Every year, merchants and buyers alike get excited about the prospect of En Primeur, even in lesser vintages – for merchants, an opportunity to go and try the new wines that the Chateaux have spent the past year working hard on producing, chatting to the owners about the vintage; its difficulties and challenges, and then trying to gain an understanding of it all.

For buyers, it’s an opportunity to listen to what their merchants have to say about the wines, and hopefully pick up some well-priced wines that won’t be ready for two years at least. Sadly, this year, despite the early pressure for a sensible and quick campaign, things seem to have taken a turn for the worse on this rainy Monday afternoon in London – and as such, we felt compelled to put together a short list on how we might run a Bordeaux campaign…

• Cheap releases are the way forward, otherwise buyers will quit En Primeur altogether. People traditionally buy En Primeur because it is cheaper than buying the wines that are already available. There would be no point in buying something that is not available for two years, (and even once available cannot be drunk for another 5 at least) unless it is significantly cheaper than those wines that are available already with similar reviews.

• Release early, and get ahead of the game – if better wines are releasing before you, it is too late. Merchants will not offer wines if they come out at the same time as better wines, with similar prices. There has been ample time available for the Petit Chateaux to release in the previous four weeks – doing it on the same day as Lynch Bages makes no sense!

• Don’t all come out at the same time!! How can merchants keep buyers interested with an offer every minute!? Spread them out…

• Do not undermine those trying to sell your wines. Merchants do not like being told that the pricing structure is okay (Cos), when it clearly isn’t. Although Bordeaux have been making wine for a long time, the merchants have been selling it just as long – if they claim a price isn’t right, it probably isn’t.

• Don’t build the future price into current releases. If the price moves up in the future, so be it – it does so because it has age and provenance – if you want to do this, follow Latour’s example and quit En Primeur. If you would like people to buy something that hasn’t been made yet, make it worth their while.

Undoubtedly there will be good value on some of the better wines during this campaign, which we’ve already seen from Pontet Canet amongst others, and we will be sure to point these wines out as and when they are available. In the meantime, we’re working on a fantastic offer for some back vintages that have managed to escape Bordeaux and where pricing remains sensible for the quality of the wines – to follow shortly…

Chateau Latour, the illustrious Bordeaux 1^st Growth, has announced that 2011 will be the last vintage to be released En Primeur.

This is big news, as for the first time since the 1960’s, a First Growth Chateau breaks with the unique and over time very successful way that Bordeaux sells its newest wines.

Why would Latour do this? What are the reasons behind this decision? What are the implications? Here are our thoughts.

First of all, being Fine Wine Merchants, this is a tricky subject. Our blog is widely read. By consumers, by fellow wine merchants, by the French Negociants and even by the Chateaux. Their interests are not always aligned and taking position could have repercussions on our ability to work with them. To illustrate that, it is very telling to see how few players in the market are willing to go on record.  However, Latour’s decision to stop selling its wine En Primeur is too big a thing to stay silent about and loyal readers and customers won’t be surprised to see that we tell it as we see it. Moreover, we side with the end consumer: if it’s right for the person who buys the wines we sell, it’s right for us and it should be right for all other actors in the distribution chain.

Chateau Latour is owned by François Pinault, who runs the PPR retail empire. PPR, previously known as Pinault-Printemps-Redoute, owns luxury brands like Gucci, Yves St Laurent and Puma and additionally is involved in other luxury goods and sports brands. PPR is also involved in online retailing, in a wide variety of products. They have financial muscle and they understand retailing luxury goods. Moreover, PPR is a big corporate business. It’s fair to assume that the reasoning behind the move to quit the En Primeur system must be that Mr Pinault expects it to be better for PPR, ultimately maximizing its profits. Even though Latour say it’s all about selling their wine when it’s ready to drink and about “killing” speculation.

The En Primeur system

In its simplest form, the En Primeur system means that Chateaux sell wine from the barrel, years before it’s ready to be drunk and 2 years before it will be delivered to customers. It’s sold at a discount, in return for cash up front, which allows the Chateaux to finance the next crop. That was the original thinking behind the En Primeur concept.

However, if you have enough cash, why would you sell your wines En Primeur?

If Latour’s decision is indeed just about no longer selling En Primeur – which I’m not convinced about – what are the implications? Let’s look at the effect on price first. Let’s presume Latour decides to release 6 years after the harvest, instead of one year. Even though they might have enough cash to be able to do that, it doesn’t mean that cash is free. So, assuming the cost of money to be 5%, releasing 5 years later means costs have gone up 28%. Releasing after 5 years, at 28% more, wouldn’t make financial sense as the returns for Latour would be the same. Possibly even less because of the need for added storage facilities. Add to that the risk of price fluctuations and most likely – all other things being equal – Latour would have to price at 28% plus. Furthermore, they’d also want to receive a premium for holding the stock and controlling supply, because otherwise the whole exercise IMHO just doesn’t make sense.

How that translates into consumer prices remains to be seen. Perhaps it would do away with unsustainable, speculation fueled price hikes. Perhaps prices would stay the same as they are now. In either case though, the profits would be for Latour and not for the (speculating) consumer.

Moreover, the EP system is a bit more complicated then described above, as it has also morphed into an allocation system, effectively securing demand for the Chateaux. This has provided tremendous value to the Chateaux over the years, as they can “force” buyers into purchasing something they don’t necessarily want (for fear of not being able to get access to it in the years to come) whilst charging extremely high prices in the sought after vintages. This is particularly valuable when vintages are harder to sell and not something you do away with lightly. Therefore, Latour abandoning En Primeur makes people think there’s more going on than what is being communicated.

Is this just about quitting En Primeur?

For example, it could also spell the end for Latour selling through “le Place de Bordeaux”, with its allocation system, couldn’t it? Not necessarily so. It’s important to understand that Latour quitting EP doesn’t mean they will abandon selling through “le Place”. Indeed, Latour have communicated that they won’t. If that’s true, then Latour can still release stock into the market using “Le Place” and allocations, but would have achieved a higher return than before. This system could also exist for drinkable vintages only, provided there’s enough of an incentive for merchants that sell on the public.

So, all good then. Latour only wants their wine to hit the market when it’s ready to drink. They want to get rid of speculation and they will continue using the current distribution network.

The way Latour is distributed

Not quite. As mentioned, there is a strong sense that this is not just about quitting EP. Latour has been awkward with Negociants for a long time and has been courting big buyers directly. For years, they have released very little stock onto the market ( at high prices) and seem to have been preparing themselves to restructure the distribution of their wine. Many people expect the move to quit EP to be the start of a bigger plan. But again, the official communication does not support that.

Our guess is that Latour ultimately want to take charge of distribution, of the way its wines are sold, in order to maximize its profits. Ultimately, Chateau Latour would like to control the supply chain. Quite like some other luxury goods empires, who are very successful at it. Take for example LVMH, a rival of PPR and owner of Moet & Chandon and Hennessy Cognac. LVMH spends a lot of effort and money in controlling where their products are being sold. If for example prices in the UK are lower than in Japan, they will try and make sure that international traders don’t use the price gap to supply cheaper stock to Japan and in doing so potentially lower the price in Japan. LVMH want the price gap to remain and pocket the difference themselves. LVMH are very good at this.

Think of it, if you have a brand as strong as Latour, why would you let 3^rd parties share in the profits if not necessary? You could do it all yourself. In fact, you are already doing it yourself, just not with this particular brand that you own. Why not cut out the courtiers (which would save 2%)? Why not cut out the Bordeaux Negociants (which would save 15 to 20%)? Why not cut out the International Wine Merchants (which would save another 10 to 15%) and go straight to their customers? Indeed, there are very persistent rumors that direct selling is already happening. Or even, why not cut them out as well and open your own retail stores?

But what about the bad vintages, critics might argue. How would Latour sell those if not through EP and “Le Place”? Could they get the same uptake, at the same price? It would be less forced, that’s for sure – which is a very good thing. It would be more consumer driven, which is good as well.  Yes, there would be a risk there for Latour, but if they can control supply and pricing, that risk surely is manageable. Particularly if Latour would throw some allocations to the Negociants, or big International Merchants, who would be starved for Latour. Or even discount it in their stores. After all, there would be a margin to play with.

Will others follow?

Already, there is massive speculation about what the other Chateaux will do. At the same time, it’s clear that, even if they wanted to abandon the EP system, only the biggest names could as smaller Chateaux simply don’t have the cash. But could this be viable for the bigger names? As stated above, you’d have to have the financial muscle to forego at least 5 years of cash flow. You’d also need to be reasonably sure that customers want to buy your wine without the added benefit of the traditional reasons (EP and secured allocations), now but also in the years to come.

Regarding the other, unconfirmed option of leaving “Le Place” altogether, that’s an even harder challenge, as you would need to be able to control distribution. There aren’t many Chateaux that tick those boxes.

What does it mean if I just want to drink the stuff?

It will certainly improve provenance. It will probably mean Latour will be even harder to buy. Regarding price, that remains to be seen. Hopefully it will benefit drinkers, but our feeling is that if winemakers start to behave like the luxury goods empires that in some cases own them, it’s not in the interest of the end consumer. Surely increased control by the brand owner is not done just to protect the interest of the consumer.

Does this affect your decision to purchase Latour 2011 En Primeur? Clearly, you won’t buy it to safeguard future allocations, so the rationale to buy Latour will have to be that you love it and you like the opportunity to, for the last time, buy it now, En Primeur, years before you can drink it, because it works out cheaper.

Afterthought

Let’s hope we are being too cynical. Let’s hope this is just about what Latour communicates, which is that they would like to supply the market with the best Latour they can possibly make, ready to drink and with perfect provenance. 

"The cost of a premier grand cru like Chateau Lafite-Rothschild '82 is nearly $58/ bottle. The public simply won't pay this. I think that a crash is inevitable". Steven Spurrier, Time Magazine, 1985

The Lafite 1982 now sells at around £40,000/ case.

No matter what the current situation on the fine wine market is – there is one simple truth, and that is it is reasonable to assume that regardless of the fine wine market’s invariable day-to-day fluctuations, its prices will continue to move upwards.

As the prices move up, interest in buying wine as a commodity will also increase. As wine is a finite product that does get drunk – the value of high scoring wines will inevitably increase.

The price movement on Smith Haut Lafitte 2009 after Parker awarded it 100 points – Courtesy FRW

As I have mentioned on previous occasions, prior to Robert Parkers re- ratings of the 2009’s, the cheapest 100 point red Bordeaux was the Pavie 2000 at around £4,000/ case. There are now several wines from the 2009 vintage with 100 points at significantly lower prices than this. These prices will not hold for long – and the same will apply to the 2010’s when they are re-rated later this year or early next.

Right now however, the market seems to have bottomed, and there are many good opportunities to buy before the Bordeaux 2011 campaign kicks off, as this campaign may push prices up further. 

Vieux Chateau Certan – one of the best wines of 2011?

We have put together a list from the 2000 vintage onwards showing all 1855 classified wines, the top wines of Graves, Pomerol and St Emilion, and key second wines too – along with their current average market price, and Parker scores – this list is incredibly useful in identifying those wines which represent great potential for investment, and those that look hugely undervalued in terms of drinking wines too.

Listed below are some of our tips from this list that still look a steal when considering their price/ vintage and score, along with a link to a selection of the full list (there is too much information for us to publish here, but if you would like more information on the full list, please download the list here or get in touch). If you compare these to different vintages of the same Chateau, or the same vintage and points of differing Châteaux, they look incredibly good value. So much so that it will not be long before consumers recognise the most obvious bargains and act!

This will be updated as the 2011’s are released – but expect market prices to move up on some of the highlights as listed below as the campaign moves on. We will be able to offer most of the wines from the full list, so please do ask if you have any interest.

2010

Lafite Rothschild

Haut Brion

Pontet Canet

Pichon Baron

Leoville Lascases

Lynch Bages

Eglise Clinet

Latour

Montrose

Brane Cantenac

d’Issan

Ducru Beaucaillou

Grand Puy Lacoste

Gruaud Larose

La Chapelle Ausone

La Lagune

Lafon Rochet

Larcis Ducasse

Lascombes

Latour a Pomerol

Le Bon Pasteur

Le Gay

Leoville Poyferre

l’Evangile

Malescot St Exupery

Saint Pierre

Smith Haut Lafitte

2009

Petit Haut Lafitte (2^nd wine of Smith HL)

Clos Fourtet

Poyferre

Pontet Canet

Smith Haut Lafitte

Beausejour Becot

Beausejour Duffau Lagarosse

Branaire Ducru

Ducru Beaucaillou

Gruaud Larose

La Gaffeliere

Larcis Ducasse

Saint Pierre

Smith Haut Lafitte

Pavie

2008

Lynch Bages

Haut Bailly

Pichon Baron

Pontet Canet

Montrose

La Fleur Petrus

Pavie Macquin

Troplong

Trotanoy

Others to look at

Latour 2000

Latour 2003

Cos Estournel 2005

La Mission Haut Brion 2000

Leoville Las Cases 2000

Las Cases 2002

Malescot 2005

Margaux 2000

Montrose 2000

VCC 2006

Enjoy!

