Fine wine predictions for 2016

As is now known, in 2015 the fine wine market ended up rather like the Duke of York’s 10,000 men – neither up nor down.

There will no doubt be some relief that the market has not finished in negative territory for the fifth consecutive year, tinged, perhaps, with mild regret that the generally positive monthly performances that began in the summer of 2014 couldn’t build enough momentum to kick the market into the black by the end of 2015.

Sadly, the heavy dip over 1.5% in July and then another sudden 1% drop in November thanks to a combination of factors, not least the continued downward trends seen in the euro, was too much for December’s 0.7% rise to counteract.

There was much to like in 2015 though, the Bordeaux indices ran flat but the category appeared to very much be finding its feet again as prices (especially for the 2009s and 2010s) began to settle and Italy, Champagne and the US saw their brand strengths and market share grow strongly.

So what might one reasonably expect from the market in 2016? In many ways a continuation of trends seen last year which have been laid out previously here but which briefly included: a broader and more ‘normal’ secondary market back to where it was around 2004 before the Chinese bubble, the lessened importance of en primeur (to a point), the pursuit of value as much as brand, a faltering Burgundian category and the growing dominance of Pessac-Léognan over Pauillac on the Left Bank of the Gironde.

Taking these trends into account alongside other factors, six points appear distinctly possible – maybe:

• The fine wine market will, finally, get back to growth in 2016. Slow perhaps but palpable.
• Italy will increase its market share with the Super Tuscans to the fore and Piedmontese wines increasingly emerging from the shadow of their Bolgheri cousins.
• The ‘cult Cabs’ and other great Californian wines will flesh out their market presence and gain a greater share – by value at least.
• The 2015 Bordeaux vintage will be hailed as great to superb in quality but the success of the campaign is on a knife edge.
• Burgundy’s prices really begin to stagnate and even fall especially on the auction circuit.
• The release of grand cuvée Champagnes continues with one of two consequences for the category.

On each of the following pages these themes are broken down and examined in more detail with arguments for and against their coming to pass.

Expect slow but steady growth in 2016

At long last this prediction looks like it can become a reality. After four consecutive years of decline for Liv-ex’s ‘Fine Wine 100’, the index finds itself in at least a neutral starting position. It’s very likely that prices for some wines will continue to drift, the dying embers of the 2005-2011 party finally coming down to Earth and not helped by an unstable euro which may serve to keep buyers out of the buying sphere until they think prices won’t go any lower.

Furthermore, the year has hardly got off to the most confident of starts, markets are down and oil prices rising as Iran and Saudi Arabia rattle their sabres over the span of the Persian Gulf. Nonetheless, another seismic collapse is unlikely and as Philip Staveley of Amphora Portfolio Management offers here, negative forecasts for the Chinese economy do not necessarily run over into that country’s demand for wine.

As has constantly been hammered home, the market is now broader and marginally less reliant on Bordeaux than it was before 2005 when demand for claret began to spiral upwards.

Now that Burgundy, Italy, Champagne and Napa are back in the picture (in fact even more so than they were before) the risk is likewise spread a little wider.

It would however be wrong to play down the extremely important role Bordeaux still plays in the market. It may be down from an historic 96% share at its height to a 74% slice today but that is still an extraordinarily high cut of the pie. Like it or not Bordeaux is still the rudder that steers fine wine and pretty much every merchant db approached with these predictions qualified the success of 2016 as resting very much on the 2015 en primeur campaign.

Now, this annual event will be examined later but there’s no doubt that it’s effect will be felt throughout the market for good or ill.

From 2011 to 2014 (the 2010 to 2013 vintages) the market showed positive progress as en primeur approached only to see that misplaced optimism shot to pieces on the firing line of the Bordelais’ pricing strategy. The Fine Wine 100 never fully recovered in those years.

Admittedly, in 2015 this pattern was somewhat broken, with the months before the 2014 campaign already down showing no one was particularly confident about what was about to happen. In a way this neutered some of the more detrimental effects of a disappointing if not disastrous campaign and then when those worst fears didn’t come to pass the market did in fact lift a little. The excitement around Robert Parker’s 2005 re-score in June not long after the campaign showed demand for good claret is very far from dead.

The danger of an expensive campaign is the downward pressure on prices it would place on all the stock still floating around in the market/in négociant’s warehouses. With the market still weighted towards Bordeaux this will only put pressure on the wider market which Italy, Burgundy & co are still incapable of fully holding up.

