Liv-ex update: The price of rare Burgundy

Prices for top Burgundy are beginning to outpace those for first growth clarets, but as the region continues to trade on its rarity, its value in relation to Bordeaux must surely come into question.

As we move into 2016, Bordeaux is once again looking a little sorry for itself.

2015 was a more stable year for the Bordeaux market than the previous four: the Liv-ex Fine Wine 50 Index dipped just 0.7% while the Bordeaux 500 Index closed the year down just 0.2%.

For another French fine wine region it has been a different story.

The Burgundy 150 Index – a sub-index of the Liv-ex 1000 – reached a new high in 2015. It closed the year up 1.3% and was amongst the best performing of all Liv-ex indices. Composed of six DRC brands and 10 others (five white and five red), the index essentially represents the first growths of Burgundy.

As Chart 1 below shows, since December 2003 prices have risen 200%, taking it to the heights that Bordeaux reached at its peak and close to a record high. But is there a danger that prices will suffer the same fate as Bordeaux?

As the table illustrates, the prices of the majority of the red wines in the Burgundy 150 Index now match or surpass the Bordeaux first growths.

The average cost of a case of Haut-Brion is £3,333 (’03-’12 vintages), and it has an average score of 96.4 – the same as DRC Romanée-Conti – yet a POP score of just 203.

Even Lafite Rothschild, with an average POP score of 313, offers better relative value than seven of the Burgundies in the table.

In relation to other regions, Burgundy prices appear even more unbalanced – the average case of one of Italy’s Super Tuscans is around £1,725, while Champagne’s is only £1,396. Top Burgundy – and DRC in particular – still trades off its exclusivity.

DRC produced just 5,673 bottles in 2011, and even La Tâche – which sees the largest volume – produced just 18,196 bottles that year, equal to 1,516 12×75 cases.

Lafite Rothschild, by comparison, produces on average 16,000 cases a year. The Wine Advocate’s scores for Burgundy are typically lower than Bordeaux, with Romanée Conti not receiving a 100-point score since its 1985 vintage. Nonetheless, as long as demand continues to outpace supply, competition for top brands will remain high.

When Bordeaux fell out of favour in 2011, Burgundy was its natural heir. Since 2006 it has been the second most-traded region on Liv-ex, accounting for a peak 7% of trade in 2013.

Yet while some merchants report continuing demand, market interest has waned. In 2015 Burgundy’s market share dipped to 6%, overtaken by both Italy (7.1%) and Champagne (6.5%). Burgundy’s climb has seemed unsustainable for several years now.

With prices for the Bordeaux first growths now 40% off peak and continuing to drift, the difference in value between the two regions is becoming more marked.

When buyers can get three 12x75s of Haut Brion for the same price as one 12×75 of DRC Richebourg, is the price of rarity justified?

This article, written in partnership with wine market Liv-ex, originally appeared in the January issue of the drinks business.