After a short but very informative and useful trip, here are some of our observations regarding the new vintage and upcoming En Primeur campaign.

We have tasted lots of wines ourselves, we have been following tweets and blogs by other wine merchants and have read the reports published by wine reviewers and journalists. The conclusion is that 2011 is not a great vintage, although better than feared. It’s also a heterogeneous vintage, with some very good to exceptional but also rather poor wines. Selection therefore will be crucial this year. Whites and particularly Sauternes and Barsac however are exceptionally good in 2011 and represent a fantastic buying opportunity.

It must be said that the winemakers, in a lot of cases, have done a fantastic job in making very good wines when nature had not dealt them a good hand. It must be heart breaking for Chateau owners to work very hard for a year only for the international “critics” and merchants to show up and slack off their wine. The wine made in Bordeaux nowadays is invariably better than it was 15 years ago.

Speaking of the weather, there have been rather extreme conditions, with severe drought and very high temperatures in spring, hail and 2 days of 40 degrees in late June (see here for more detail). This has resulted in low yields, small berries and an early harvest. Chateau Margaux for example reported the lowest yields since 1991, the smallest berries ever (!) and the earliest harvest since 1893.

Chateau Margaux

There is a plethora of vintage reports available online. Therefore, let it suffice for now to say that in a nutshell, the best appellations for Red seem to be St Julien and Pomerol with weather conditions most favorable for clay based Merlot. Whites and particularly Sauternes and Barsac are exceptionally good. The consensus seems to be that this vintage (for red) is of a quality comparable to 2001 and 2008, perhaps just behind them. To give you an idea of where that leaves 2011 in a ranking of all vintages since 2000, have a look at this:

Left Bank:  10,09,05,00,08,06,04,03,01,02,07

Right Bank:  10,09,00,05,08,01,06,04,07,03,02

Courtesy of Vinalytics, this ranking is derived at by taking aggregate scores from a spread of reviewers looking at approximately 250 Châteaux.

Seeing this is not a must-buy vintage (except for Whites and Stickies), pricing and the speed with which the En Primeur campaign is conducted will be all important to make 2011 sell. The Chateaux recognize this and promise price reductions and a quick campaign. Nevertheless, given pricing in recent history, Courtiers and Negociants are not convinced at all that Chateaux owners will reduce prices enough. Negociants and secondary trade are nervous about being forced into taking allocations that could ruin them if they can’t sell them through quickly enough. So far, 2011 has not attracted a lot of interest. Although reportedly, there were more badges issued by the UGC during the En Primeur week, reports from Chateaux and various attendants suggest there was considerably less interest, particularly from Asia.

Prices therefore need to come down severely to have a chance to sell this vintage. If they do, it might sell well as many very good wines have been made and the vintage does present an opportunity to get or increase your allocation of your favorite wines. If they don’t it will be a very disappointing campaign and a missed opportunity.

On our way to the fabulous party at Gruaud Larose

So that leaves the question by how much need prices come down? The answer should be simple: prices need to be at a level where consumers can buy 2011 at a discount compared to similar and physically available vintages. We have already reported that for 3 of the 5 First Growths, this would mean they need to reduce their price by 57% as compared to 2010. The same calculations can be made for each wine, with reductions depending on the quality of their 2011, their pricing in 2010 as well as prices of comparable back vintages.

Will that happen? Let’s hope so because at the right price, there are some delicious wines out there well worth filling up your cellar with. So far the spread in prices I have heard is massive, ranging from €300 per bottle ex Negociant for Lafite Rothschild to no less than Sylvie Cazes (president of the UGC) saying that  10-15% down on 2010 should be enough.

Finally, there is a good chance the campaign will start very soon, possibly even next week. Most expect it to finish before Vinexpo at the end of May. And it might be kicked off by a First Growth. So get yourself ready! We will contact our subscribers and customers early next week to gauge interest. If you are not yet a customer, please get in touch. We have allocations for you and we are always very competitively priced.

We will be sharing our best buys as the campaign progresses. Make sure to check our blog for updates and do follow @DittonWineTrade on Twitter. It will allow you to stay on top of breaking news and releases, often before it's available anywhere else. Search (and use) #bdx11 to see who else is tweeting about Bordeaux 2011. Or just phone us if that's too geeky for you.

The Bordeaux 2011 En Primeur campaign will start shortly. Next week, the trade will go and taste the wines but this week, several wine critics have already done so. Robert Parker, who said on Twitter that he had no interest in the 2011 vintage before going out to Bordeaux, has also tasted the new vintage. On his blog, Parker said that "the 2011 is better than expected. It's close to both 2001 and 2008 in overall quality". Other tasters seem to confirm this.

There is also a lot of speculation on pricing. The consensus amongst consumers and trade is that prices will need to come down a lot in order for Bordeaux 2011 to have a chance of selling. The Chateaux agree that prices need to come down but at this stage won't be drawn into saying by how much.

The basic rule for En Primeur pricing is that it needs to be cheaper than comparable, physically available vintages. There has to be an incentive for consumers to buy something that they can't drink for a good few years. With that in mind, we make an attempt at establishing the price levels of the 2011 First Growths.

Below you'll find a table with the last 11 vintages of the 5 First Growths, their RP scores and current UK prices.

We then focus on 2001, 2002, 2004, 2007 and 2008 as being the vintages that will likely compare best with 2011. We have calculated the average price and average score for each of the First Growths, for those 5 vintages:

We feel this "basket" of "average" vintages would be a fair proxy for 2011. Assuming that the consumer would be tempted to purchase 2011 if it comes at a 10% discount compared to the basket, we then have target consumer prices. Please see below. 

Finally, using normal margins for the trade, the Negociants and the Chateaux, we arrive at the release price for the 2011. Below, we have used the price ex Negociant, as this is the most widely quoted and comparable price. 

So there we have it. If we have the consumer in mind – which we all should do and never not – prices need to come down by 57% for Mouton, Margaux and Latour and by 64% for Haut Brion. The only exception is Lafite, for which 8% would be enough. If you think 57% is a lot, then bear in mind that €260 a bottle is double the release price of the 2008.

You might also want to have a look at the Liv-ex blog, where you'll find a similar analysis although it arrives at different conclusions.

Make sure to follow our blog for updates and do follow @DittonWineTrade on Twitter. It will allow you to stay on top of breaking news and releases, often before it's available anywhere else. Search (and use) #bdx11 to see who else is tweeting about Bordeaux 2011. Or just phone us if that's too geeky for you.

Making fine wine even more accessible – meet Ben Grosvenor.

From the very early days, Ditton Wine Traders have always had a very clear purpose: to offer the best wines at the lowest prices. It’s a way of thinking. It’s in our genes. We thoroughly believe that offering amazing wines at very hard to beat prices is the best way to make our customers happy. Hence our motto: “making fine wine accessible”. 

Because of our good prices and because we have always been able to offer good volumes of the best wines, a lot of our customers tend to be wholesalers. Simply because the “professionals” are better positioned to spot a good deal than the average private collector.

Having said that, you don’t need to be a wholesaler to buy from us. Our prices are what they are, regardless of the quantity you order. Indeed, many private collectors are loyal customers of ours. Generally speaking, our private collectors are customers that started their fine wine buying career with the well known, big fine wine merchants. Reputable companies that have the history, the pedigree and the financial muscle to dominate the public perception. Companies that have thousands of customers. Brilliant wine merchants but, you might have guessed by now, you do pay for the privilege.

Many of our loyal customers used to buy from these companies but when they discovered us, they switched. And stayed.

The point I would like to make is that, until now, we have been quite passive in our approach to private (potential) customers. We don’t want to be a fine wine merchant with a massive sales team. We don’t want to have a fancy office. We don’t want to spend stupid advertising money. Because if we did, we would have to raise our prices and that would defeat the whole object. However, the flipside of this frugality is that many private wine collectors that don’t spend a lot of time on researching the best deals lose out.

That’s why we have decided to put more effort into looking after private collectors. That’s where Ben comes in.

Ben Grosvenor is our new private client sales manager. Ben has a wealth of experience and a proven track record in fine wine:

As the latest member of the team at Ditton Wine Traders, I thought it a good idea to write a brief note to introduce myself. I am delighted to join the team at DWT, and although it will be difficult to add to this already dynamic and successful company, I would hope that with my experience I am able to bring new ideas to the team, and some very interesting wines to you! I have spent the past 10 years getting to know the wine trade, working with companies such as Oddbins, Laithwaites and Fine & Rare Wines, as well as “Cellar-brations” in Australia. My main area of interest is difficult to define, but a real soft spot for the wines of Bordeaux, Burgundy and the Rhone, as well as a fascination with some of the spectacular wines coming out of the U.S.A and Australia, seems a good place to start! I am genuinely excited about this opportunity to look after the clients of Ditton Wine Traders, and I look forward to helping you with your important wine decisions in the very near future. I would love to hear from you, no matter what your query. My job is to understand what you like. To know what your preferences are. To make you tailor made offers, whether it’s for drinking or for wine investment. I will be able to help you manage your wine portfolio. Simply put, I would love to look after you. Without additional costs, making fine wine even more accessible.

If you like what you see, please do get in touch and please do sign up for our offers. All you need to do to benefit from our offer to buy fine wine at wholesale prices, is talk to us.

They were expected to be high, but the 2009 scores released on March 1 by Robert Parker have exceeded the highest expectations.

"Not a myth but mythical" is Parker's subtitle for his Bordeaux 2009 review. Indeed. He goes on to say "In short, 2009 is the greatest vintage I have tasted in Bordeaux since 1982". He backs this up by awarding no less than 18 Bordeaux reds, and 1 white, the perfect score of 100 points.

To put the number of 18 in perspective, have a look at below table, that lists the 100 pointers of the most successful vintages since 1982, 

Robert Parker's most successful vintages

2009 boasts an astonishing number of perfect scores. Is this Parker's farewell, to complete the cycle that he started in 1982 (the vintage that made him), never to be surpassed? Here's the full list, including the "barrel" score:

Parker's 2009 Bordeaux 100 pointers

From barrel, Parker awarded 21 wines a potential 100 points. Out of these 21, 12 indeed received full marks. The remaining 9 got at least 98. Interestingly, there were also 6 wines that got upgraded to the perfect score whilst the barrel score range did not reach 100 (see above).

Looking beyond the top scoring Chateaux, there are an incredible number of wines that score 95 points or more, many of which make unbelievable value for money. Do revisit our list – once we have had the time, we will be offering some of those gems that are a must buy to drink.

Bordeaux 2009 scoring 95 plus (reds only)

It goes too far, in this blogpost, to list all of the above wines. I would urge you though to get in touch with us – some of these 95-99 pointers represent the best buys.

Although there had been substantial price movements prior to Parker releasing his scores, it goes without saying that there were massive price hikes when the scores came out. Particularly for the 100 pointers, on which below table focusses. It needs to be pointed out though that the "after" prices might still change significantly, as the market has yet to find its new prices. The "prior" prices are as of the day before the new scores came out, the "after" prices are as of today (March 3rd). 

2009 movers and shakers

Are these prices the right prices? Overshooting? Underperforming? Is the fine wine market efficient enough to quickly adjust to the new information, or is there scope for arbitrage? What is the right price level for a 100 pointer? Nobody knows, really. And that's why there's an enormous amount of trading going on. Taking position, selling on the hype, holding on, buying with a long term view – it's all part of the spiel. There will be a lot more analyses done to determine the new values, now that Bob has spoken. Do get in touch if you would like to hear our views. Views based on trading these wines daily – we know what's going on.

There are quite a few wine critics that publicly proclaim Parker has lost his marbles. However, none of them have the track record that Parker has and none of them have the influence that Parker has. Therefore, we can safely ignore what they say, when it comes to the effect on pricing. 

When it comes to drinking, you will have to choose which wine reviewer is most aligned with your personal taste. Bordeaux 2009 is a unique vintage, and has just been awarded stardom, so if you were planning on buying some, do so now before prices are out of reach. There are many, many wines that should be part of your cellar.

After 6 months of continuous falls in price, the market now seems to have turned a corner. The Liv-ex 50 has stopped its decline and is indeed edging back up.

On a longer and more important timescale, this is reflected in the Liv-ex 100 as well:

Overall, there has been a lot more activity and trade. It started a bit cautiously, but by now demand for selective wines is quite robust. Whereas last year and even in January, one could pick up top scoring Bordeaux at discounted prices, this is now increasingly difficult.

We reported brisk trade in January, with Bordeaux 1st Growths returning to center stage. This trend is continuing and indeed strenghtening: the best 1st Growths as well as 1st Growths below £3,000 are in demand.

Liv-ex have reported that trading volumes during the last 6 months of last year were low. In other words: the price drop that we saw in that period was carried by a relatively small amount of sales. Much lower than in 2008. In my opinion, that supports the view that we might see a slow return to the prices seen in the first half of last year.

Other trends to note are:

– we seem to be back to traditional names and better vintages. Brand as such is no longer good enough. "cheap" Bordeaux is in demand, yes, but contrary to popular belief, "expensive" Bordeaux is far from dead.

–  At the same time, Burgundy and Italy continue to do well, as does the Rhone. There is an ongoing trend where buy-to-drink demand looks for value beyond Bordeaux. How right too.

