2005 was exceptional, and prices trebled. 2006 was average, yet prices remained sky-high. Now for 2007 – a difficult, rain-hit year, apparently saved by September. How high will the Bordelais dare go? NICHOLAS FAITH looks at how recent financial problems may affect their pricing strategies.
Before looking at 2007, we must look at the past. The 1973 oil crisis hit the Bordeaux market only the following spring, though its immediate effects and lingering after-shocks lasted until the arrival of the 1982 vintage. Happily, the global financial and economic problems that have been steadily unfolding since last September are unlikely to result in a similar long-term horror, for one simple reason. While the oil crisis led to the transfer of massive amounts of money into the hands of teetotal Arabs, this time the money has gone mostly to the Far East, where people are as fond of their liquor as Europeans. This decade’s wine boom was set alight by the arrival of the 2005 vintage on the market, attracting hordes of newcomers from the City, ‘blowing their bonuses’ in the words of one observer. Today a few, especially in the US, are selling, sometimes in 100-case lots, tempted by profits greatly enhanced by the fall of the dollar. Despite the onrush of sellers, prices have, in general, remained steady – the Liv-ex index has slipped a mere 5% in the past few months after a vertiginous rise over the previous couple of years which had doubled, or in some cases tripled, prices.
Auction levels appear to be stable, for the moment anyway. Fortunately, the collapse of the once mighty dollar and Wall Street’s problems are largely irrelevant to la Place de Bordeaux – and indeed to the market in London, where most of the action takes place – for the simple reason that serious buyers may have to pay in euros, but will have hedged their bets against the dollar to ensure they are not overpaying when their wine is delivered.
As for the 2007 primeurs, says James Miles of Liv-ex, ‘they are simply going to be a non-event’, in terms of their effect on the market. For a start the quantities of these decent but unremarkable wines will be minimal, with yields down to a mere 34hl/ha at Pichon Baron, for example, volume further reduced by the now-habitual severity of the selection process. By contrast, in the mid-1980s yields were comfortably between 60 and 65hl/ha, and a high proportion of that went into the grand vin. Today it is usually half or even less – it was down to a mere 27% at Lafite in 1997. Demand will remain high, but the sellers don’t need to sell – the cellars of even unremarkable châteaux are an echoing void, so they are in no hurry, and are unlikely to reduce their prices much, if at all.
Buyers of the first growths and the ‘boutique’ wines like Pétrus, Ausone and Le Pin are not going to be affected by any recession short of worldwide economic collapse. ‘No,’ says Miles, ‘the real action in 2008 will be over the 2005s as they are delivered.’ Price-wise, as Bill Blatch told Margaret Rand (Decanter, November 2007), ‘the proprietors saw 2005 as a new benchmark’ – they got away with retaining these higher prices with the 2006 vintage and see no reason to reverse the process with 2007. For their part, the industrialists who recently bought expensive major estates need a return on their investment, so are equally unlikely to shave their prices. For, as one leading London merchant puts it: ‘Bordeaux invariably goes in for short-term thinking.’ Moreover, the new buyers, especially those from China, are not generally interested in buying en primeur, only to drink. As Gary Boom, a partner in the Vintage Wine Fund, put it: ‘all of the 2000 vintage downwards are going out there to be drunk.’
With demand outstripping supply, and the secondary market having provided huge returns for en primeur buyers, château owners are starting to think their wines are underpriced, and are keen to take more of the pie themselves. Starting with 2007. The effect of the Asian newcomers cannot be exaggerated: ‘They buy huge amounts,’ says Stephen Browett of Farr Vintners, ‘Thirty percent of all our sales come from Hong Kong.’ For, even if buyers of the truly ‘finest and rarest’ are interested only in a handful of wines (those unlikely to be affected by any general downturn), the soaring prices of these wines has still had its influence, even in Burgundy, where prices – except for such delicacies as those from the DRC – had lagged. At the Hospices de Beaune in mid-November the prices of red wines rose a staggering 38%, following the whites which had jumped by 63% in 2006.
Demand was boosted by the way Christie’s, which is now responsible for the sale, managed to bring in some of its own private buyers. The change in buying power has affected the previously unchallenged influence of Robert Parker – and, even more so, Wine Spectator, which only influences the US market. Observers have been astonished by the effect of the name of Rothschild on the Chinese, not only on the price of Lafite, whose older vintages are now comfortably the most expensive of the first growths, but also of its second wine, Carruades de Lafite and, more recently, Mouton, whose price had lagged behind the other first growths. All the signs are, then, that whatever the quality, classed growth Bordeaux 2007 will not be cheap.
Unfortunately for the long-term health of the market, the boom has also attracted institutional investors who now own up to £100 million of wine. In theory they are buying for the long term, but sooner rather than later they could behave like the major drinks firms who bought so heavily in the early 1970s, then dumped huge stocks on a fragile market in 1975. Only this time it won’t be mere house clearance but the forced sales already evident in the stock and property markets. Given the possible problems, the wine trade, like so many in the financial community, could still be in a state of denial. Nevertheless at least two people enjoyed an expensive Christmas last year. They spent over £9,000 on two lots of five cases of Pommery dating back to the 1940s and 1950s at Christie’s in early December. Or is this an example of the suggestion made by the French ambassador to Washington in 1930: ‘between the crisis and the catastrophe there is always time for a glass of Champagne’