So to an extent en primeur continues to hang, the sword of Damocles, over the market but, as will be covered further on, if merchants and buyers/collectors put less store in the importance of en primeur its impact need not be catastrophic.

Overall, a stable, normal wine market, untroubled by the passing fads of China or speculators should do very well.

Italy continues to grow as a category with Piedmont emerging from behind the Super Tuscan shadow

Like Bordeaux, Tuscany and the Super Tuscans of Bolgheri above all, are the driving force of the Italian secondary market. The reasons why have been outlined previously here but like Bordeaux they have the volume, brand awareness and consistent quality to maintain a liquid secondary market.

Just as Bordeaux will, no doubt, forever remain central to the fine wine market as a whole so too will Tuscany dominate Italian trade.

Nonetheless, the excitement and the ‘geekery’ that seems to grip wine lovers when confronted with Barolo should not be ignored.

One merchant suggested that Sicily and Valpolicella would see the benefits of increased buyer interest in Italy and this is probably true but from a collecting and investment standpoint the buzz around Piedmont is probably more in line to ratchet up a notch.

In part this may be driven by ever mounting Burgundy prices and buyers, as they did with Bordeaux, will begin fanning out looking for alternatives and the ‘Burgundy of Italy’ would be a natural fit. Barolo is not always the ‘cheaper’ option by any means but there is also Barbaresco, and merchants will undoubtedly increase their offerings of Barbera d’Asti and Langhe Nebbiolo for wine lovers to get their teeth into wherever possible.

After the release of the excellent 2010 vintage from Barolo in 2014 and 2010 Brunellos last year, this year will be the time of the “new benchmark” Chiantis and Barbarescos said one merchant, adding that while they may not have the financial heft of Barolo, “they will deliver immense quality and value in spades”.

California’s growth continues unabated – outpacing the struggling Rhône

In 2011, California represented just 0.14% of the Liv-ex marketplace by value. Last year it reached 2.1%, just behind the Rhône’s 2.3%.

Dominus and Opus One are consistently the best performers in Liv-ex’s ‘Rest of the World 50’ sub-index and though volumes available to merchants remain small the consensus is attitudes towards California are evolving positively.

Armit held a California offering late last year which it said was well received, consumers buying up Pinot Noir and Chardonnay (reflecting its “Burgundy-focused customers’ tastes” it added), while its Diamond Creek allocation “sold out within minutes”. California’s mounting popularity was explored recently by the drinks business here along with the warning that prices at the very top end were straying into previously uncharted territory, which may eventually be cause for concern.

It may require another full year to ensure it’s not just a passing fad or to avoid a possible collapse in price but the region has the combination of just enough volume verging on ‘rarity’ in places, good critical opinion and the virtue of being different and interesting to keep on rolling. Even another 0.5% growth in value while the increasingly lame duck Rhône index continues to abate would see California very much rise up to join the vaunted European Olympians.

Bordeaux 2015 is a success – sort of

The perils of a failed campaign were examined in an earlier entry and there’s no doubt the trade and the market will be approaching this year’s campaign with a certain amount of trepidation no matter how good the vintage is.

To focus on some positives though, early reports indicate that it is a good vintage and probably quite plentiful too.

A large crop is a good thing, as it should encourage producers to keep price rises (and prices will rise on the ‘14s) to a minimum.

With the Eurozone’s fiscal problems unlikely to ease much in 2016 (in fact they may only deepen), stronger exchange rates for the sterling and dollar could entice buyers back. The US showed tentative signs of returning to the en primeur game last year and an even better vintage (if 2015 so proves to be) could encourage this trend.

It’s true that Robert Parker is no longer a factor and other critics do not have his sway but the Bordelais themselves, if not always for the better, have shown they are less in thrall to the say of others and being functioning adults everyone else should be able to as well.

This campaign may also see the full force of more ruthless merchant selection brought to bear. As campaigns have become ever more costly so merchants have said that in future they will be more discerning in what they choose to pick up from négociants. One major merchant has already hinted that its own en primeur involvement will be scaled back considerably this year.

The campaign will be judged a success on their terms in effect, with châteaux that refuse to ‘play ball’ receiving a sort of commercial ostracism. This in turn may not help the market as its flipside is adding more wine to the unsold stocks sitting in warehouses and stretching négociants’ balance sheets to the limit. The physical release of the 2013s is unlikely to cause much excitement and the 10-year retrospective of the 2006s doesn’t feel as though it’ll arouse huge waves of activity either.

