2005: A Vintage For Trophy Hunters?

2005 Bordeaux People & Places Articles
  • Friday 16 February 2007

Given the inflated prices asked for the top 2005 Bordeaux, who’s actually buying the wines? Colin Hay wonders whether true wine lovers are being priced out of the market

As the dust settles on the protracted 2005 en primeur campaign, I find I am in danger of losing all sense of perspective on the value of a bottle of wine. Is it me, or has the value of a bottle of claret changed significantly and decisively in the long, slow weeks of often interminable inaction with which the campaign opened, and the last couple of weeks of frenetic activity which brought it to a close? There is a strong case for thinking so.

The first and by far most obvious thing to note about the campaign is that release prices have increased to previously unprecedented levels, with the Médoc classed growths more than doubling in price between 2004 and 2005.

Given such figures, is it any wonder that a recent online poll suggested 62% of Decanter readers would not be buying en primeur this year? Perhaps more significantly still, only 8% declared themselves prepared to bear the price increase of 100% necessary to secure the classed growth ‘average’. Of course, what the poll does not tell us is what proportion of respondents rarely or never buy Bordeaux en primeur in the first place. But it begs the question of who bought and who is buying the 2005s. The answers from prominent UK merchants and brokers are very interesting, not least since they serve to dispel a couple of potential myths about the market.

The first thing to note is that despite unprecedented release prices, these wines have sold well. The majority of the classed growth wines and their equivalents on the Right Bank are now essentially unavailable. Those that are available can only be purchased on the secondary market, often at substantially more than their initial release price. Take Château Léoville-Barton, for instance. Undoubtedly one of the value wines of the vintage at its initial release price of around £495 per case in bond in the UK, it is now only available for £630–700. As this suggests, the initial release prices for 2005 Bordeaux will prove to be the lowest price for which the vast majority of these wines will ever sell. In this respect, at least, these wines represent value for money – or they did when released.

But – and this is perhaps the key point – that value is largely internal to the vintage. This means that, in other respects, it is more difficult to see these wines as representing value for money. There clearly was, in advance of the 2005 campaign, considerable demand for a vintage of supreme quality. The vintage has, according to virtually everyone, delivered across the board – from lowly crus bourgeois and satellite St-Emilion properties to the first growths of the Left Bank and the Cheval Blancs and Ausones of the Right. And that has served to drive the wines, aided by ambitious release prices, into a new price bracket all of their own.

In the majority of cases, the equivalent 2000 and 2003 offerings with similar Parker ratings can be had for far less. And many mature and similarly rated 1990s, 1989s and even 1985s are cheaper on the secondary market than the 2005s are on the primary market. Yet this does not mean that the 2005s are a poor investment. Like the 2000 vintage before it, 2005 is simply going to be a very expensive vintage at every stage in its path to maturity.

So who is actually buying these wines? The picture painted by UK merchants and brokers is an interesting one. It is, above all, one of continuity rather than change. Take the first growths. Demand has undoubtedly been high in Europe and the Far East. Yet the story from Stephen Browett at Farr Vintners is of stability.

Farr’s share of the global allocation of these wines has remained essentially the same, as has the relative proportion of these wines it has sold through its London and Hong Kong offices. Moreover, the vast majority of these wines have been sold on allocation to individuals. Yes, many of those who bought wines like Château Latour for around £1,200 per case in 2004 have been priced out of the market, but they have been replaced not by corporate buyers, but by other investors and collectors. Browett’s answer as to who’s buying is a simple one – ‘our best and most loyal customers in both the UK and the Far East’. A very similar picture is painted by Mark Bedini at Fine & Rare Wines. The story, for him, is of private customers buying a case or two from a wide spectrum of properties.

The complex process of allocating wines that are over-subscribed certainly helps explain this. The best wines in the vintage were available only to those with a long en primeur buying history with their merchant or broker. As this suggests, it was never very likely that the 2005 campaign would result in a very significant change in the destination of these wines – the system of allocation simply does not allow for rapid change.

Yet the story is not just one of continuity. There are distinct trends in the en primeur market discernible from 2005. Two in particular stand out from my conversations with UK merchants and brokers. First, although Parker’s influence on release prices remains exceptionally high, his influence on UK consumer demand is perhaps beginning to wane. Here the modernist/garagiste wines of St-Emilion provide the most interesting examples. Despite monumental Parker scores, wines such as Quinault l’Enclos, Pavie Decesse and even Pavie have not sold especially well in the UK, according to Browett. This suggests a growing bifurcation in the market for St-Emilion, with an increasing proportion of high Parker-scoring garagiste wines making their way to the US, while being largely ignored by European buyers. Yet this is not quite how Bedini sees things. While many clients were undoubtedly put off Quinault l’Enclos by the high release price, Pavie in particular has sold exceptionally well for him – and its Parker rating of 98–100 is clearly a large part of that success. This suggests that any bifurcation in the market reflects less a profound trans-Atlantic divergence in taste and rather more the stance on the garagiste style adopted by each UK merchant and broker (see And Another Thing, p10).

