 2008 and 2009.

In case you think "why should I care about Robert Parker"? Quite simply, he’s the only wine critic that influences prices. Whether you like his palate or not is irrelevant – this man’s scores set prices and nobody else even comes close.

Bordeaux has been blessed by more than its fair share of excellent vintages in the last decade. The first one, 2000, is generally regarded as the vintage of a lifetime. Then came 2005, which reaped even higher acclaim. Conditions were nigh perfect, wine makers skills didn’t matter as much as in other vintages, so you can’t really go wrong with any Bordeaux 2005.

That’s what all reputable wine critics said at the time of release and still say. Robert Parker is not an exception. His description of 2005 was glowing and indeed confirms the stellar status of this vintage. However, his actual scores of the wines were quite conservative. He did say that his scores would likely be on the low side if reviewed in a few years time. Summarizing, Parker’s write-up doesn’t match his scores and at some point, the 2 have to get aligned. Either the write-up will become less raving or the scores will increase.

Fast forward to 2008. Contrary to other wine critics, Parker is extremely positive. Across the board, there are brilliant scores, including top marks (98-100) for Lafite Rothschild. His review of the vintage as a whole is extraordinary: very, very praising. At this point, one starts to wonder how this compares to the last fantastic vintage (2005). And when and how Parker will reconcile his write up and scores for the 2005 vintage.

Enter 2009. A vintage that is more promising than anybody can recall. More so than 1961, 1982, 2000, 2005 and 2008.

What? Yet another vintage of a lifetime? Well, if you believe the weather facts and the comments from the winemakers, it does indeed look to be as good and quite likely better than any of the above.

What intrigues me is the mathematical side of this. The point scoring. The basis for pricing more than anything else. Vintage 2000 is established: very high scores and dito prices. 2005 is a questionmark: sky high prices, truly fantastic write up but scores that don’t match. Vintage 2008 came out at very modest prices indeed, only to explode after Parker lavished such praise on it.

Here’s the point: if 2009 is better than 2008, how will Parker react? Mathematically, there’s very little room for him to give higher scores to 2009 than to 2008. Plus, he would be in danger of devaluing his scoring if it is yet again sky high.

To make it even more interesting, vintages get re-rated. Usually, Parker re-rates released vintages in February. He scores the new, en primeur vintage in April- May. So before releasing scores for 2009, Parker will publish revisited scores for 2005 and 2008. I expect him to raise the scores for 2005. After all, all other critics rave about it and so does Parker except in his actual scores. Vintage 2008 should retain it stellar scores because if it didn’t, Parker would have to make a U-turn and jeopardize his credibility.

If I’m right with above assessment, and if 2009 turns out to be as good as everybody thinks it is, we have an interesting situation. You can’t improve on 100 points. Or indeed 98-100 points. You could I guess give it a similar score and then revisited it next year. Or you could downgrade 2005 – adjusting for new found excellence – as well as 2008. Either way, it’s not clear cut and any adjustment of these very high profile vintages will give rise to huge speculation and would possibly spark a gradual waning of Mr Parker’s influence. The issue - IMHO –  is this: as a critic, how do you deal with 3 vintages of a lifetime  – in one decade – without jeopardising the credibility of your scoring system?

Why is this relevant? Apart from the very essence of scoring, it’s hugely relevant because Robert Parker and nobody else sets prices. If Parker thinks 2009 is better than 2005/2008, prices will go through the roof. If he downgrades 2008, those wines will go down. But then, improving on 2008 scores will be very difficult indeed.

Apart from Parker’s scores, I think 2009 will see prices close to 2005 release prices. If Parker somehow manages to score it better than 2005 and 2008, it will sell out big time, regardless of the high price. If not, it will cement the position and prices of 2008 (and 2005 to a lesser extent) and the 2009 campaign might struggle. The only reason being that there are too many stellar vintages in too short a time.

Whatever happens, 2009 will be more expensive than 2008, due to the hype and more favourable economic conditions. How much so will depend on Parker.

I for one am very curious to see how say 2009 Lafite Rothschild will compare to a 2008 Lafite (98-100).