MARKET REPORT pink pages You do not have to be a follower of the wine market to be aware of the falls in Bordeaux prices since the peak of June 2011. According to Liv-ex data in the three years since the 2011 peak, Bordeaux s First Growths have retreated 40%, while Burgundy has climbed 10%, Champagne and Italy 11% and the ROW 16% (Rhone is down 3%). Put another way, top Burgundy has outperformed top Bordeaux by a staggering 50% since the market peaked. However the most asked question today is where is the bottom and when will the market turn? To look at this question it requires breaking the market into two sections; the drinkers and the investors.
the drinkers The fine wine market began to rise significantly in or around June 2007 (before Hong Kong removed duty and tax on wine in February 2008) at which point fine wine buyers were willing to pay around 180 to 230 per bottle for a drinking First growth, a price that for many is justifiable to drink some of the best wines in the world. Taking current Ch. Haut-Brion pricing as an example vs that in 2007 (for comparable drinking vintages) makes for interesting reading. Haut-Brion 2001, a 94 point rated wine by Robert Parker, and one that is drinking beautifully now can be bought today for 200/bottle (IB) ( 2,400/cs). This is cheaper than 1995 Haut- Brion (96 Points) was in 2007 at 220/bottle (IB) ( 2,640/cs) and the same price as 1996 Haut-Brion was in 2007 (92 points). The last trade on Liv-ex for 1996 Haut Brion was at 2,634 on 4 July 2014. Interestingly Opus One, the Californian joint venture between Mouton Rothschild and Mondavi, is trading at the same price as Haut-Brion in parallel vintages. The difference is Opus One sells without too much resistance, Haut-Brion less so. Below we have compared the prices of three equivalent vintage the 1995 which was starting to drink well in 2007 and the 2001 and 2004 which are vintages of similar quality and which are now coming into their drinking window. (All prices are IB Under Bond and accurate at time of writing, July 2014). First Growths Vintage June 2007 Peak Value Today Ch. Margaux 1995 3,200 4,800 3,489 2001 2,100 4,150 3,000 2004 2,200 4,100 2,750 Ch. Haut-Brion 1995 2,500 4,874 2,850 2001 1,550 3,900 2,590 2004 1,600 3,700 2,500 Ch. Latour 1995 3,800 5,480 3,900 2001 3,000 4,900 3,450 2004 3,000 4,800 3,300 Ch. Mouton and Ch. Lafite Rothschild are the two firsts that are still trading considerably higher than they were in June 2007, however they have fallen from far greater heights. Ch. Mouton Rothschild 1995 2,400 4,447 3,100 2001 1,320 3,750 2,700 2004 1,450 3,850 2,600 Ch. Lafite Rothschild 1995 3,650 9,200 5,350 2001 2,450 8,500 4,850 2004 2,950 8,400 4,800
the drinkers Second-Fifth Growths Vintage June 2007 Peak Value Today Ch. Grand-Puy-Lacoste 1995 630 1,127 850 2001 330 556 440 2004 280 388 340 2006 335 380 348 Ch. Montrose 1995 600 1,134 860 2001 395 750 645 2004 480 620 520 Ch. Lynch-Bages 1995 862 1,280 1,100 2001 540 930 850 2004 480 850 780 Ch. Leoville Barton 1995 600 830 700 2001 430 625 535 2004 425 520 480 Ducru Beaucaillou 1995 895 1,498 1,217 2001 420 940 740 2004 398 950 850
the drinkers Why have we seen the falls? There is not one single reason, but more like a multitude of smaller factors which explain the decline in prices. Demand Firstly a correction was inevitable, by summer 2011 a bubble had inflated in the Bordeaux market. 2008 Ch. Lafite Rothschild at 14,500 was always a crazy price based more on demand for a label rather than the quality of the product, indeed Carruades de Lafite 2008 at over 4,000 per case was perhaps crazier still. From this point it was a race to the bottom, compounded by the increased amount of players in the market scrabbling around to try and keep heads above water. Global economy The weaker global economy had little effect on the overall wine market during 2008-2011, mainly thanks to the growth in demand from Asia. Wine has always been a want rather than a need, and the notion of investment in wine is a relatively new thing, originally it was buy two cases, sell one when at maturity and drink the other for free. Asia coming into the market in 2007/2008 changed this view, and with it put prices to a level where people could no longer justify drinking some fine wines. That sentiment remains with the market today even though in many instances it may no longer be true. China Government change Chinese government crackdown on gifting has also been something of note at one point it has been said that 70% of Lafite heading to China was intended for gifting to officials. Fakes Fake wines, particularly in China, has made provenance key these days. It has also been a major factor in the drop in price in Lafite and its siblings, with confidence in the brand hurting from many imitations being produced. Lack of belief in the market and En-Primeur Since the 2009/10 Bordeaux En-primeur campaigns, prices have been too high. This has resulted in a lack of faith in the system and further fuel to the fire in knocking wine buyers demand. Will En-primeur ever return to a level that represents value? It remains to be seen, probably not to 2008 prices one would think but what is sure is there are drinking vintages available across the 5th to 1st growth level that do represent value to the consumer.