Secondly, the majority of UK merchants and brokers suggested that a smaller share than ever before of these wines has been bought to drink. Part of this is a simple problem of demographics. The very best wines of the vintage will simply outlive many of those who have bought them. They have been bought as trophies, investments and, more optimistically perhaps, to lay down for future generations. This will undoubtedly serve to guarantee an active secondary market for these wines over the decades to come. That, in turn, will almost certainly serve to show that these wines were a very sound investment. It also suggests that we can expect the same again the next time nature delivers to Bordeaux a genuinely exceptional vintage.

Again, however, Bedini’s view is rather different. With so little wine to allocate, and with even the best of clients being offered only one or possibly two cases of the first growths, he sees investment potential as far less a motive for purchase than is often assumed. If anything, he suggests the trend is for more and more of the very best wines to be bought – and consumed – by private clients.

All of this may make comforting reading for Bordeaux proprietors, but there is, as ever, a significant caveat. The trend for each consecutive super-vintage to set for itself a new price bracket can only continue while demand in the international market remains buoyant for the very best vintages. And that, in turn, requires that those vintages do not become too regular an occurrence. Were 2006 to prove as great as 2005 (the early signs are very good, and in Bordeaux, vintages seem to come in pairs), then demand will be sorely tested. Yet, global warming notwithstanding, that remains unlikely. If 2006 does not mirror 2005, then those lucky enough to be allocated the best wines in this extraordinary vintage can sit back and watch the value of their acquisitions rise on the secondary market. We can but hope that one day, somewhere, someone will drink them.

Colin Hay is professor of political analysis at Birmingham University and is preparing a thesis on the political economy of Bordeaux.

How bordeaux 2005 fared outside europe by John Stimpfig

In the prolonged phoney war that preceded the release of the 2005 en primeur prices for Bordeaux’s finest and rarest, many observers assumed that the American market would be buying the top wines with a vengeance. ‘Believe me, it will be a very big campaign in the US,’ predicted New York wine merchant Peter Morrell.

Traditionally, the massive US market has tended to buy the best wines in the best vintages, so Morrell was by no means alone in thinking that the blue-chip châteaux would be sure-fire sell-outs. Yet reports during the summer suggest that it didn’t quite work out that way after some château proprietors hiked their prices by 350% on their 2004s.

Todd Hess at Sam’s in Chicago, told Decanter.com that many regular customers were shocked at the first growths’ opening prices, refused to buy them and expected to sit out the vintage. Hess wasn’t alone. Several retailers said many of their usual buyers were ‘outraged’ by the exorbitant pricing levels and were shopping further down the food chain at the $600–800 level, rather than paying $8,000 for a case for Yquem or Margaux.

A weak dollar hasn’t helped. Acker Merrill & Condit’s John Kapon was ‘very cautious’ in his purchasing of the first growths. He sold what he bought, but added that ‘demand was significantly less than in years past’.

In contrast, Jeff Zacharia at Zachy’s says only a very few (mostly older) customers passed on their 2005 allocations of the best châteaux. But most were eagerly snapped up by younger, newer customers, either looking for bigger allocations, or who only started buying recently. ‘Perhaps the prices were not so much of a shock to them,’ he suggests.

As to their motivations, Zacharia says: ‘Most of our buyers are buying with the intention of drinking. But they certainly like the comfort that these wines are re-sellable.’

Similarly, Sherry-Lehmann’s Chris Adams has been rampantly bullish about how the vintage has sold for the famous Manhattan merchant. According to Evans, ‘Sherry-Lehmann has seen record-breaking sales across the board. This is mostly thanks to regular customers but also to around 30% of new, younger buyers. We’ve never seen anything like this level of customer interest for en primeur, including 2000.’

That said, almost every US merchant echoed the comment of Christian Navarro of Wally’s in Los Angeles who noted that this campaign, like no other, has separated the rich from the very rich.

In Asia though, it has been a somewhat different story, in so far as customers have bought (or attempted to buy) these expensive wines without demur. Watsons in Hong Kong and Vinum in Singapore have both had very successful campaigns, while Berry Bros’ Hong Kong office had a record-breaking year.