To conclude: the real buzz at the moment is with Bordeaux 2009. Robert Parker's bottle scores are imminent (allegedly to be released on the 29th of February). As you know, they are expected to be extremely high, as Parker himself has tweeted that 2009 is the greatest vintage he has ever tasted. This has led to frantic positioning by the trade and very strong demand from our private customers, who love the vintage for drinking pleasure and for investment. Fortunately, not all 2009 prices have gone up – there are still numerous fantastic wines to be had that present quite extraordinary value for money. 

Everybody's now waiting for you Mr Parker. 

As you will know from our previous blogposts, the EU and India have been trying to reach consensus on signing a Free Trade Agreement, which could have a significant impact on the (fine) wine industry. Hopes were high that, after 4 years of negotiating, an agreement would be signed last week.

It hasn't. Since this FTA covers a very wide range of industries and is highly political, it would seem the hurdles were still too high. The negotiating parties have not yet got what they want. In particular the car-manufactoring industry as well as generic drug manufacture seem to be the major, remaining obstacles.

Indian Commerce Minister Anand Sharma said the talks were in the "final stage" but a "few gaps" remained. EU Commission President Jose Manuel Barroso said that both sides expected the agreement to be signed by the Autumn and Herman van Rompuy, the European Council President said the EU and Indian leaders have made "substantial progress" towards a free trade agreement. 

To illustrate how difficult it is to reach consensus, and how political this process is, even issues not directly related to mutual trade were considered. As a prime example, the Iranian issue was raised, with the EU pressing India to be more supportive towards the EU trade sanctions on Iran. 

The bottom, rather frustrating, line: we will have to wait and see if and when this hugely promising FTA will (finally) be signed.

In the meantime, it will be interesting to watch what the big players in the fine wine business will do. Will they take a gamble and establish a foothold before anybody else does? 

Can we expect a boom in Indian fine wine imports?

A recent FT article discussed wine in India, for which Ditton Wine Traders provided a lot of the research.  The interpretation of the potential for significant developments for fine wine in India left us and other trade actors, British or India, who contributed their views and analysis a little underwhelmed. We feel important aspects we’re not covered , so we’ve decided to elaborate further here. 

India is developing into an open market economy, though important remnants of the autarkic policies that followed independence remain.  For example, fine wine is constrained by a penal import tariff regime of 150%. 

This could change as the EU and India are in the final stages of negotiating a Free Trade Agreement (FTA), negotiations for which have started in 2007.  

Findings show there is arguably a 50-50 chance of a tariff reduction to be announced at the EU-India Annual Summit, February 10^th.  It may appear to hang in the balance, but Indian officials indicate they are prepared to make concessions within the framework of the EU. It is the single most significant piece of news ever in relation to India and wine, and the only development that could potentially lead to India fulfilling its potential as a mass importer of wine. 

Will the EU-India FTA be signed?

India has FTA’s with some 60 countries, yet that on the table with the EU is both its most ambitious and difficult.  The two sides have met some 14 times since initiating talks in 2007 and, it appears, are working towards a significant statement in time for the February summit. 

“The potential (for wine) is tremendous, the ingredients are all there; wine is a cultural pursuit, an intellectual pursuit, India is an old culture, an old culture can better assimilate the traditions of another, it can be imbibed by the Indian population.  The Middle class has grown up on a surfeit of education, it can reach out to,” affirms Sanjay Menon, owner of pioneering fine wine importers, Sansula.

Annual trade between the EU and India stands at $75 billion (£48 billion) (2009/2010), making the EU India’s most important trading partner.  Beyond the trade-off between tariff reduction for EU exports and protection of Indian industries, notably automobiles and India’s fledgling domestic wine market, there are real issues behind the 5-year impasse.  India wants access to EU markets through free movement of its professional émigres, highly sensitive for much of the EU. The EU meanwhile demands stronger implementation of Intellectual Property Protection for its transnational pharmaceutical industry.

Yet, the FTA is seen by both parties as too big to fall, negotiations have already reached the highest political levels before diplomats have had a chance to thrash out the details, a diplomatic blunder placing pressure to agree.  Still, the fact that they are negotiating shows there are no guarantees.

What would agreement mean for fine wine markets?

There is no hard data on fine wine in India, as the market is beginning and under the radar (see below for upcoming blog pieces on Indian position towards fine wine and wine investment).  However, analysis by Peter Wilkinson, Director of International Affairs for the Scotch Whisky Association, is instructive.

“If we look at spirits, member-states would not sign-up on the basis of less than a 50% reduction”, observes Wilkinson.  India’s 150,000 9l case market (firm figures remain elusive) in imported wine (compare to China’s 2.5 million case market in Bordeaux alone) is growing at 12% per annum while spirits is around 15%.  “A 50% reduction of the current rate might increase growth to about 20%-25% per annum”, he concludes.

However, continues Wilkinson, “the EU may try to secure a fair bit of front-loading as part of the deal, looking for a significant chunk of the total concession to be given over with immediate effect, with the remainder brought in within an agreed timeframe.” 

Significantly, for fine wines, both the EU and India have indicated progress in the area of staggered tariffs for different quality-price levels of wine.  Leaving the current fiscal position intact for value entry-point wines, while progressively reducing duty on higher-priced ones, the lowest tariff strata would, therefore, be applied to fine wines.  This compromise would protect the development of the nascent and successful domestic Indian Wine industry, yet open the way for fine wines to reach India’s burgeoning middle class – the world’s largest.

How would the market respond?

Would we see an explosion in fine wine markets like what occurred with the 2008 decision of the Hong Kong government to reduce tariffs from 50% to 0% overnight?  

Not in ways comparable to Hong Kong. Implementation, to be in line with peer-countries in the EU, Brazil, Russia or China to eventually 20%-25%, would likely be at stages over a period of 5 – 10 years.  In the immediate-term however, the FTA could reduce the special tariff of 150% to 80%-90% for wines and spirits (the maximum standard excise duty within the bounds of the World Trade Organisation).

Yet, the Hong Kong precedent is in some ways comparable, by way of human behaviour.  “The effect of halving the tariff on a society accustomed to 150% would be palpable.  The market would react in ways not previously seen”, asserts Rajiv Singhal, Director Fine Publishing India and Ambassador to Champagne trade body, CIVC.

India will not be in a position to support falling prices or take up slack from over-supplied markets.  Nevertheless, agreement would radically alter the entire outlook and dynamise the wine trade globally.  The moment would be firmly behind India realising its potential as a major actor in the world of wine by entering the global market place.  It would be fascinating and mark the continued expansion of fine wine markets to a new and more global clientele.

We will find out more in just a few weeks.

In upcoming blog pieces we examine the nascent Indian fine wine market and, significantly, culture around fine and rare wines and wine investment, in particular in comparison to China.  Drawing on the experiences of peers and other trade actors – both Indian and British, pioneering a culture of wine in India.

Watch this space and feel free to share views. Follow us on Twitter @DittonWineTrade and join the debate online at #IndiaEUFTA

There has been an avalanche of reports in the media lately, social media included, about falling demand for Bordeaux wine. Often suggesting that China has fallen out of love with Bordeaux, that it would now be all about Burgundy and that Bordeaux wine prices have but one way to go: South.

It seems to be fashionable these days to engage in a bit of “Bordeaux Bashing”. “Bordeaux would be out of fashion. Grossly overpriced. The bubble has burst. Nobody wants overpriced Bordeaux. Burgundy, even Rhone and Italy is what people want. Sell sell sell”.

We think those reports are suggestive, onesided, written with headlines in mind and lagging behind the curve. We think it’s sensationalistic reporting, as rightfully pointed out by @DuvaultBlochet. Primarily based on two disappointing auction results and the recent price drops, these reports suggest Bordeaux is dead, done and dusted.

Yes, top Bordeaux wine has had a tough 6 months. Yes, China for the moment is saturated with younger Bordeaux. Yes, prices have dropped. And yes, for a lot of people Bordeaux Chateaux are guilty of over-asking, which has indeed led to a quite widespread feeling of being fed up with Bordeaux Chateaux owners and their wine.

But does that warrant all these “Bordeaux bashing” headlines and Doom & Gloom stories? We think not and here’s why:

• There have been many times in the history of Bordeaux where customers and the trade felt prices to be out of control. Each time, these people have been proven wrong, although it might have taken a few years.
• It’s old news. Prices have already corrected. In fact, the momentum is swinging back  – the smart money is moving back in, just when all the Doom & Gloom stories get picked up by the crowd.
• These reports fail to mention that Bordeaux prices have increased so much over the last 10 years, that even after the current price drop, return on investment is still 300%.
• Reports would suggest that Bordeaux is no longer fashionable and that it’s all about Burgundy now. True, Bordeaux is not as “hot” as it was, but Burgundy is never going to be a viable alternative. In the few cases where it has a similar pedigree, there just isn’t enough of it and customers will soon get frustrated with the lack of supply.
• Most importantly, Bordeaux produces amazing wines, more than ever actually. Recent vintages have received unprecedented critical acclaim.
• And whether you like it or not, there will always be plenty consumers that want to buy the most famous, most decorated, most historic wines that are being produced by Bordeaux.

At the moment, we’re very close to reaching a price level where we were in July 2008 (!!) Before all the madness began. I can tell you from our own experience as fine wine merchants that Bordeaux 1^st Growths at £250 a bottle are being snapped up by our customers. There are plenty consumers that view the recent price drops as a healthy correction, not a bubble burst, and they love the opportunity to buy their most coveted wine at current prices.

Bordeaux is not going to go away, whether you like it or not. Therefore, instead of believing tendentious and lagging behind the curve “news”, you could also view this as a great moment to buy Bordeaux. Hopefully to drink it and enjoy it and if not, for wine investment.

The Financial Times have today published an article on market developments for Fine Wine in India. Ditton Wine Traders, and James Swann in particular, have done extensive research on this, which has been used by the FT for this article. 

As you may know, negotiations are going on between the EU and India to draw up a new Free Trade Agreement (FTA). Apparently, consensus has already been reached on fine wine, one of the industries covered by the FTA. At this stage, we don't know what has been agreed to but it is clear that, if import duties on fine wine in India would be reduced, there could be a massive boost for the fine wine industry.

We will be closely following developments and will post the full insights we have gained through our research here on the blog. Stay tuned.

We are also tweeting about the Free Trade Agreement. Do follow us on @DittonWineTrade with hashtag #IndiaEUFTA.

Below is the FT article in print. You can also download the article here

December was a tough month for the fine wine trade. Signs were starting to point in the right direction and most economists and financial analysts became more optimistic on the Euro surviving. However, there was still too much macro-economic uncertainty for collectors or the trade, to have the confidence to take meaningful positions. With the festive season coming up and most investable wines falling in price, buyers were happy to keep their powder dry.

The first week of January is markedly different. In fact, our first 5 trading days in January have generated as much turnover as the whole month of December, with sales equally divided between UK and Asian customers. Importantly, more than half of sales were Bordeaux 1^st Growths, indicating that there is a growing sense that 1^st Growths (still the engine of the fine wine trade) are reaching the point where they are considered worth  buying again. Encouraging signs indeed.

There are bargains (relatively speaking that is) to be had. As an example, Latour 2003. This is one of only 10 First Growths post (and including) 1982, that Robert Parker has rewarded with a perfect score of 100 points.

After a drop of 24% since its peak in July 2011, it’s now available at £7,800, which is the same price as it was three and a half years ago. This is not a fad or high risk wine. This is a classic, iconic Bordeaux 1^st Growth, from a chateau that releases notoriously few cases onto the market. You have to go all the way back to 1982 to find another 100-pointer Latour (trading at £16,000). It’s like 1 Hyde Park coming onto the market at a massively discounted price because the oligarchs are having a temporary cold. Mind, I don’t want to plug this wine, I merely want to point out that – in the longer run – this cannot be a bad buy, IMHO.

This week also sees 2 new wine investment vehicles being launched in the UK, both benefitting from the generous (personal) tax relief that the UK’s Enterprise Investment Scheme (EIS) offers. Anpero Capital has started to raise £2m to be invested into an EIS qualified fine wine trading fund, whilst Ingenious’ Vindemia 2 fund has started to raise between £4 and £10m. The latter is to be invested into start up wine trading companies, and comes on the back of Vindemia 1, which was successfully launched in February 2011 and is now in full operation.

If you want to know more about the potential benefits of the EIS scheme in relation to fine wine investment, do get in touch (it’s far too technical to discuss here).

As a final thought, the Liv-ex 50 this last week almost entirely clawed back the rather big drop it suffered in the last (illiquid) trading week of 2011. Is this down to last minute orders from China, hurrying to source in time for the Chinese New Year at the end of January, or is it a sign of things to come? Undoubtedly, we’ll know more next week, when what seems the whole wine world is done with tasting the 2010 Burgundies.

In one of our previous articles, “Wine investment, what Warren Buffett would do”, we announced we would elaborate on the prevailing uncertainty in the fine wine market and shed some light on short term demand.