investment Many of the same price corrections in drinking wines apply to investment wines, most (but not all) have fallen, some considerably. Examples are as follows: First Growths Vintage June 2007 Peak Value Today RP Ch. Haut-Brion 1989 8,887 14,500 10,850 100 1998 2,500 4,650 2,900 96 2000 4,700 7,300 5,000 99 2005 5,600 8,800 4,250 98 Ch. Margaux 1990 8,700 9,750 6,800 100 1996 5,610 7,000 4,100 99 2000 7,400 9,500 6,150 100 2005 6,400 8,000 5,100 98+ 2009 8,500 Release Price 8,950 5,150 99 Ch. Latour 1982 13,800 20,000 16,500 100 1996 5,332 8,000 5,140 99 2000 7,200 11,950 7,400 98 2005 7,150 9,700 6,150 96 2009 11,000 Release Price 9,700 6,150 100 Ch. Mouton Rothschild 1998 2,000 4,500 3,200 98 2006 3,400 Release Price 5,800 3,350 96 2009 7,800 Release Price 7,800 4,750 99+ Another wine of note is Petrus 2005 (96+ RP) 33,500 top - 24,200 now (should the Parker rating improve we would expect so will the price).
investment Others Non Firsts Vintage June 2007 Peak Value Today RP Ch. Grand-Puy-Lacoste 2005 650 720 650 95 2009 540 Release Price 565 510 95 Ch. Lynch-Bages 2005 600 1,150 990 94+ 2009 845 Release Price 1,300 980 98 Ducru Beaucaillou 2005 1,391 1,600 1,450 97 Cos d Estournel 2005 1,120 1,750 1,200 98 Montrose 2010 (99 RP) is also worth noting with a peak of 1,550 and now trading at 1,370. Comparable vintages are valued as follows 2003 (97+ RP) 1,795 top - 1,416 now; 1990 (100 RP) 5,400 top - 5,200 now.
investment Lafite huge falls but a tarnished brand? Lafite prices are the biggest fallers, as documented above. 2003 down from 13,500 to 6000 today; 2005 down from 12,500 to 6,250; 2000 down from 23,200 to 12,000 and 1986 down from 18,000 to 8,800 today. Will we see prices rise again? It would be a betting man with nerves of steel, but Lafite can make some of the best wines in the world so it could be a shrewd move. Bucking the trend is Mouton 2000 (96+ Points) - 5,800 June 2007-10,700 now, in fact charting Mouton 2000 vs FTSE 100 and Gold over the last 5 years you can see the Mouton out performs quite considerably. Where it can go from here is difficult to answer, the reasons for the rise are seemingly much like that of Lafite 2008, the bottle being a special design to mark the millennium. However unlike Lafite it has not suffered the huge falls. Admittedly it dropped from its high of 10,950 in June 2011 but rallied to surpass this and traded at 11,200 in December last year before steadying out at where we see it today. Given this continued demand, it s 96+ rating and the unusual bottle it would not be surprising to see it rise further, particularly if it is up scored in the future.