‘Things really started to move when Cos [d’Estrournel] came out at £1,140,’ says Nick Pegna, BBR’s MD in Hong Kong. ‘It was seen to be good value by our customers in Asia and we sold over 400 cases very quickly. Similarly, La Mondotte and Pavie sold surprisingly well here at £2,000 a case. I think it helped that Palmer and Angélus sold well at over £1,500 apiece, which set the expectation that the first growths would then break the £4,000 barrier. Consequently, when they did, we had no problems at all in selling them.’

According to UK négociant Mark Walford of Richards Walford, ‘there’s no doubt that Asia has bought more of the higher-priced wines and tranches that other markets have hesitated over,’ he says.

Clearly, this was a major gamble by Asian merchants, given the level of pricing and the fact that en primeur is a relatively recent innovation in much of the region. So far, the gamble appears to have paid off. Because of reduced allocations and the level of interest, Jeannette Paterson at Watsons sold the trophy wines in six-bottle cases to try to satisfy high demand from thirsty customers.

Pegna says: ‘The demand here is incredible. People want these wines, and not just a case or two. They want significant quantities of the big ticket labels and will pay almost any premium to secure them.’ In July, one Asian merchant was reported to be selling 50-case lots of first growths at up to £6,000 a case.

Without question, much of the new money being poured into the fine wine pot from Asia is coming from China (and, to a certain extent, Russia and India). Many regard China as the next big long-term growth area for fine wine. China is not only the third largest luxury market in the world now, it also has no fewer than 300,000 millionaires within its borders.

Clearly therefore, a growing number of China’s astonishingly rich elite have already started to flex their financial muscle by buying heavily into Bordeaux 2005. Primarily, they have done so to drink – but also to collect as ‘must-have’ status symbols. According to Vinum’s Lee Crymble, ‘lifestyles here are all about branded luxury living. So once you have the houses, cars and watches, the great wine cellar is the natural next step.’ In addition, there’s no doubt that some buyers have also bought first growths to invest and speculate.

What is interesting is that the vast majority of these super-rich buyers are fine wine neophytes. No doubt this explains the increasing interest of the commercially minded Bordelais, who are inevitably turning their attention eastwards. It was no coincidence that more than 70 Bordeaux owners attended this year’s Vinexpo exhibition in Hong Kong – despite, or perhaps because of the fact that it occurred right in the middle of the 2005 campaign. Proprietors are travelling much more widely in the region – as well as more frequently and for longer periods.

According to Christian Seely of AXA Millésimes, ‘America still remains the biggest market for the greatest wines. But Asia is the major market of the future. Some parts are already mature like Hong Kong and Singapore, while South Korea is developing solidly. But the big prize is China, and the changes that we have seen in the last few years already indicate there is a substantial population of astonishingly wealthy people who are just discovering great wine for the first time. I would put China in the position that the US was in about 20 years ago.’

Canon-La-Gaffelière’s Stephan von Neipperg was more direct: ‘Bordeaux is an export market. It has always gone where the money is.’ Based on the evidence of this year, it would seem the big money is increasingly to be found in Asia, as well as the US.

How the bestsellers compare...

2004 release 2005 release 2005 current release price

price (£) price (£) price (£) from 04 to 05

Margaux 895 4,000 4,904 347%

Ausone 1,450 6,372 8,833 339%

Lafite Rothschild 894 3,800 4,123 325%

Mouton Rothschild 896 3,380 3,592 277%

Léoville Las Cases 448 1,630 1,733 264%

Latour 1,150 4,000 5.231 248%

Cheval Blanc 1,275 4,400 4,908 245%

Le Pin 3,878 12,000 12,626 209%

L’Eglise Clinet 429 1,270 1,487 196%

Haut-Brion 896 2,542† 4,016 184%

Palmer 494 1,398 1,523 183%

Ducru Beaucaillou 368 985 1,019 168%

Cos d’Estournel 419 1,100 1,135 163%

Pavie 689 1,800 1,883 161%

Petrus 4,400* 11,000* 20,300 150%

La Mission Haut Brion 607 1,500 2,208 147%

Pavie Decesse 539 1,250 1,333 132%

Pichon Baron 319 720 738 126%

Montrose 298 623 659 109%

Léoville-Barton 238 495 683 108%

Rauzan-Ségla 241 495 525 105%

[Note: the 2004 and 2005 release prices are the best prices for which these wines were available on the UK market en primeur; the 2005 current market price data is from www.wine-searcher.com. * ? As released by Petrus’ sole agent in the UK, Corney & Barrow. † ? Only tiny quantities were released at this first tranche price].

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