“No compelling reason to buy” has been the sad watchword for Bordeaux primeurs in recent years and this lingering doubt is going to make selling the 2015s in quantity an uphill struggle.

Subjectively, the combination of a good vintage, a decent amount of it, a weak euro, potentially more American interest and a more streamlined, rigorous view from both merchants and buyers of what they want from the campaign should add up to some sort of success. But we shall see.

Burgundy’s prices not only flatline but fall

“Underlying nervousness,” is the rather ominous description of Burgundy’s position in the secondary market at present.

How much more expensive can it get? In many ways, not very much more at all. Domaine de la Romanée-Conti’s secondary market prices have actually been running somewhat flat for a number of years now but as it occupies a “different universe” to most other wines in terms of pricing it should be treated in isolation.

On the other hand, price correction elsewhere is probably guaranteed, especially in the auction market where the guarantee of provenance for these fabulously expensive takes on ever greater importance.

At other levels though prices and thence relative value will come under increasing scrutiny and Liv-ex recently asked of Burgundy, ‘Is the price of rarity justified?’

Back in July of 2015 also, Liv-ex pointed out that when the bid/offer ratio gets over 50% (that is 50% of offers attract bids) it shows the market is beginning to move. At that time the overall ratio for the market was 62% – in line with reports of increasing signs of life for fine wine – for Bordeaux the ratio was 89% which is very lively but for Burgundy it was a mere 15% – flat, lifeless almost.

Such is the scarcity of the really sought-after Burgundian wines that prices can only dip so low before someone steps in to scoop it up so a ‘fall’ in price will probably be measured in very small margins but far better that than an outright collapse.

Furthermore, if frustrated Burgundy buyers do expand into Piedmont and Californian Pinots as well this will help remove some of the ‘heat’ surrounding the category, tying in neatly with the idea that a broader market is healthier for all concerned.

Grand cuvée Champagne continues to announce vintages with one of two outcomes

No great surprise here as one might reasonably expect a smattering of houses to have made 2009 and 2010 vintages, a great many more 2012s, a couple 2013s and/or 2014s and everyone 2015s. The release of Krug’s 2002 vintage will likely be the Champagne release of the year too.

So we’re guaranteed vintage Champagne releases into the early 2020s for sure. The question is, will we continue to see near annual releases of grand cuvée Champagnes and what does this mean for the category?

There has been some chatter about the growing number of releases, which since the 2000 vintage have become almost annual, one producer saying the concept is being “exploited”.

The sheer number of vintages since 2000 has been incredible but not entirely without precedent. Champagne producers sometimes refer to the 1945-1969 period when there were 12 great vintages*. Louis Roederer’s cellar master, Jean-Baptiste Lecaillon, recently mentioned to db that the number of great vintages dropped away with the introduction of pesticides in the 1970s and has now picked back up again as more producers have scaled back or even stopped using them in favour of sustainable/organic/biodynamic viticulture.

There may be something to this but the feeling that some houses have taken a new line with the direction or ‘philosophie’ of certain brands is hard to shake.

Could grand cuvée Champagne produce annual vintages in the manner of Lafite or Sassicaia? Is an annual vintage of Dom Pérignon or Cristal or Comtes de Champagne the new norm? In theory it’s possible, they have good volumes (more than they often care to admit), their brand strength and awareness is superb, their quality is excellent, they have relatively low starting prices, they appreciate well, customers love them and merchants love selling them.

Part of grand cuvée Champagne’s appeal though has been built on the occasional drought, the year that didn’t quite meet the required specifications, a bit like Port. If Dom or Comtes releases every year is there not the risk it becomes somewhat ‘ordinary’?** And with it comes slightly greater fluctuation in pricing. As was examined previously here, pricing patterns and tendencies have already begun to change for grand cuvée Champagnes as the market for them becomes more liquid.

Previously, vintages were released, prices stayed flat for a few years as the wines were drunk an then appreciated. Now, with more acclaimed vintages (2000, ’02, ’05, ’08 that are out), price falls after release are becoming more common. If vintages become annual, some of the wines by necessity and subsequent critical opinion not as good as others then buyers may start to see greater losses post-release than they were previously used to. And we know how much everyone enjoys that.

*1945, 1947, 1949, 1952, 1953, 1955, 1959, 1961, 1962, 1964, 1966 and 1969
**Cue much spluttering from the Champenois.