investment Another example of a Bordeaux estate gaining interest with the market would be l Eglise Clinet. Denis Durantou has been making wonderful wine (across his range) for many years, and it seems the market reflects this. With an annual production of only 1,500 cases (12) for the grand vin, there is not much to go around. This is reflected in the price with the 2000 l Eglise Clinet having made a 71% gain over the last 5yrs (the FTSE 100 59%). So there are losers and a few winners in the market, but plenty of room for growth. If we think we are nearing/at the bottom then what is cheap and what to buy? Our view is stick to the best vintages. Wine as an investment is 5-10yrs minimum, why because there are many factors that influence rises; critic scores, availability (wine is drunk), provenance, maturity and exclusivity so over that period it is the best vintages that will perform over time. Simple demand and supply. Drinking vintages will rise as supply runs out but their longevity is shorter lived, a great vintage also has the ability to keep its demand even past the wines best. There is a market for rarity, and the best will always be more sought after. Vintages to look at are; 1947, 1961, 1982, 1990, 1996, 2000, 2005, 2009/10. Selected others including the best wines from 1998, and some first growths from 2006, wines with great scores and market belief. Wines to look at? The first growth and top wines of Pomerol/ Saint Emillion will deliver the most potential gain, however diversification, as in all investment portfolios is wise. A spread of second to fifth growths is also a sensible decision. Our top buys currently would be Haut Brion 1998, Mouton 2006, Margaux 1996, 2000 & 2005 and Petrus 2005. Old wines perfect provenance. As touched upon above the notion of provenance has become very important these days. Having wines that you can prove as having perfect provenance is something we feel the market will pay a premium for, especially when conditions improve. Examples of this would be 1989 Haut Brion, 1982 Mouton, 1947 Cheval Blanc etc. Liv-ex Investables = 21.69% change from 30th June 2009 - Down from 76.34% in June 2011 = -7.92 from 2 years ago, thus presenting opportunity?
Champagne A note on Champagne (Burgundy report to follow separately). Champagne in good vintages from a select few houses is something any investor and indeed drinker should consider having amongst their collection. 2002, 1996, 1990, 1989 are the pick of the vintages with some exceptions in Cristal 2006, Taittinger 2004 amongst others being good buys. The reasons are simple, Champagne is drunk in volume with the audience wider than that of Fine wine as a whole. Think of the vast amounts of Dom Perignon drunk in nightclubs every week, they make a lot but it is consumed at a pace and the demand once mature is even greater. The Graph above shows Dom Perignon vintages against each other, yes they have not been immune from the falls but the relative value vs age is very interesting, 2002 was released at 800/12 rising to 1,050 today. In six years from here it is a good bet it will command as much if not more than 1996 does today.
summary Wine is certainly at a low, not the lows of pre 2006 but given the new players in the market (Chinese/Asian ) since 2007 is it reasonable to think it will ever return to that level? Looking at the data it is not a buy all situation, but then again that is rarely the case in any market and it is our job as merchants to steer clients in the right direction. As a drinker there are wines available on the market that really do represent value and not only at the first growth level. With the market levelling out and the huge falls seemingly at an end, the data does suggest now is the time to stock up on some great wines that will give pleasure to the drinker and at a price that can again be justified. As the investor the facts are plain to see, there are wines that look undervalued, Haut-Brion 1998 and Mouton 2006 stand out as do a number of 2005 1st growths but there are many more. The decision to be made is where will they go from here. Over a 5-10 year period they look a good investment and as mentioned in the main text that is the right time frame to be looking at. Approached in the correct way, taking into account provenance and buying from experienced merchants, the upside is certainly there. While it is never possible to call the bottom of the market there are lots of signs that we are nearing or at that point. We don t expect a spike like that of 2008 but a more healthy and sustainable growth which will be more in line with historic norms. We believe that perhaps now is the time to start buying. Markets are cyclical, and the wine market is no different, it will just take a few collectors, investors and drinkers to start the ball rolling again, those that have been sitting back and watching may now feel the time is right. It is worth noting at this point that Asia is still a big buyer of fine wine, less narrow than it once was in terms of wines bought but one that will consume a great deal of Bordeaux. Add to this a rather dormant market in America, which was once the biggest market for fine Bordeaux. Should America once again start to buy then we suddenly have a consumer base bigger than we have ever seen. Thus the challenge to the merchants and producers alike is to bring some faith back to the market at all levels. Should you wish to discuss anything in this report in more detail, please contact James, Chris or Michael: james@ christopher@ michael@