We have repeatedly commented on the fundamental health of the fine wine investment market. We believe there are many reasons why fine wine continues to make a good investment. Following, we also think the current lull in prices – caused by short term supply and demand issues and extreme macro-economic uncertainty – presents an opportunity.

The potential of the current situation in fine wine

Firstly, as covered on the blog, the fundamentals look good.

Secondly, a major reason for the current fall in prices is oversupply in China. It will take time for that to resolve itself, but as demand is still there, this in the end is a temporary factor, not a fundamental one.

Thirdly, war chests are building up. Because the fundamentals are sound, there is a “wall of money” waiting to be employed – as commented on in the previous post. Waiting for the right moment. The people managing this money can see the opportunities coming and they prepare themselves to take advantage of them. Why do we think this is the case?

• The long term average return on fine wine is very compelling, particularly in combination with the relatively low risk.
• The fine wine market is on course to become much more professional and efficient, which will attract more money
• Fine wine has to an important extent become an investment market. Participants – wine funds, collectors and big merchants – will act to make a profit if they see an opportunity.
• Any significant upsurge in demand will lift prices as the fine wine market is small (only £4bn per annum). Potential demand is infinitely bigger than supply.

Signs of the market turning

In addition, being involved in trading wine every day, we see more and more signs that point towards prices bottoming out:

• There are less good deals to be had – sourcing well is becoming difficult.
• More and more people are predicting when and where the bottom will be
• Indeed: the first players are stepping in. There are wines that are being picked off. There are also large outstanding orders to be filled.
• Not all is going down – Burgundy, Yquem and some Italians being a case in point.

So what needs to happen for this money to be put to action? In short, a sense that the bottom of the market can be called. Since fine wine is more and more behaving like financial markets, this has all to do with uncertainty. One major driver of uncertainty is what “our friends” in Europe do.

In “normal” economic circumstances, fine wine is not really correlated to the various economic and financial gauges or asset classes. However, in times of financial stress, all asset classes become very closely correlated. Here’s the point: once the markets find their bearings again, fine wine will become less correlated again and is expected to do well. The wider economy might well languish for a sustained period of time, but that might actually play into the hand of fine wine investment, which after all is an alternative investment.

On Europe – it’s all about uncertainty

For 2 years now, the Eurozone crisis has been moving towards crunch time/end game. Forget all the talk and even financial market demands. After all is said and done, if you strip it down to the core, the problem is that the euro-zone is made up of countries that are not equally efficient. In producing goods and services, and in running their countries budget. This would be fine if these countries had their own currency as that would act as a stabilizing mechanism. Inefficient countries would still be able to compete, because their currency – vis a vis their more efficient competitors – would depreciate, making their output more affordable and competitive. But they don't, they share the same currency.

Europe, on the 9^th of December, has finally and for the first time, made moves towards a fiscal union. Right from the word go, at the Maastricht treaty 20 years ago to the day, we all knew that was required to make a monetary union (one currency) work. Therefore, the 2 year old crisis seems to have turned a corner. From now on, we’re talking about the real stuff and there’s no hiding.

Which makes one think about the next phase. What will happen to the less efficient Eurozone countries? On country level, overspending is no longer an option, they’ll have to live within their means, no short cuts. On company level, how is a Greek battery manufacturer going to compete with its uber-efficient German competitor? Let’s face it, he’s not. There is no way the Greek will be as efficient as the German. With all due respect, it’s just not going to happen. Given they share the same currency, the only escape is to become more competitive, by lower wages and very likely increased unemployment. Which will be painful and quite possibly unsustainable, as that would put the onus back onto the government, who now don’t have a way out anymore.

Were Greece isolated from international capital flows, it could work. But they’re not. Lower wages, in the face of prices of a lot of products being set outside of Greece would lead to real loss of disposable income. Recession would be the likely result. The government would be forced to tighten its belt further, exacerbating the problem. Vicious circle.

It will be a really tough call for the economically weaker countries (the PIIGS, or Garlic countries – no offence) to do well for themselves within a euro-zone that enforces fiscal austerity. There will be a temptation to escape that harness, possibly by reverting back to their own currency. Or maybe even a “garlic currency”. Whilst this would be a rocky ride for sure, it’s not as bad as an uncontrolled implosion. What matters is that the one and only sustainable step to take for the euro-zone to be resolved and for the euro to survive, is for them to move towards a fiscal union. And we have now embarked on that road, hallelujah. Onwards and upwards.

Whilst very early days, the major fundamental source of uncertainty has finally been addressed. Surely there will be more crises, but at least they will be focused in the right direction and as such move away from full out disaster scenario’s. That is an important ingredient for more confidence and less uncertainty.

Financial markets are not yet convinced

Whilst most analysts will probably agree with the point we make above, they are more concerned about the short term risk of a bank crisis. In short: the risk of banks running out of money, because they are running out of collateral needed for the ECB to lend them emergency funds. If that happens the banks would probably need to be nationalized. Nationalized by a sovereign that doesn’t have money itself, leading to a worsening of the sovereign debt crisis. Again, a vicious circle.

What would be the solution, the circuit breaker? As BBC’s Robert Peston says: “It's the same as it ever was: mutualisation of all the eurozone's debts, which in practice means that the mighty German sovereign balance sheet would stand behind the enormous liabilities of the rest of the eurozone ….. but that won't happen unless and until there is an all-powerful finance minister (in effect) for the whole of the eurozone, to reassure Germany and the German people they wouldn't be throwing good money after bad.”

Perhaps there are other solutions as well (Peston is always gloomy), which quite likely will involve the ECB. But quite clearly, this is the biggest short term uncertainty that needs to be taken care of.

Concluding:

If our analysis is correct, this is what will happen. Economic uncertainty will slowly diminish and a sense that we’ve seen the worst will start to prevail. Once that happens, the first Buffett’s will enter the market, which no doubt will be the bigger, professional players in the market. That will stabilize prices and the most sought after wines and vintages will start to go up again. This in turn will encourage other players to step in, including new money that has not previously been employed in fine wine and is attracted by both the fundamentals and the prospect of the fine wine market professionalizing. But what is needed for this to happen is a nascent belief that the European banks will not fail.

When? Not long now… All eyes on Signore Draghi.

Final thought

A few things. Remember what happened on the financial markets in the Spring of 2009. It doesn’t take a whole lot for an upsurge in demand to lift fine wine prices. Buffett’s quote “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”.

Wouldn’t it be nice if we can once again focus on wine, rather than finance?

In this latest piece we look at the emergence of new actors in fine wine markets, by way of wine funds and the increased prominence of fine wine auctions.

In a series of questions and answers Ella Lister, the Auctions and Secondary Market Correspondent for the World of Fine Wine Magazine (WFW) provides critical insight.

New routes to market for the collector and investor

Until James Miles, Director of Liv-ex (the London International Vintners Exchange), put a figure to it at the Hong Kong International Wine & Spirits fair, estimates of the value of the world-wide fine wine market saw swings by as much as 100%. The figure Miles arrived to was $4 billion and one that has been referred to since. As Miles pointed out, this is composed of merchants (90%) and auction houses (10%), but not other actors, such as wine funds or financial entities holding wine as an investment.

Importantly, private collectors and investors, with whom most stock resides and who may freely sell or broker their wines independently, are not included within this figure. Thus, the real value of the fine and rare wine market must be significantly higher.

In the 10 years since the trading platform began, the fine wine market has changed dramatically, to the point where fine wine is well on the way to being accepted as a credible alternative investment. The 2008 decision by the Hong Kong government to go from a closed to open market, by reducing its 50% tariff on wine to zero overnight, ushered in startling expansion and is the most disruptive event since the entrance of the US market in the 1970s or the arrival of the internet and transparency.

The historic fine wine trade structure – centred on the traditional merchant, collectors and auction houses – has changed too. London fine wine merchants successfully established broking divisions in the expansive environment of the early to mid-1990s, which saw Asian buyers enter for the first time. Trading platforms, led by Liv-ex, and price tools like wine-searcher.com followed and have brought transparency to a hitherto remarkably opaque market place.

We may not have given it due attention at the time, but this marked the first meaningful step in the little-by-little sophistication of fine wine markets. New actors – professionally managed wine funds and a freshly dynamic auction scene among them – mean there are now new routes to enter and exit the market for the private collector and investor.

A common feature of fast-growing, but immature markets is that a rush of new money can push up value beyond the line supported by the fundamentals. Moreover, where will this new capital go in the event of a stabilisation of stock markets; will it remain in fine wine or will it return to the traditional fold?

How important are these newly empowered actors to today’s fine wine markets?

Certainly, hammer prices and fund headlines suggest increasingly so. The former is a leading indicator of sentiment, albeit for the irrational luxury market, so important to that essential ingredient of economic prosperity, confidence. The latter? Well, we don’t know exactly. A large part of the challenge with wine funds is that, behind the headlines, facts would seem to be hard to come by. Yet, understanding the role of these new actors matters. Accurate and transparent figures, traceability and the human face are a pre-condition to the fine wine market taking the next step and becoming a mature and accepted form of investment as well as pleasure.

Wine funds and fine wine auctions – behind the headlines with Ella Lister

DWT How important are fine wine auctions and wine funds to today’s fine wine market?

EL The wine auction market steals the headlines but represents no more than ten per cent of global fine wine revenues, at almost $400 million annually in 2010. Similarly, wine funds are on everybody’s lips, but total assets under management are no more than $400 million, and probably nearer to $300 million.

DWT Are fine wine auctions a good route to market for the private collector/investor?

EL They can be very lucrative, but the seller has less control over the final price, as you have to commit stock months before the actual sale, and auction houses will restrict the reserve price you can apply. Hence some wine funds steer clear of this riskier route to market.

DWT What is the current growth trend among auction houses and what is their regional spread?

EL The auction market is growing fast, but probably not considerably faster than the overall fine wine market. Revenue in the first three quarters of 2011 was up 44 per cent on the same period in 2010. Hong Kong now represents just over 50 per cent of global wine auction revenues.

DWT There has been a lot of talk about new funds being set up. Is this true or exaggerated? What is their impact and is this sustainable?

EL There has certainly been a flurry of announcements in 2010 and 2011, but the actual level of success is so far unclear. For example, Société Générale and Bordeaux Index have both announced funds that have yet to materialise. Despite bold aims to raise RMB 1 billion in its original statement in August, the much talked-about DeRouge fund has made no further noise. We don’t know whether it has succeeded in raising its initial target tranche of RMB 200 million.

DWT Do wine funds buy en primeur?

EL Some do; some don’t – see my series on funds in the WFW.

DWT Would buying into a fund outperform purchasing a basket as represented by the Liv-ex Investable index?

EL It’s likely to be a similar basket! You would like to think that the fund manager’s expertise and careful ongoing analysis would yield higher returns, but this is not always the case.

DWT Fast forward five years: what are your predictions?

EL Wine funds will continue to play a key role in the fine wine industry, as investors look increasingly to tangible assets. However, the limited size of the fine wine market means that it’s hard to imagine fine wine becoming a major investable commodity on a par with gold or even fine art. After all, the most expensive case of wine is nothing compared to the most expensive painting. The market will continue to become more sophisticated and transparent, but in five, or even ten years’ time, it still won’t be ready for large-scale investments or complex financial products. It is a niche investment product, best kept in the realm of the tangible.

The final instalment of Ella Lister’s three-part work, examining the pros and cons of funds vs. DIY wine investment, is in issue 34 of the World of Fine Wine Magazine, out now.

Since the Summer, fine wine prices have moved south. So have all bond and equity markets. Systemic risk caused by European debt issues is the main reason. Which in turn affects global growth prospects. Banks are forced to de-leverage, making it more difficult for companies and indeed countries to access credit. Credit rating agencies sound warnings left right and centre, with Standard & Poor’s in their latest move warning that it might downgrade the credit rating of no less than 15 European countries.

It’s mayhem, fear rules, there’s blood in the streets, everybody rush to the exit.

Which is exactly the situation that Warren Buffett loves. It provides him with the opportunity to buy solid businesses, with a proven track record, with low risk and high value, at a price he would otherwise never be able to buy at. When Buffett – arguably the most admired investor around – buys, he does so because he believes the valuations of the business he targets will allow him to generate a handsome and relatively safe long term return. Here’s one of his quotes: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”.

Now, Buffett would not move into fine wine investment – he would blow the whole market out of the water with £100bn to spare. It may, however, be instructive to try and transpose his thinking onto the fine wine market. The thinking of a value investor. Long term risk averse but short term willing to take a chance if the price warrants it.

We have covered risk and rewards of the fine wine market before. To refresh your memory, here’s the chart:

15% annual return over 20 years with 11% risk, outperforming gold, silver, art and the FTSE100. With a supply and demand structure to die for: finite and diminishing supply with (potential) demand dwarfing supply. At the same time, the fine wine market is tiny: only $4bn per year, worldwide. It doesn’t take a lot for increased interest to lead to higher prices. Current pricing seems to be at a level where investors that believe in technical analysis could argue that it presents a buying opportunity.

The potential of wine investment

It gets better. The fine wine investment market has been and still is unregulated. Which holds back institutional investment, by not being allowed by the FSA (or its international counterparts) to get involved. These wealth managers would otherwise be very much attracted by the fundamentals of fine wine.

