14 months ago we were raising money for Vintage Capital. The wine market, which had peaked in June 2011, was showing such signs of recovery that we were concerned VC was going to miss out on the initial surge in the market and that we would be buying in to a rising market. How wrong we were.
Since its peak in June 2011 the market has fallen 32% and some 12% since Vintage Capital bought its first cases of wine. The Liv-ex 100 is now below the level of June 2008.
There are many reasons, but primarily Bordeaux Chateaux owners overpricing the 2012s (a perfectly good vintage) ensured that the world’s enthusiasm for Bordeaux remained at an all-time low. At the same time the crackdown in “gifting” in China has resulted in sales of top end wines falling spectacularly. Furthermore there was misunderstanding of the Chinese market. Yes, they had been major buyers of Bordeaux, but consumption at the top end was never anywhere near what was thought. There are warehouses full of great Bordeaux that remain unsold and undrunk.
So where are we today? Looking at the Liv-ex graph and continued lack of demand from China it is easy to be pessimistic about the Bordeaux market. Anything but Bordeaux seems to be the mantra. Three unloved and unsold vintages, 2013, 2012 & 2011, at the Chateaux and at the Negociants are beginning to cause real concern in Bordeaux. There are large stocks of the great but overpriced 2009 & 2010 that Chateaux and Negociants held back hoping for a speculative profit as well as high levels of stock of 2008, 2007 and 2006.
However at the same time the world is getting richer and consumption of Bordeaux is growing in the US and Japan, in South America, a number of countries in the Far East and even Africa. Furthermore there is talk about India although the figures don’t as yet bear this out. It is as true as ever that the emerging rich middle classes want to drink great wines. Prices even of 1st Growths have fallen so far that customers can consider opening a bottle again. So one shouldn’t be too depressed about the Bordeaux market.
In our view it is splitting neatly in two. For the 2006 and younger vintages there is over supply of overpriced wines. Whilst for 2005s and older there is an increasing lack of supply and over the next few months we will be concentrating our buying on these older wines. I cannot say that we are at the bottom of the market but we are unquestionably very close for these older wines and, as supply becomes scarce, prices will start to rise. As to the price of younger Bordeaux I am not so optimistic. Prices of 2009 and 2010 notwithstanding the exceptional quality will fall further as Negociants in particular and Chateaux are forced to release stock to pay for unsold 2013, to pay off shareholders and family members, or pay for their recent hugely extravagant capital projects.
By contrast, the difficulty of the Bordeaux market has been balanced by continued enthusiasm for Burgundy. It must be remembered that Burgundy is a very small area, the whole of the Côte d’Or would fit into the Margaux appellation, and only 1% of the total production is Grand Cru and only 11% 1er Cru. Combine this with increasing demand from Hong Kong and Singapore, where they actually drink the wines, and very small recent vintages you have a strong and stable market. There are early signs of it over-heating, in particular DRC, but overall top Burgundy is still a safe bet. The lack of interest in Bordeaux has also encouraged relatively strong markets in Champagne, Italy and the Rhone.
The Bordeaux market has now been falling for 3 years something that it has never done before even in the bleak days of the 1970s. For investors in a strong position to take advantage of the low prices of Bordeaux on the market and we believe there is an opportunity over the next few months and particularly during the market lulls in August and September to start buying again.