Fine wine: glass half full?

As speculations mounts over whether Bordeaux will play the en primeur game in 2015, Gabriel Stone weighs up what we can expect from the fine wine market in the year ahead.

THE PAUCITY of Bentley drivers in the wine trade suggests, if any proof were needed, that correctly predicting the next big thing in this industry – and then making a financial success of it – is an elusive talent. At the fine wine end of the market, any pockets of excitement in 2014 have been largely overshadowed by a third successive year in the doldrums for Bordeaux. After all, despite headlines touting a record breaking sale in Burgundy or growing interest in Piedmont, Bordeaux’s combination of volume and prestige makes it the staple diet of most fine wine traders. As we gaze towards the horizon of 2015, it is worth pausing to take stock of events or shifts that shaped this year and consider what glimpses they offer of the road ahead.

Certainly the combination of inflated Bordeaux prices with a global economy that remains uncertain has not left the fine wine market unscathed. “When you have a market that has gone down four years in succession that has quite an impact on the people involved,” observes Justin Gibbs, director of Liv-ex. “We’ve seen companies go bust and funds close – there’s been a fair amount of pain. The market is stretched and stressed and that’s largely due to Bordeaux.”

One area where Bordeaux continues to shift quietly is the auction sector, where Richard Harvey MW, global head of wine for Bonhams reports: “There are buyers for most things if the price is right, particularly in terms of younger vintages of Bordeaux where there is still stock on the market.” While confirming that the 2009 and 2010 vintages are moving through, he concedes: “You have to be realistic with estimates.” Indeed, remarks Harvey, “I suspect that the secondary market is maybe more realistic than the place de Bordeaux.”

MERCHANTS AND PRODUCERS

Among the merchants themselves, who have after all been left most exposed by the drop off in Bordeaux trading, the outlook appears reassuringly sanguine, if hardly ebullient. Describing the fine wine market as “pretty stable”, Mark Pardoe MW, buying director of Berry Bros & Rudd, remarks: “We’re keeping other opportunities up our sleeves but nothing is going to replace Bordeaux.” However, he emphasises BBR’s efforts, especially one assumes in recent years, to diversify its business into other areas, insisting: “We’re not dependent on the fine wine market.” Nevertheless, acknowledges Pardoe: “There are certain merchants out there who will need Bordeaux to come back into the market.”

One individual with the perspective required to venture an informed prediction as to the likelihood of this happening is Charles Sichel, export director of Bordeaux producer and négociant Maison Sichel. However, even he admits: “At the moment I have no idea what is likely to happen.” That said, Sichel is able to offer analysis of why so many châteaux chose to hold their recent en primeur prices at a level that made little sense to the wider market. Noting the sudden surge of interest from China that peaked in 2011, he reports: “They literally robbed Bordeaux of all its back vintages in most châteaux covering most AOCs so stock levels in Bordeaux were at an all time low.” As a result, explains Sichel, “One of the reasons prices didn’t come down as much as the trade would have liked is that the châteaux needed to rebuild stocks.” Indicating that this replenishment is now largely complete, he also pointed to the weakened Euro, which means that even the same release price as 2013 would in fact represent a 12- 15% saving for foreign buyers. What’s more, reports Sichel on the 2014 vintage, “the wines are going to be good, probably not great but good – definitely up on 2013, but also 2012 and 2011.” Add to these factors the slowly brightening economic outlook in evidence among some of Bordeaux’s key markets and Sichel concludes: “Altogether the 2015 calendar is looking quite promising.”

A TENSE TIME

The Bordelais may have their own reasons for withholding that price drop required to resuscitate en primeur – and with it the fine wine market as a whole – but Gibbs warns that playing hard to get with one more campaign may change the playing field altogether. “Bordeaux 2014 really is a very important point in deciding whether or not people give up on en primeur and it loses a generation of buyers,” he suggests. After all, other wine regions may not account for anything like the turnover of the Bordeaux behemoth, but the latter’s price hikes have made top producers in regions such as California, the Rhône, Piedmont and Tuscany look rather enticing value.