Furthermore, fine wine so far has been unable to attract serious alternative investment money, due to the unprofessional manner in which transactions are settled. The whole en primeur system, transfer of ownership, wine storage and the way stock is moved around to complete transactions; it's just not up to par – not by a long shot – with how financial markets are run and how professional investors demand transactions to be executed and governed.

Here’s the potential: Regulation and settlement will change. Although in an early stage, there are serious initiatives to take the fine wine market to a level where it will comply with institutional investment standards. It won’t happen overnight, but once it does, it will transform the way the fine wine market operates and it will allow for institutional investors to add fine wine to their alternative investment portfolio.

So, IMHO, what we have is a fundamentally attractive investors market, with in addition game-changing prospects that would for the first time make fine wine accessible to professional investors, at a time of extreme uncertainty that has resulted in depressed valuations.

Sounds like an opportunity Warren Buffett would love if you ask me. Take away the uncertainty and happy days are here.

More on uncertainty in our next posting – watch this space. We’ll also cover our views on short term demand and the funds that need to pay for that, as well as insightful tips from the trade.

And, remember to watch Merkozy on the 9^th of December.

If you like this article, please share it with your friends and colleagues by using the buttons just below. Remember you can also like us on Facebook so you can keep up with all our articles, news and offers.

Some sort of disclaimer (loyal readers will know this). We like to express our opinion, because we want to provide our readers with information they can use. Our articles are not always extensively researched, nor do we claim for that to be the case. Having said that, many of our readers highly value our views and indeed consider them an authoritative voice, which helps to complete their understanding of the fine wine market. In compiling our articles, we draw upon a background in both macro- and financial economics, as well as being wine traders that are in touch – every day – with supply and demand. We do not take decisions for our customers to buy or sell certain wines. Although we will express our views, the end responsibility lies with the customer.

The WSTA has published a "wine investment guide". It is "published and maintained by the Wine and Spirit Trade Association. Its contents were drafted in consultation with a number of reputable UK wine merchants, retailers, brokers and law enforcement agencies. It is aimed at consumers who are considering investing in fine wines. It provides tips on how to protect yourself against becoming the victim of fraud".

"Fine wines can make a good, relatively low risk long-term investment. However as with all types of business, there are rogue wine traders who are intent on conning people out of their money. Whether you are a wine enthusiast starting your own fine wine collection or someone looking to build up an investment portfolio, this guide provides some tips on how to protect yourself from becoming a victim of wine fraud".

We urge you to read this, to make sure you make the right decisions, because, as the WSTA says "fine wine can make a good, relatively low risk long term investment. However, as with all types of business, there are rogue traders who are intent on conning people out of their money". 

View the full wine investment guide here.

A case for investing in wine, now
As you will likely be aware of, prices of fine wine, as measured by the widely adopted Liv-ex 100, have fallen 20% over the last 3 months and the drop has not yet stopped. You might therefore think, why should I invest in a market that’s going down? You might also think that any advice to buy coming from a fine wine merchant should be taken with a pinch of salt or two, as they want to sell, right?

Well, yes, but more important to us is that our customers are happy and will return. Anyway, don’t take our word for it, have a look at below facts and information and do the interpreting of it yourself.
 


Investing in fine wine, a longer term view
Fine Wine (as measured by the Liv-ex Fine Wine Investables index), has shown an average compounded return of nearly 15% over 20 years time.



This significantly outperforms the FTSE 100, which over the same period of time, only returned 3.5% (!) Not only that, it also outperforms the other SWAG commodities / collectibles (Silver, Wine, Art and Gold).
  
What’s more, Fine Wine not was not only best of class in terms of return, it did that with the lowest risk:
 


The main reason for this impressive performance is the simple mechanics of supply and demand. Supply is finite and diminishing, whilst demand for luxury goods has been steadily increasing. Even well before China happened, the Western world had no problems at all soaking up all that the top 25 Chateaux could produce. Nowadays, the Chateaux produce 15% less than 20 years ago, whilst demand has greatly increased.
 

The fine wine market is still immature
Transparency has greatly increased with the internet, allowing for more reliable price setting (as well as lower profit margins for sellers). This process is likely to continue, with more and more online price checkers as well as professional exchanges being launched.

Furthermore, logistics and most importantly, proving provenance is very amateuristic, scaring away professional fund managers that otherwise can see the compelling case of investing in Fine Wine.

The relevance being that, as the market gets more transparent, regulated and professional, it will also become more interesting as an investment vehicle.

A point in case is China. An enormous amount of wine is being shipped to China, even though it’s largely brought into the country in an illegal manner, as duties and tax (at 50%) are on the whole being avoided. Many argue we’ve only seen the beginning of demand from China – once that market becomes more transparent, mature and liberal, that’s when demand will really start going.
 

But why buy now?
I think that the structural case for wine investment is quite convincing when you look at above information. Prices are still dropping though, so why should you buy at this moment in time?

One argument has to do with risk-return. The correction of 20% we have seen in the last 3 months, has taken the average CAGR (compound annual growth rate) nearly back to its 50 year average. Whilst there is of course a risk that this correction is not yet over, one could argue that the downside potential is far less than it was when fine wine was trading at historically high CAGR rates. Please see below graph – courtesy again of Liv-ex.



Chances are that, if we look back in say 5 years time, adding wine to your portfolio at this point in time, will not have been a bad time to do it.

Further to this point, let’s have a look at one of the most heavily traded wines of late, Lafite Rothschild 2008.



The price of Lafite 2008 is now back to where it was just before the massive speculation around the special bottle with the Chinese symbol started. At this level, it’s not far off the prices of its peers with similar scores. The point? Again, that a lot of the risk of Lafite 2008 dropping in price has been taken out already.

Mouton 2008 by the way follows exactly the same pattern. There are lots of other examples that I can hopefully point out at some later stage.

These are exactly the kind of data that professional investors are looking for. They analyze data and buy when that particular wine is at the right price, at the right moment, fitting in the right strategy.

One less factual but hugely useful insight: I’m in Hong Kong at the moment and have been talking to lots of HK and mainland China customers. I’ve asked all of them what it takes for them to resume buying en masse again. The answer that shone through is very simple and powerful: the Chinese wine buyers are followers – we will start buying again once prices go up again. Demand is there, all it takes is to see prices going up again.

Bottom line: there is a lot of money that wants to get into wine. Money from wine investment funds, private investors, private wealth managers and the trade. In the Western world and in China. And that’s not even taking India and Brazil into account. All that money is sitting at the sideline. Waiting for the right moment.

On the financial markets, it’s usually the smart money (read professional money) that goes in when Joe Public finally gets out.
 

What to buy then?
Most of the investment money goes into the top wines. This means the top 25 Bordeaux Chateaux and a handful of others, mainly Burgundy. According to Liv-ex, only 8 Bordeaux wines account for 80% of leading wine funds portfolios.  These are the 5 First Growths plus Cheval Blanc, Ausone and Petrus.

There will be a good opportunity to add these must have wines to your portfolio. For the moment though, there is a better opportunity. First things first.

I’m referring to those wines that have been labeled as “super seconds” and flying fifths”.  It’s these wines that James Miles, in his speech at the Hong Kong International Wine & Spirits Fair was referring to when he commented “While timing is always difficult, we remain optimistic about the market for many of the reasons we have highlighted. Nevertheless, we suspect that the next bull run is unlikely to be led by Lafite. Indeed, as the Chinese market becomes more sophisticated it seems inevitable that it will experiment with a broader range of wines”.

Indeed, demand for these wines has already greatly increased.



The red line represents the “Magical 20” (ie the wines we are now talking about, more about this later). The blue line represents the Liv-ex 50, the graph starts in Sep 2006.

It’s easy to see that the Magical 20 have increased in value since May 2010, by about 60%. You can also see that the gap to the Liv-ex 50 (just 1^st Growths) has narrowed, proving that demand for these wines is strong and has momentum.

Robert Parker has selected these 20 wines for a high profile tasting in Hong Kong, because: "For my tasting at WineFuture Hong Kong, I have chosen estates that produce wines of "first growth quality" although technically not first growths...and because of that are under-valued and very smart acquisitions".

 
So, finally, here’s our tip
The Magical 20 tasting in HK has just finished, today. The presentation where all of the above slides were shared was last weekend.

Apart from the intrinsic investment value of Parker selecting these wines, something he did some time ago and to which we commented on our blog, it is very likely that it will receive a lot of attention, particularly because there was an overwhelming consensus that the wines (all 2009) showed very well. If anything, it will firmly plant these wines into the mind of wine investors.

So we thought to give you this info ahead of the crowd as it might just be the right wines, at the right time (as extensively argued above).

The 20 wines are:

1. Ch. Cos D'Estournel,
2. Ch. Pontet Canet,
3. Ch. Pichon Lalande,
4. Ch. Leoville Poyferre,
5. Ch. Leoville Las Cases,
6. Ch. Palmer,
7. Ch. Malescot St.Exupéry,
8. Ch. Pape Clement,
9. Ch. Haut Bailly,
10. Ch. Angelus,
11. Ch. Trotanoy,
12. Ch. La Conseillante,
13. Ch. Pichon Baron,
14. Ch. Lynch-Bages,
15. Ch. Smith Haut Lafitte,
16. Ch. La Fleur-Petrus,
17. Ch. Clos Fourtet,
18. Ch. Rauzan-Ségla,
19. Ch. Brane-Cantenac,
20. Ch. Le Gay
 
Please see our list for what we can offer – a selection of the most promising and least risky out of these 20.

One swallow doesn’t make a summer but there are a few signs that Bordeaux prices might soon turn around:

• Two weeks ago, the Liv-ex 50 was up for first the time since late June (although last week saw a small drop again).
• Lafite 2008 and Mouton 2008 have been rising, as some traders seem to think prices have dropped too far.
• Well priced offers are still there, but drying up.
• More and more people think the bottom of the market is not far off, so demand is increasing – including 1^st growths.
• Europe has taken what could be a decisive step.
• The majority of En Primeur payments will be done at the end of November, meaning that, for some traders, there will soon be less need to sell. 
• Reportedly, there are at least 2 wine funds in China that will become operational at the end of the year.
• Chinese New Year is coming up, traditionally the single most important purchasing event of the year.

In the meantime, everybody’s off to Hong Kong this week for the HK International Wine & Spirits Fair, as well as Wine Future HK. 

We will be there as well. It will be a good opportunity to assess first hand what the state of affairs is in HK and China. It's a fact that demand from China is a far cry from what it was last year, due to stockpiling by traders. Only when this stock is finding its way to the end-consumer, will Asian demand restore itself again. We'll try and find out and, as always, we'd be very happy to discuss our views.

Robert M. Parker, Jr., the world's foremost wine guru, makes 12 bold predictions about seismic changes that will influence how we'll shop, what we'll buy and how much we'll pay.

Posted on www.winefuture.hk , a high profile event to be held in Hong Kong next month, this might have some effect on the likes of Conti Conti, DRC La Tache and indeed the top Bordeaux wines. Good news than for wine investment?

But please note – something we were not aware of at first – that he made these predictions in 2004... All the same, it makes for interesting reading. And since Wine Future HK put it on their website, it attracts new attention. 

By Robert M. Parker, Jr.

Predictions are often carelessly thrown together lists, since few people remember them 10 years later. Who is going to call the author after a decade and complain about his boneheaded observations? Still, I confess to having given the following 12 predictions considerable thought. Moreover, I am confident that they will come true sooner rather than later.

1 Distribution will be revolutionized
I predict the total collapse of the convoluted three-tiered system of wine distribution in the United States. The current process, a legacy of Prohibition, mandates that all foreign wines must be brought into the country by an importer, who sells them to a wholesaler, who sells them again to a retailer. Most U.S. wineries sell to a distributor, who in turn sells the wines to a retailer. It is an absurdly inefficient system that costs the consumer big bucks. This narrowly restricted approach (blame all the lobbyists funded by powerful liquor and wine wholesalers) is coming to a dramatic end—hastened in part by the comparative ease of ordering wine over the Internet. Differing federal court opinions over the last decade have insured that eventually the Supreme Court will have to rule on whether wineries can sell directly to whomever they wish, whether it is a wholesaler, retailer or consumer. Imagine, if you can, a great Bordeaux château, a tiny estate in Piedmont or a small, artisanal winery in California selling 100 percent of its production directly to restaurants, retailers and consumers. I believe it will be possible by 2015.

2 The wine Web will go mainstream
Internet message boards, Web sites tailored for wine geeks and state-of-the-art winery sites all instantaneously disseminate information about new wines and new producers. Today the realm of cyberspace junkies and hardcore Internet users, these sites will become mainstream in 10 years. A much more democratic, open range of experts, consultants, specialists, advisors and chatty wine nerds will assume the role of today's wine publications.

3 World bidding wars will begin for top wines
Competition for the world's greatest wines will increase exponentially: The most limited production wines will become even more expensive and more difficult to obtain. The burgeoning interest in fine wine in Asia, South America, Central and Eastern Europe and Russia will make things even worse. There will be bidding wars at auctions for the few cases of highly praised, limited production wines. No matter how high prices appear today for wines from the most hallowed vineyards, they represent only a fraction of what these wines will fetch in a decade. Americans may scream bloody murder when looking at the future prices for the 2003 first growth Bordeaux (an average of $4,000 a case), but if my instincts are correct, 10 years from now a great vintage of these first growths will cost over $10,000 a case...at the minimum. It is simple: The quantity of these great wines is finite, and the demand for them will become at least 10 times greater.

