Wine Market Struggles to Adjust in New Era(1)
As elite critics and merchants from around the globe descend on the city of Bordeaux this week to sample the 2008 vintage of the world¡¯s finest wines, that question will dog them.
The ultimate connoisseurs have gathered every spring since the early 1970s for the tastings, known as the ¡°campagne primeur,¡± or futures campaign. But never have they done it in the middle of so deep a recession, after so frothy a market. For that reason, this week¡¯s tastings are likely to be an unusually sober affair.
Just as the go-go years of Wall Street¡¯s inflated salaries and Main Street¡¯s cheap cash created a bubble in real estate, stocks and other assets, they produced a wine bubble too.
The en primeur, or wine futures, system works to the advantage of the wine-producing châteaux, providing them with cash for part of their product while it is still in the barrel; investors and consumers get the chance to buy wine at prices that have the potential to rise substantially.
Prices for futures had long varied widely according to the quality of the vintage. But that seemed to change after an exceptional 2005 sent prices spiraling upward. The vintages of 2006 and 2007 were merely average, but prices did not fall, kept aloft by a surplus of nouveau riche big spenders.
Now many of the speculators who drove prices to extraordinary levels have disappeared, or turned from buyers to sellers as they try to raise cash to cover their overleveraged bets. And the bankers and traders who thought nothing of blowing hundreds of dollars on a bottle are now worrying about losing their bonuses, if not their jobs.
As a result, some overseas buyers have decided to skip the tastings this year, complaining that top châteaux will not accept that in a market this weak, prices must fall. Some of the smaller merchants whose livelihoods depend on selling the wine, including some of the Bordeaux middlemen known as n¨¦gociants, are said to be at risk of failing.
Stephen J. Browett, director of Farr Vintners, an up-market British wine merchant, said he would not even be sending a team to Bordeaux this week because he did not expect to be able to sell the new wine at a profit, unless the wineries are prepared to accept substantial price cuts.
¡°I wouldn¡¯t call it a boycott, precisely,¡± he said, ¡°but unless they give us an indication that they¡¯re going to put the price down, there¡¯s not much point in us sending our team down for a week.¡±
Simon Staples, director of fine wine sales at Berry Bros. & Rudd in Hampshire, England, said the gap between the pricing expectations held by wine merchants and the châteaux over what is expected to be a decent, though not great, vintage was the widest he had seen in two decades.
The top châteaux are hoping to cut prices by 15 percent from the 2007 en primeur to show good faith, he added, ¡°but cutting the price by 50 percent to 60 percent is the only way it¡¯s going to work.¡±
The problem has been particularly acute for British wine merchants because the pound has fallen precipitously against the euro, and British buyers can account for up to a third of the market. Mr. Staples said the pound had fallen about 15 percent against the euro in the last 12 months, so ¡°even a 15 percent price cut will only get us back to last year¡¯s level,¡± he said.
Prices for the best wines from around the world rose in tandem with the financial bubble, with both institutional fund managers and home-based Internet traders getting into the act. The London International Vintners Exchange¡¯s Liv-ex 100 index, which tracks trading in 100 fine wines, mostly red Bordeaux, nearly tripled in dollar terms between February 2005 and August 2008. The index has lost about 43 percent of its value since then.
Mr. Staples pointed to the example of Château-Lafite Rothschild, a first-growth Bordeaux, which soared from £675, or $955, for a 12-bottle case in the 2002 futures to £4,000 a case for 2005 ¡ª which he called ¡°the best vintage I¡¯ve ever tasted.¡± But despite merely average years subsequently, the price only fell back to £3,500 in 2006 and £2,800 in 2007. He estimated it cost the château €10, or $13, to make a bottle of the wine.
Both Christie¡¯s and Sotheby¡¯s, the auction houses, say sales continue to be strong at their auctions, which typically feature excellent bottles in their primes.