Confirming that these areas “have all stepped up to plug the gap of a weak Bordeaux market in the last three years,” Pardoe nevertheless adds: “none of them, with the possible exception of Piedmont, have the lure for a cellar planner to buy them every year in the same way that they will probably buy Bordeaux every year. They’re more of a seasoning than the backbone of a collection.” As for Piedmont, Pardoe describes a “sea change” as he outlines a situation “not dissimilar to Burgundy in the early 1980s when a whole new generation took over and became very terroir-focused.”

And what of Burgundy? Its supply and demand challenge is the polar opposite of that currently faced by Bordeaux and, even if volumes are too small for its fortunes to really trouble the wider market, the strain is starting to show on the region’s producers. “It’s not good for Burgundy,” remarks Pardoe. “Three short harvests on the spin have made the economics of it difficult, not just for merchants but for smaller producers. There’s just not enough wine to sell.”

For Jason Haynes, director of Burgundy specialist UK merchant Flint Wines, allocation pressure on top names such as Cathiard, Dujac and Rousseau has led on the one hand to an “incredibly inflationary” secondary market. However, he suggests that the most interesting result of this trend is being felt further down the hierarchy, specifically “the speed with which new domaines or winemakers are making a name for themselves and quickly attracting the attention of big buyers.” Drawing a parallel with the London housing market surge forcing people to hunt further afield, Haynes observes: “Ten years ago it might have taken three or four vintages for a new operation to make a name for itself; now it can happen in six months.”

DEMAND FOR LAND

This thirst for Burgundy has not only made its wines expensive and difficult to come by: just try buying a vineyard. The rise of external investors, from LVMH to US and Macau businessmen, has inflated prices and stoked controversy among frustrated locals. Pointing to the rise of the “micro-négociant”, Haynes explains: “with vineyard prices reaching prohibitive levels we are now seeing almost two separate businesses – land- owning and winemaking.” Citing the €20 million per hectare price tag that a grand cru site in the Côte de Nuits is now rumoured to command, he observes: “The profits from winemaking will never yield an adequate return on the cost of the land”. As a result, continues Haynes: “Young winemakers and even established domaines can’t afford these kinds of prices and are therefore having to buy grapes if they want to augment their portfolios. So there will be more and more domaines operating a négociant business on the side, often managing the vineyards from which they take the grapes.”

FURTHER RISE IN THE EAST?

You only have to look at the way China’s explosive arrival distorted the market to recognise the importance for any forecast of identifying which countries are likely to engage in the fine wine game next year. “Now the Hong Kong and China market is oversupplied, it is up to the Bordelais to re-engage with traditional buyers in the US and UK,” maintains Gibbs, who predicts: “en primeur 2014 will not be about China.”

The picture is less clear cut for Sichel, who suggests: “If the rest of the world turns to Bordeaux in 2014 then China will turn as well.” Certainly there are signs that Chinese wine lovers put off by the lack of perceived value in Bordeaux are following more mature markets’ lead by considering alternatives. Reporting strong Chinese interest in a recent Châteauneuf du Pape sale, Harvey confirms: “They do their research, they look at Parker points, certainly they buy Italy – there’s a lot of interest in Italian wine in the Far East.”

It’s a still broader picture in Japan, where Berry Bros for one has stepped up its activity this year. “Japan is a very mature market with a slightly different dynamic to Hong Kong or Singapore,” remarks Pardoe. “They have an appetite for the esoteric and there’s much more willingness to experiment, especially with restaurants. Certainly Singapore and Hong Kong are more traditional.”

For all their understandable caution, it’s possible to detect an irrepressible whiff of optimism from the trade about the year ahead. After the over-indulgence of ‘09 and ‘10, Bordeaux’s prices and share of trade have corrected themselves to pre- boom levels. Meanwhile evidence is mounting that the world’s big financial centres are recovering confidence, whetting the appetite of major fine wine buyers who not unreasonably decided that there were better returns to be had elsewhere. The rest of the team is ready for action so – as Gibbs concludes – “we just need Bordeaux to play the game.”