4 France will feel a squeeze
The globalization of wine will mean many things, most of it bad news for the country historically known for producing the world's greatest wines: France. The French caste system will become even more stratified; the top five percent of the estates will turn out the most compelling wines and receive increasingly astronomical prices for them. However, France's obsession with tradition and maintaining the status quo will result in the bankruptcy and collapse of many producers who refuse to recognize the competitive nature of the global wine market.

5 Corks will come out
I believe wines bottled with corks will be in the minority by 2015. The cork industry has not invested in techniques that will prevent "corked" wines afflicted with the musty, moldy, wet-basement smell that ruins up to 15 percent of all wine bottles. The consequences of this laissez-faire attitude will be dramatic. More and more state-of-the-art wineries are moving to screw caps for wines that need to be consumed within 3 to 4 years of the vintage (about 95 percent of the world's wines). Look for this trend to accelerate. Stelvin, the screw cap of choice, will become the standard for the majority of the world's wines. The one exception will be great wines meant to age for 20 to 30 years that will still be primarily cork finished—although even the makers of these wines may experience consumer backlash if the cork industry does not solve the problem of defective corks. Synthetic corks, by the way, are not the solution. They do not work and can't compete with the Stelvin screw caps.

6 Spain will be the star
Look for Spain to continue to soar. Today it is emerging as a leader in wine quality and creativity, combining the finest characteristics of tradition with a modern and progressive winemaking philosophy. Spain, just coming out of a long period of cooperative winemaking that valued quantity over quality, has begun to recognize that it possesses many old-vine vineyards with almost unlimited potential. Spanish wineries recognize that they are trapped neither by history nor by the need to maintain the status quo that currently frustrates and inhibits so many French producers. By 2015, those areas that have traditionally produced Spain's finest wines (Ribera del Duero and Rioja) will have assumed second place behind such up-and-coming regions as Toro, Jumilla and Priorat.

7 Malbec will make it big
By the year 2015, the greatness of Argentinean wines made from the Malbec grape will be understood as a given. This French varietal, which failed so miserably on its home soil in Bordeaux, has reached startling heights of quality in Argentina. Both inexpensive, delicious Malbecs and majestic, profoundly complex ones from high-elevation vineyards are already being produced, and by 2015 this long-ignored grape's place in the pantheon of noble wines will be guaranteed.

8 California's Central Coast will rule America
Look for wines from California's Central Coast (an enormous region that runs from Contra Costa down to Santa Barbara) to take their place alongside the hallowed bottlings of Napa and Sonoma valleys. No viticultural region in America has demonstrated as much progress in quality and potential for greatness as the Central Coast, with its Rhône varietals, and the Santa Barbara region, where the Burgundian varietals Chardonnay and Pinot Noir are planted in its cooler climates.

9 Southern Italy will ascend
While few consumers will be able to afford Piedmont's profound Barolos and Barbarescos (which will be subject to fanatical worldwide demand 10 times what we see today), once-backwater Italian viticultural areas such as Umbria, Campania, Basilicata and the islands of Sicily and Sardinia will become household names by 2015. The winemaking revolution currently under way in Italy will continue, and its rewards will become increasingly apparent over the next decade.

10 Unoaked wine will find a wider audience
Given the increasingly diverse style of foods we eat as well as the abundant array of tastes on our plates, there will be more and more wines that offer strikingly pure bouquets and flavors unmarked by wood aging. Crisp, lively whites and fruity, savory and sensual reds will be in greater demand in 2015 than they are in 2004. Wood will still have importance for the greatest varietals as well as for wines that benefit from aging, but those wines will make up only a tiny part of the market.

11 Value will be valued
Despite my doom-and-gloom prediction about the prohibitive cost of the world's greatest wines, there will be more high-quality, low-priced wines than ever before. This trend will be led primarily by European countries, although Australia will still play a huge role. Australia has perfected industrial farming: No other country appears capable of producing an $8 wine as well as it does. However, too many of those wines are simple, fruity and somewhat soulless. Australia will need to improve its game and create accessible wines with more character and interest to compete in the world market 10 years from now.

12 Diversity will be the word
By 2015 the world of wine will have grown even more diverse. We will see quality wines from unexpected places like Bulgaria, Romania, Russia, Mexico, China, Japan, Lebanon, Turkey and perhaps even India. But I believe that even with all these new producers, the saturation point will not be reached, since ever greater numbers of the world's population will demand wine as their alcoholic drink of choice.

Robert M. Parker, Jr., editor and publisher of The Wine Advocate and a contributing editor to F&W, has been predicting (and influencing) wine trends around the world for over 25 years.

There's a new wine blog. And this one is different.

12x75 centers around interviews with well known people in the wine world, people who the owner of the blog admires. Under the motto "taking the stuffiness out the Fine Wine Market", 12x75 has a light and often humorous approach. I can highly recommend it. So far, Stephen Browett (Farr Vintners), Doug Rumsam (Bordeaux Index) and Adon Kumar (Wine-Searcher) feature. Knowing the author, rest assured you'll see more big names being interviewed. 

 Well, mostly big names as the latest interview is with yours truly.

There’s always loads of noise and comments on blogs, websites and Twitter when Fine Wine prices are going up, often amounting to plugging one’s own business. As of the last month or 2 though, I have not seen many comments on the current state of affairs in the fine wine market, whilst there’s more need for that than ever. So we thought to have a stab at explaining the market and provide readers with some transparant, meaningful information.

Being on the forefront of the fine wine trade, we have a pretty good understanding of market forces. In our team, there’s thorough understanding of not just fine wine, but of luxury markets, of macro-economics and of financial markets. So we’d be pretty well positioned to make coffee out of all what’s happening in the fine wine trade. However, we don’t have a crystal ball so don’t sue us if we get this wrong. And like Keynes said, “in the long run we’re all dead”.

Facts

At the moment, prices of Bordeaux investment wines are coming down. From the top, late in June, to now, the benchmark Liv-ex 100 has fallen 13%. There is demand, for sure, but buyers need a discount. The market has transformed from an extreme sellers market into a buyer’s market.

Looking wider than the Fine Wine market, the broader financial markets are in turmoil and have fallen as a consequence. Uncertainty, fear even, seems to rule. No less than £75 billion was taken out of the equity markets since April, more than in the same amount of months post Lehman in 2008. As long as the possibility of Euro members defaulting, and all ensuing consequences to global economic growth, loom large, investors struggle to get their valuations right. Not to mention the risk of major, developed economies falling back into recession. In comparison, fine wine is doing relatively well.

Forecast

The million-dollar question is, of course, where this will all lead. Rephrase, where this will all lead to in the short term, because in the longer run, the fundamentals for fine wine investment are still in place. It takes more than temporary oversupply, or even a massive new market like China, to structurally dislodge the fundamentals of top fine wine. There simply is not enough supply for demand. At the moment though, there are some conflicting forces at work. Right now, the “bear/against” camp is winning the battle, but our belief is that the “bulls/for” side will win the war. Please see below for our thinking behind that.

Fine wines prices will slide further

The bear camp would say that Fine wine prices have gone up way past their historical average. Therefore, a correction is long overdue. In fact, 13% is not much of a correction. In comparison, in the autumn of 2008, the market came down by 25%, after which the index increased by 80%. We will need to see another 10-15% at least before we get back onto a sustainable path.

Furthermore, they'd argue, a major driving force of the last 3 years or so has been Chinese demand. Whilst we all thought that every single bottle sold to China was immediately necked for lunch, it now becomes apparent that this is not the case. It’s not all being consumed, "they" do not drink it all. Although a disproportionate amount of expensive wine does get consumed. At the moment, Chinese traders hold too much stock, bought when prices were going up, with the aim of selling it at a later stage. This “clog” needs to clear the pipeline before prices can move up again.

But, the bears argue, that might take a long time as the Chinese consumer is not prepared to pay ever increasing prices for Bordeaux, particularly now that they are getting more interested in other regions that make equally good wines. This might not hold true for 1st Growths, but it could well have an effect on other Classed Growths.

Finally, due to fine wine now being an investment vehicle, the market is much more volatile. Swings can be much more severe than we’re used to. When stockholders get nervous, a massive supply can suddenly hit the market and erode confidence.

Fine wines prices will soon start rising again

The bulls see it differently. The fundamentals are unchanged. Supply is still very limited in relation to demand, it's finite and impossible to increase. Luxury markets worldwide are booming. That is a trend forecasted to grow and continue for many years. A blip in confidence, a recession even it if comes to that, will not change that. Demand therefore will be larger than supply and we know what that does to prices.

Furthermore, the Fine Wine market is about 1/15^th the size of funds leaving equities in the last 4 months. All that money needs to go somewhere and SWAG’s (silver, wine, art and gold) see a piece of the action. Even if only 1% were to go into wine – £750m – that would be roughly 15% of annual fine wine turnover and more than enough to have large implications on prices and availability. Don’t underestimate the influence of wine investment, it’s massively important, particularly in the UK, the US and, dare I say, in HK.

The relative lack of demand we currently see is temporary, healthy, and largely the result of fear on the financial markets. Once there is a sense that European leaders start sorting out their mess, once more people start calling the bottom, then uncertainty will make way for a sense of perfect timing to get invested. And the bulls think that will have a direct effect on Fine Wine. All we need is an important party to start buying. In fact, judging by today’s activity, that moment might have come.

A word of warning

Message to the Bordeaux chateaux owners: don’t be greedy. Don’t kill the goose with the golden eggs with unsustainable pricing. The 2010 Primeur campaign did not go down very well, not with Le Place, not with merchants and certainly not with consumers. These are the people that pay your bills, so please, make sure the next En primeur campaign will see much lower prices. If it doesn't, you risk damaging the whole concept of buying En Primeur.

Another, potentially even bigger danger is counterfeit. This is a real problem in China and has the potential to destroy any faith investors have in provenance. As long as we can’t be 100% sure that stock coming from Asia is genuine and has been properly stored at every point in the supply chain –something which is not currently the case – it should not be touched. In fact, assuring provenance should be given more attention as it is, even without the counterfeit issue. Encouragingly, there are more and more initiatives being taken to improve on that, which ultimately will be an enabler for Fine Wine to become a widely accepted alternative investment.

Concluding, there is a lot of uncertainty at the moment and nobody really knows what the outcome will be. Whilst above is only a snapshot of all arguments you can bring to the fore, both for and against, we believe there are strong enough reasons to conclude that the Fine Wine market is fundamentally in good shape and will soon see prices go up again. We have not quite reached the bottom, but we’re not far off. So, the coming few weeks might just present an exceptional buying opportunity for the brave.

We'd very much welcome your take on this. Let us know if you agree/disagree. Please posts your comments on our Facebook page. Go on, join the debate!

In a vertical tasting of Lynch Bages vintages spanning 1981 to 2010, Robert Parker – the wine trade’s most influential critic – has conducted an extensive review of one of Bordeaux’s most enduring chateaux, re-rating the wines accordingly.

Perhaps unsurprising, this has lead to some price adjustments as well as a spike in activity. Why this particular chateau was chosen, while not explicitly referred to on Parker’s website (erobertparker.com), quite likely has to do with Lynch Bages’ enduring popularity, not just both sides of the Atlantic, but, of late, as one of the handful of chateaux taking the lead in China-and Hong Kong. Furthermore, the chateaux, which has consistently punched above its fifth growth weight, has (along with its ‘flying fifth’ peer Pontet Canet) seen a significant re-positioning in the market of late. The pricing appears to be holding, even in the recent climate of price drops. Lynch Bages is arguably the strongest Bordeaux brand behind the 1st Growths, with very strong trading volume, so this re-rating is well worth having a look at:

Lynch Bages re-rated

In total, 8 vintages received a higher score and 10 vintages were downgraded. The 1989 and 1990 duo both now have 99 points, which caused many traders to snap up the few remaining cases they could find. The prices as stated reflect this. The 2003 vintage, of which it's a bit easier to find stock of still, received the biggest upgrade. Before the new score, the market price was around £850 whilst you'll do well to find it at £1,200 now. Even so, we feel this vintage will go up in price further as it is now one of the highest scoring vintages and availability will rapidly decrease. 

The 2009 and 2010 duo also seem to be attractively priced, given enough time. Looking at above list, we feel that any vintage receiving more than 90 points and trading below £1,000 is also a buy. This is true for the 2008 but particularly for the 2006.

Have a look at our list of Lynch Bages. It's becoming increasingly difficult to source Lynch Bages, even the younger vintages so if above appeals to you, don't wait too long.

Now that what seems to have been a very long summer break is over, it’s time to catch up.

The Fine Wine Market

Immediately after the En Primeur campaign finished early July (!), activity dropped right off. July still saw relatively brisk trade, but August was very slow, slower than recent years. Partly due to the trade having had quite enough of the long drawn Bordeaux En Primeur season, partly because of the holiday season, but mostly because of the uncertainty on the financial markets, coming right in the holiday season. There was not much demand and, as some stock holders preferred cash over paper profits, there was a steady stream of supply. As a consequence, prices dropped (more on this to follow). Particularly because First Growths led the way, and because we haven’t seen any monthly price drops for quite some time now, questions were being asked as to whether this could be the correction that has been predicted by many. The high prices of 2010 Bordeaux seemed to further fuel this thought, not unlike boom before bust. Speaking of the 2010 vintage:

The 2010 Bordeaux En Primeur campaign

Was long. Very long. High quality wines, high prices, big ego’s, long waits. We have covered this subject quite a bit on the blog, so for details please check the blog archive. Our opinion is that it was a very badly managed campaign, with basically all players in this market bar the Chateaux feeling hung over, the consequences of which we might well feel in the years to come. Ultimately, the concept of selling future wines needs to work for all parties involved, something which was not the case in the 2010 campaign. A shame really, because quality wise this vintage deserved much better.

What is interesting to cover is whether the 2010 campaign was successful in terms of sales. The answer depends on who you ask. The Chateaux had a bumper year, no doubt. I believe the French Negociants did do ok, although they were faced with a high risk of being left with very expensive stock. Remember, the Negociants pretty much have to take their historical allocation off the Chateaux, so they bear the risk, not the Chateaux. They sold through relatively well, although remaining stock must be higher than in 2009.

Because, overall,  consumers were not nearly as excited about 2010 as they were about 2009, it was the “secondary” trade (merchants around the world) that was left holding much more stock than wanted. Or, if not, at the price of reduced future allocations. The consensus seems to be that 2010 sold about 40% of 2009 (which admittedly was an incredibly successful year). Importantly, sales were at a historically very low margin. There was lots of discounting going on, anything to sell the allocations one wanted to keep.

Up until the last 2 weeks of the campaign (until Vinexpo), Ditton Wine Traders were actually up on 2009, by a whopping 60%. Early on in the campaign, there were great wines to be had, at decent prices, something we did much more successfully than in 2009. Over the whole campaign, we sold 20% more different wines than in 2009. The last 2 weeks, when the 1^st Growths and most super seconds were released, were not as successful as 2009 though, resulting in the end in a turnover of 78% as compared to 2009. When compared to most other UK merchants, we did extremely well. Although I don’t think this justifies being occupied with En Primeur Bordeaux for 2 months… Something to think about for 2011.

Fine wine prices

Starting in July and accelerating in August, most prices have come down. As measured by the Liv-ex 100 index, prices have decreased by about 6% in July and August. First growths, as measured by the Liv-ex Investables index, have done slightly worse, printing a fall of 7%. This was mainly caused by Lafite (see Liv-ex article), another major contributor being Parker’s downgrading of 2008.

What has caused this drop in prices? In our humble opinion, 3 main reasons.

Firstly, it seemed a natural moment for people to cash in on the profits they made over the last years. Well before the Primeur campaign, there was already lots of talk about price rises being unsustainable. It’s quite natural that people want to cash in on very handsome profits as they sense that the market might have reached a peak. Consequently, a lot of stock came onto the market.

Secondly, this boost in supply coincided with the holiday season and, importantly, the fact that the international fine wine trade was still holding a lot of stock, bought at cheaper prices. In particular the Chinese traders – we believe – held a lot of stock, bought when prices were going up ferociously. Note though this weak demand does not necessarily have anything to do with demand of the final customer (be it drinkers or investors).

Finally, the timing coincided with a general feeling of uncertainty, generated by another looming recession, continued systemic problems in the EU and resulting, massive falls on the financial markets.

Fine wine as alternative investment

First of all, we have to see this price drop in perspective. During the same period (July-August), the FTSE has lost 10% of its value, the German DAX even 17%. The financial markets have seen turmoil reminiscent of post Lehmann in 2008, with some very fundamental issues that have so far proven to be impossible to solve adequately. Given that Fine Wine is now, to a significant extent, an investment vehicle, it’s actually a remarkable resilient performance. From first hand experience, it’s clear that a lot of money is being swapped out of bonds and shares, into alternative investments like Fine Wine.

Secondly, no market can keep going up. If it would, there would be the mother of all corrections at some point. It is actually very healthy that prices have come off a bit. It allows for a period of consolidation, reflection and normalization. Which ultimately avoids boom/bust scenario’s.

As for demand of the final customer, September sees more activity again. UK investors are once again keen to invest in wine. Our customers in Asia are definitely back to buying, albeit more selectively than early in the year. We don’t see any indication that there could be a fundamental shift in the total level of demand, which – if true – will keep in force the age old adagium that demand outstrips supply.

Movers

Stock picking is very important and even more so now that there's a distinct gap in performance between several "classes" of wine. At the moment, there is a trend towards super seconds and "flying fifths" as well as cheaper Grand Cru Classees. It’s no longer anything 1^st Growth and their 2^nd wines. 

As predicted on our blog a few months ago, customers are more aware of value for money. Although, at the same time, the truly iconic wines and vintages keep on doing well (as always). 

At the same time, investment money is still flowing in. Wine investment funds and, to a slightly lesser extent, investment brokers make sure their portfolio’s are constituted of at least 50% 1^st Growths, in some cases even 100%.  These companies need to buy stock, there’s only limited supply, so we expect the current fall in 1^st Growth prices to be reversed in the very near future.

On a final note, we do see growing demand from Asia for super Italians, as well as for Burgundy and indeed some New World regions. As this fabulous part of the world gets more acquainted with fine wine, and as prices of their first choice (often most iconic) wines go up and up, it’s natural and healthy that the eye is being cast on other wine regions that make great wine.

Our Picks

Not everything has come down in price. Some wines are actually up (Lynch Bages, Cos Estournel, Montrose, Pontet Canet). La Mission Haut Brion has had an incredible run. There's a lot of coverage on the performance of the "super seconds" and "flying fifths" as well as some of the cheaper GCC. The common factor with these wines and the reason behind their succes is that they are all well known brands, that they have made stunning wines in 2009 and 2010 as well as in some older vintages, and that their prices do not (yet) reflect the quality. We'd be very happy to advise on them, so if that strikes a cord, do get in touch.

Worth an extra mention is that Robert Parker has recently conducted an extensive vertical tasting of Lynch Bages, spanning 1981 – 2010, re-rating the wines accordingly. The market has already reacted, but it's likely that some vintages of what's arguably the strongest brand behind the 1st Growths will continue to do very well. We will cover this in our next blog post.

Finallly, something else to take notice of, is the "Magical 20" as selected by, again, Robert Parker. On November 8, he will conduct a tasting of "estates that produce wines of "first growth quality" although technically not first growths...and because of that are under-valued and very smart acquisitions". This might well have some effect on prices. Here's his list:

1. Ch. Cos D'Estournel,
2. Ch. Pontet Canet,
3. Ch. Pichon Lalande,
4. Ch. Leoville Poyferre,
5. Ch. Leoville Las Cases,
6. Ch. Palmer,
7. Ch. Malescot St.Exupéry,
8. Ch. Pape Clement,
9. Ch. Haut Bailly,
10. Ch. Angelus,
11. Ch. Trotanoy,
12. Ch. La Conseillante,
13. Ch. Pichon Baron,
14. Ch. Lynch-Bages,
15. Ch. Smith Haut Lafitte,
16. Ch. La Fleur-Petrus,
17. Ch. Clos Fourtet,
18. Ch. Rauzan-Ségla,
19. Ch. Brane-Cantenac,
20. Ch. Le Gay

So, enough reason to expect this trend for value to continue. Go for well known, non 1^st Growth names with high scores. And don’t forget to stock up on 1^st Growths before they go back up again.

Aussino clarifies Bordeaux position.

In July this year we published an article commentating on a report at decanter.com that Aussino, a major mainland China retailer, had determined to stop working with the Medoc classed growths, apparently due to over-heated prices. Aussino has since published a statement on its website to the effect of disqualifying the reported position, leaving no doubts as to the retailers continued support for top Bordeaux. 

Aussino’s statement:

Dear all,

The recent article in decanter.com was a result of misunderstanding between the Decanter journalist and Grace Cai during their conversation. Aussino management announce that we are not changing policy to work & promote Bordeaux wines. 

As the pioneer of wine culture promotion and education in China, Aussino has devoted itself to the long term partnership with many Bordeaux Grand Cru Classé Chateaux, which has been widely known and well appreciated. Also Aussino works with numerous Bordeaux GCC wineries as important business partner in China market as long term strategy.

We have published and republished the Aussino Wine Stories since 2000. The sixth edition is set to release in September 2011. The book, one of the most popular and best-selling wine books in China after 10 years of marketing cultivation by Aussino, introduces the stories of famous wineries worldwide including numerous Bordeaux Grand Cru Classés for the Chinese reader.

On the other hand, Aussino has also organized a great numbers of Grand Cru Classés dinners in mainland China since 2000.  Aussino Wine Life, one of the most influential wine industry magazines, reports on every Grand Cru wine dinners. More than 50 Grand Cru wine dinners will be organized in different cities in the second half of 2011.

Aussino will keep on devoting tremendous effort and investment to cultivate the wine market in China.  We will continue to work with our quality suppliers worldwide and of course including our partners of Bordeaux to introduce wines with high quality and good value to the Chinese consumers.

Best Regards,

Aussino World Wines

19^th July 2011

We found this interesting article on Wine Spectator: "Did China really save Bordeaux?" It gives some further insight into the success or lack thereof of the 2010 Bordeaux En Primeur campaign, and the role of Chinese /HK buyers:

Throughout this summer's sales campaign for 2010 Bordeaux futures, as châteaus released their wines at record prices and a number of loyal customers in America decided to pass, most analysts believed China would make up the difference. Thirst for high-end Bordeaux among China's wealthy has been growing for five years. This was supposed to be the year China came through for Bordeaux, leading to one of the most lucrative futures campaigns ever. If only it were that simple.

“We had a really good campaign,” said Jean-Pierre Rousseau, managing director of the négociant Diva. "We did as well as last year [value-wise]. But overall, we sold much less wine—fewer brands and less volume of each brand. And we also kept less wine than last year."

Several sources told Wine Spectator that yes, this was the most profitable futures campaign ever and China deserves a large amount of the credit. But the campaign was not the blockbuster many had hoped it would be.

Bordeaux’s top producers released the 2010 vintage at record prices, but the châteaus’ pricing strategy backfired in several ways. Merchants said that while some top names sold easily, other past bestsellers were not in demand. To move the wines, négociants would only give clients the top wines if they also took the others. Clients refused to hold onto “grossly overpriced” wine, and there was widespread discounting to quickly move the “toxic” brands out the door.

As for China, many châteaus priced themselves out of America and Europe and failed to attract the Chinese. “It would be wrong to say that Chinese customers have jumped at buying everything. That is not true,” said négociant Philippe Laqueche, general manager of Yvon Mau, whose 2010 campaign profits topped the 2009 campaign. “I think the campaign showed the strength of brands.” Pontet-Canet, Pichon-Baron, Beychevelle and Grand-Puy-Lacoste flew out the door. Smith-Haut-Lafitte, Rauzan-Ségla and Figeac, not so much, according to leading merchants in London and Hong Kong.

According to one broker’s report, 365 wines were released as futures during the 2010 campaign, with 89 percent of the allocated cases finding buyers. That’s the same clearance rate as the 2009 campaign, but fewer wines—403 wines sold during ‘09—and a far cry from the 93 percent clearance rate on 436 wines sold during the 2005 campaign.

Some merchants did well. ASC Greater China, a leading fine wine importer with 23 offices in China, increased its purchases but still only took a fraction of the offer. “We bought about 70 labels, of which 30 to 40 were for China and the rest were for Hong Kong,” said Don St. Pierre, Jr., CEO of ASC. “In total we purchased 90 percent more by value than we did last year and our total quantity was up by at least 70 percent. We took all the normal allocations and tried to get more allocations for the key wines that have demand and recognition in China.”

Demand for those key wines is fierce, and prices aren’t likely to come down unless the Chinese suddenly stop giving wine to business partners and high-ranking government officials. “The wine used for these purposes has to be famous and well-known in China [such as Lafite Rothschild]. Otherwise the gift giver or host may lose face,” explained Hong Kong businessman George Tong, whose own 2010 shopping list included the first-growths, second-growths, Le Pin and Pétrus. “If someone presents a bottle of Penfolds Grange or Harlan Estate as a gift or hosts a dinner serving them, he will lose face. They are very fine wines, but few people in China know them.”

But ongoing Chinese demand for other wines is less certain, particularly since China's nouveau riche were forced to take wines they didn’t particularly want in order to get their hands on the Lafite and other must-have gift items.

Nor did Chinese companies appreciate the disorganized tempo of the campaign—snail-paced at first, then frantic at the end, with 35 estates releasing in a single day. Pricing and tempo left private investors, a growing segment in China, disenchanted. “If prices drop later, everybody will be upset,” said Bandy Choi, a Macau and Hong Kong retailer who provides wine investment training to Bank of China executives.

Speculators are also muddying the waters. “We see quite a few wines that are not selling so well yet in China, but because of demand in Hong Kong the perception is they are very popular in China,” said St. Pierre. “We think most of the speculation is coming from brokers in Hong Kong and the U.K., betting on the next big thing. But since none of these companies have much of a presence in China, they are really very far away from reality.”

Aside from the seasoned importers with strong distribution networks like ASC and Aussino, most of the Chinese buyers, many of whom are large corporations who would just as happily import scrap leather, are worried about the next step: turning a profit. “They bought in '09 and haven’t seen any profit and now with 2010 they question if they will see profit again, so they are right to be cautious,” said Doug Rumsam, managing director of Bordeaux Index (HK). “Time will tell as to how these corporations offload these wines and the success of their long-term strategy.”

At its essence, the futures game is one of opportunism, nowhere more so than China. “If the Chinese cannot make big money in the primeur business, they will quit,” said Laqueche. That is particularly worrisome, because a large amount of Bordeaux’s grand cru classé now goes to China and Hong Kong. “The new concern over the long term is the geopolitical balance of wine,” said Laqueche. “Shifting from loyal customers to new customers—that’s an upside-down way of thinking. Perhaps it’s a historic move but it’s a dangerous one. We need to maintain traditional markets.”

Some négociants hope that Americans will begin buying petit châteaus priced between $15 to $35. But those wines aren't well-known in the U.S. “There really is not much of a petit [château] market,” said James Gunter, senior vice president at Glazer's, a major U.S. distributor. “Négociants want to sell them, but do nothing to promote them or help sell them and build in the marketplace. Estate owners really don’t get marketing and promotion in the U.S.”

Which means Bordeaux may be putting all its eggs in China's basket before it truly knows—or understands—the Chinese market.

Unquote. Now that the holiday season is finally over, we will shortly give our take on the campaign as well as the current market. Watch this space.

Bordeaux, not unlike other Old World wine regions, is often perceived as a conservative place. However, what remains the world’s foremost wine region is in fact in constant change. The 2010 campaign confirmed the re-structuring of production in Bordeaux among the First Growths and their peers. 

One of the most notable features in the current state of affairs at La Place de Bordeaux is the rise and rise of the second wine, led by wines such as Carruades de Lafite (Chateau Lafite), Pavillon Rouge (Chateau Margaux) or Le Petit Mouton among others. Concurrently, it is possible to observe two further trends at La Place; an ever-decreasing volume of Grand Vin – Margaux 2010 is +/-38% of total production – and the introduction of a third wine at leading estates. This is not new per se, over the past 15 years chateaux have progressively cut back on the production of their top wine. In 1996, a strong vintage, production of the grand vin was at a mean of around 20,000 cases.  By 2005, one of the best vintages ever, it was just over half that number.

The Medoc is unusual among the world’s fine wine regions in that its lead producers are not small. Indeed, a typical chateau has between 15,000 and 20,000 cases to sell in a given vintage. If one wanted to, it is perfectly possible to buy 10 cases of the first growths of practically any of vintages of the past 20 years. Can such wines, then, be considered as fine and rare?  The chateaux have recognized that if they are indeed to command the heady prices seen in recent years, they will have to produce an ever more rarified product. However, less production will itself fuel higher prices.

Terroir

There is, nonetheless, a wider concern that chateaux may yet have to adequately address: the distancing of the already loose definition of terroir and chateaux identity vs. the 1855 Classification. Terroir; the French term, now universal, to describe the interplay of factors, natural and human, considered to define the identity, quality and, through legal definition, protect the prices of a given wine region and its wines. Terroir is the central concept for the French winegrower, as indeed it is to much the same extent across the Old World. Yet, in France’s (and the world’s) foremost fine wine region, its top chateaux are classified by way of the famous 1855 Classification. A top-down order based on the average market price a chateau’s wines fetched that same year. The classification is institutionalised and widely seen as outdated, unassailable as well as an excellent tool by which to take a wine to markets old and new, as above all else, in the classification the brand is primal. 

To understand Bordeaux it is important to understand the lack of direct connection between classification and terroir – parcels of land may be bought and sold, vineyards may expand or decrease but the classification holds. The challenge the Bordelaise face, then, is this: can an estate whose classification is based on its grand vin maintain its identity and that of the wine itself, were that wine to represent less than 40% of estate production?  Or, may such a wine come to be seen as some kind of super cuvee; a blend of high quality selected vats.

Commercialisation and production

This re-definition of the grand vin is part of a wider re-structuring of production underpinned by a clear commercial rational. Foremost, no doubt, is the continued quest for quality, something for which today there is no margin for error, at all. The public expects perfection. Secondly, to maximize prices of both the grand vin itself as well as the second wine. To support which, it has been necessary to increase the focus on the second wines, by a certain reigning in of production alongside a focus on quality that in times gone by was reserved for the grand vin. The result, the chateaux hope, is a high quality wine that is a fine wine brand in its own right – with a price tag to match – at significant production levels.

Finally, we have the introduction or re-orientation of a third wine, either bottled under the chateau’s generic appellation or simply produced as base wine to be sold off in bulk to local negociants (merchants).  Its role, of course, is to soak up production of all remaining wine, typically from younger vines and some lesser vineyard plots, but also from that deemed to not be of sufficient quality to comprise either the grand vin or second wine.

Far from being new, such an approach has always been a feature of Bordeaux and a function of the market of the day. In times of prosperity, the Medoc chateaux made the grand vin the centre piece of production, only to favour the second and other wines when it was difficult to sell. Similarly, the wine trade across the world has always adhered to the strategy of lead wines and volume wines. The small farmer-grower and larger wineries have always produced a higher priced wine upon which they hope to make their name and volume wines that support the overall enterprise. 

It is an interesting time for the négoce. Will prices consolidate at more or less the new price ceiling established in recent vintages, or might the market see a significant correction, thus threatening the whole Classed Growth game plan? Moreover, will this re-definition of production, ever more distanced from both terroir and classification, based around a rarified grand vin resonate with and find success in the market in the way it has done historically?

What is clear is that the ever-changing Place de Bordeaux, so often accused of short-termism, is in fact – through long often bitter experience – master of adaptation and response to the economic and market conditions of the day.

Decanter magazine has published an article examining the decision by Aussino Cellars, a leading retailer in mainland China that maintains 200 wine stores in 100 cities, to abruptly cancel its annual meeting with the Union de Grands Crus while stating that it intends to stop buying Left Bank and instead will invest in the Right Bank Bordeaux. 

Sylvie Cazes, managing director of Pichon Lalande and re-elected the union’s president earlier this year, has responded with calm “We are sorry to hear Aussino doesn’t want to organise the tasting with us this year, but we are committed to China, make at least two trips a year there and would be happy to work with Aussino in the future”. Earlier this month Ms. Cazes published a similarly composed view at Decanter.com on the enduing question of a bubble in the Bordeaux market: “‘Every time there is a new market, tension is created. It happened with America in the 1980s and it happened with Asia…I don’t believe in bubbles – with a bubble you have a great increase, then it bursts. I don’t think this will happen – the market will stabilize itself, and with 2010 we are seeing the start of that regulation.’

For his part, Aussino owner, Robert Shen – listed at no. 17 in the Decanter Power List 2011 (up from 28 in 2010) – considers prices at the top Medoc estates ‘too dangerous”. Grace Cai, Wine Education & Culture Manager at Aussino World Wines, elaborates “The prices of the Grand Cru wines are too high because of the booming wine market in China, and it is very dangerous to keep on promoting them. ‘As our consumers become more and more educated about wine, they will realise that they are buying over-heated brands, and we want to offer them wines with stability”

To this end Aussino has apparently entered into business with high-profile Pomerol growers, J.P. Moueix and Jacques Thienpont of their respective estates, Petrus and Le Pin, with immediate effect. Their stated aim, alongside known brands, to develop own brands for the China market.

More than price

Independent of such reciprocal statements, it is clear that the abrupt departure of such a high profile distribution partner marks a very real statement. This, far from being an isolated case, is in fact, supported by a number of broader indications as to the possible direction of the Chinese market overall. The first and most obvious is the possibility of other Chinese merchants adopting the explicit aims of Aussino, through winding down inventories of those wines in the eye of the price storm, whilst simultaneously taking control of production of wines for which it clearly sees or anticipates demand. Recent history shows there are already precedents here.  

The most notable example is to be seen in the widely reported February 2011 acquisition of Lalande-de-Pomerol estate, Chateau de Viaud, by COFCO, an argi-business conglomerate supported by the Chinese government.  Its stated aim ”… a strategy for constructing a complete chain from production to consumption to guard against forgeries and to reassure our clients” – guarding against forgeries was also specifically highlighted by Ms. Cai during her discourse on the matter. 

The market

How should one interpret this? 

Well, as ever, there is a short-term and long-term view. Looking at the short term, we are seeing the kind of price spike that comes with expansion in demand. This occurred when the US market first opened up in the 1950s, followed by its use of futures in the early 1970s (yes, they did pioneer it before the British took it up as en primeur a few years later) and, the consolidation of the US as a major player from the 1982 vintage on. The immediate effect of which, as early as the ‘ 50s, was the appreciation of prices for First Growths by 50%. Buyers began to look for value, the same will happen now. 

As far as it goes, then, the Aussino move could be seen as a simple sign of the maturing of a new market – one where appetite for Bordeaux has been in evidence for at least 5 years and will continue to be so – that now also becomes interested in other wines outside of the initial 10-15 icon wines. That is a healthy development where the love for Bordeaux goes hand-in-hand with a greater awareness of price and value. 

Importantly, to the Chinese-Asian buyer, this value may well appear to also exist in entirely different regions. A certain rise in demand for the sought-after wines of Italy has been in evidence among traders of late. When one considers the enduring and influential popularity of Italian cuisine, it would be expected to continue. You only have to consider that the most investable Italian estates offer 6-packs for sub-£1, 000, as opposed to average 12-pack prices of +£8, 000 for First Growths, to understand their allure. 

Nevertheless, with regards to development within Bordeaux itself, it is the longer-term that offers perhaps the most significant and intriguing considerations. The Chinese have yet to embrace en primeur and in other areas have successfully bid to take control of production themselves – Chateau de Viaud is the seventh acquisition by a Chinese proprietor since 2008 and in all cases production was re-directed in its entirety to China. 

Perhaps most intriguing of all though, the role of Robert Parker as market maker is increasingly being questioned.  We have already seen the emergence of ‘Chinese brands’, and indeed off-vintages thereof (2002, 2006, 2007), outperforming their Parker scores to initiate an apparent, albeit evolving, Asian consensus within the 1855 Classification. Indeed, Parker has recently broken with tradition (in an apparent attempt to affect pricing policy?) stating “I hate to see the image [of Bordeaux being great] damaged by the fact people tend to think it’s too expensive,’ he is quoted as saying. ‘Bordeaux is focused too much on the wealthy Asian market”. 

There is, perhaps, more than a passing resemblance between this and the pricing out of the British and other European markets in favour of wealthy Americans in the 1980s.  The ball, it would appear, is firmly on the other foot. Today, it is the Chinese businessman who is profiling as the single most important market maker and indicator of future prices.    

Selling direct

There is, somewhat descreet, speculation within the trade that a certain degree of direct selling is occurring at top chateaux, nominally wedded to La Place. La Place, the local term for the traditional system of distribution, whereby top wines and lesser-known ones, reach the open market through an historic and exclusive chain of chateaux, courtiers au vin (grape brokers) and négociants (wine merchants and brokers).  An opaque system and one open to price manipulation through the holding back of wine in function of demand and policy, therefore providing an entirely notional indicator of supply. Until very recently, the prevailing wisdom was that small chateaux with strong brand awareness (and alternative distribution channels) may not need it – witness Chateau de Viaud – but the top Medoc estates certainly do. One only has to consider that such chateaux typically have between 15, – 20,000 cases to sell in any given vintage; no other system is capable of moving that much high-priced wine in a matter of hours. Whereas direct sales by sought-after chateaux will likely remain an area of speculation for some time yet, another form of direct distribution may well be just around the corner. The acquisition of Chateau de Viaud has apparently more than just value at its heart. As a proprietor, chateaux owners are in fact entitled to and able to access significant volumes of wine, something that chateaux have largely left to the négociants. 

In his signing ceremony speech, Chi Jingtao, Vice chairman of COFCO, stated the company’s intention to distribute classed growth, in this case through S.A.S. Majorlaine, a négociant house owned by Philippe Raoux, the previous owner of de Viaud. Majorlaine, est. 1920, has to date, specialised in supplying branded wines from petit chateaux to private clients in France, only exporting around 5% of its production.  COFCO, in partnership with the négociant, now wishes to further use develop a new wine brand for the China market.

Historically, the emergence of new markets entailed, what in fact amounted to the deepening of traditional practice; the control of supply and demand by La Place together with significant influence by, typically London-based, British merchants. The latter having built up a privileged position based on important allocations through, quite literally, centuries of trade and promotion of Bordeaux wines. Indeed, most Hong Kong merchants are today branches of those same London merchants. The Chinese, so courted by both La Place and London merchants, may have determined that, as the most important consumer market, they are going to have a say in this.