Bordeaux “bloodbath” coming after “artificial” demand: AFP
Bordeaux prices may be coming down sharply. But then will they be going up?
Diageo Chateaux & Estates was a major buyer of Bordeaux futures for the better part of the last three decades. In fact, according to one California wholesaler quoted in an AFP article, their buying (along with Costco), created “an artificial level of implied demand from the US — the wine estates set their prices based on this perceived demand.”
But things changed. The wines of the rainy 2007 vintage received weak reviews on the whole and demand slackened for pre-buying during the recession. Diageo Chateaux & Estates had committed to the vintage as they had in the past. Now, they are left with a large inventory of wine that needs to be significantly discounted as it arrives in the US. According to the AFP story, they are dumping the 2007s and previous vintages on the US market to such an extent that trucks are even coming from Mexico to scoop up bargains!
While lower prices sounds like good news, the AFP story neglects the question of future vintages. The low prices of the 2007s may be fleeting because Diageo has now decided to get out of the Bordeaux futures business. As of the 2008 vintage, US retailers have had to pursue different, smaller scale strategies for buying Bordeaux wines as futures to the extent that there has been demand. Now the 2009 vintage has gotten huge advance praise and financial markets have rallied, replenishing the bank accounts of some Bordeaux consumers. So while the demand side for future vintages may be coming back, the economies of scale that DC&E had on the supply side have been removed making a tempting conclusion that prices will move higher.
However, if the Diageo demand was “artificial” as witnessed by the current dumping, the prices could remain lower for several years. And with so many lavishly praised recent vintages already available in the market, Bordeaux buyers may think twice about the need to buy futures on unbottled wine. Indeed, American buyers are “skeptical” according to a recent article on Dectanter.com.
For any retailers out there, what is your recent experience with Bordeaux futures and how will Diageo’s bowing out affect the way you do business? And for consumers, is it “game over” or “game on” for Bordeaux futures?
On November 9th, 2009 at 9:46 am ,jim boyce wrote:
Well, one maker seems safe, thanks to the China effect РLafite. At the Acker Merrall & Condit auction in Hong Kong last Saturday, one case of 1982 Ch̢teau Lafite Rothschild sold at USD56000.
Cheers, J. Boyce
On November 9th, 2009 at 12:43 pm ,Greg wrote:
This is excellent news. I don’t care if the wine say Bordeaux, St. Emilion, Pomerol or Margaux. Inferior wine is inferior wine. Diageo gets what it deserves for speculating on a below average vintage.
Maybe this will keep prices on 2008 and 2009 sensible so non-speculators, on both the importer and customer level, will be able to participate. It is really not necessary to charge more than $25 or $35 per bottle given economies of scale for most wines (10k to 100k cases made by a given producer). I mean that in the sense producer and importer make a profit, and consumer doesn’t over-pay. If mid-level wines will still support $50-$100 prices, then so be it.
On November 9th, 2009 at 12:59 pm ,AC wrote:
The 2006’s still need to find a home and there are reports that the warehouses on the east coast are full and waiting to find a home.
On November 9th, 2009 at 8:42 pm ,ben wrote:
We are hoping to see some action in price drops at the top level as well; hopefully a lot of 05,06, 08, and 09 will be priced well and we can pass a the prices on for our customers!
On November 10th, 2009 at 6:11 am ,Chris Robinson wrote:
Are you guys kidding? The 2009’s will be high priced and the super seconds and primeur wines outrageously priced. Every one I trust – and these are people who have seen the viticulture – swear this will be one of the vintages of all time. Don’t live in high hopes of anything less than a rapacious Bordeaux trade.
On November 14th, 2009 at 10:40 am ,gary wrote:
As far as I’m concerned it has been “Game off” since the 2005 vintage with respect to futures. I will say that because of the 05 vintage quality there are many great drinking Bdx Superior etc… available for under $20 or even $15 dollars.
It is clear that the price decreases in 2008 were meant to “find a floor” for Bdx. Even these prices IMO were too high and would have needed to be at 2002 prices or below to interest me.
I suspect that 2009 will be very expensive. With the exception of the high flyers I don’t think it likely that there will be a lot of interest in the US and if American consumers are smart they will stay away and let them sell to China. If 2009 is that good then there will be some terrific inexpensive wines on the market after release again in the $10-20 or even $25 range.
My advice—stay away
On November 18th, 2009 at 4:34 pm ,Suzanne Mustacich wrote:
I think it’s going to be an interesting 2009 futures campaign. I’m the AFP journalist who wrote the story on Diageo dumping their wine on the market. I can tell you that the news sent a shockwave through Bordeaux. (I’m wondering if I won’t be crossed off a few invitation lists…)
Bordeaux – the merchants, the brokers and a handful of chateaux – is doing what it can to stabilize the market.
I don’t think Bordeaux is ready to abandon America, certainly not for Asia. I do think we’re experiencing a shift in how Bordeaux is sold in America.
And having visited many vineyards throughout the growing season and at harvest, I can attest to the incredible quality of the vintage. There will be some great buys among the ‘petits chateaux’ producers.
On March 16th, 2010 at 12:03 pm ,Baboons, biting hands, Bordeaux disarray, sommeliers – sipped and spit | Dr Vino's wine blog wrote:
[…] are looking for a home, including the unloved 2007s. One buyer predicts a “bloodbath” (again); Bloomberg cites “a consensus” among retailers that the deals will last about six to […]
On July 29th, 2011 at 2:05 pm ,End of good times for Bordeaux? | BKWine Magazine wrote:
[…] Dan Berger, writing in the Napa Valley Register, thinks it may be the start of a crisis for Bordeaux , others don’t agree, e.g. Tyler Colman (Dr Vino) is more sanguine and does not seem to think it’s a big issue. […]
On July 29th, 2011 at 2:08 pm ,Dråpslag för Bordeaux-marknaden? | BKWine Magazine wrote:
[…] tror att det kan vara början pÃ¥ en kris för Bordeaux, medan t.ex. Tyler Colman (Dr Vino) inte verkar se det som nÃ¥got särskilt dramatiskt. Man kan inte lÃ¥ta bli att undra vad det kommer att ha för inverkan pÃ¥ den snabbt närmande […]
On February 19th, 2013 at 2:32 pm ,Tom Kruse wrote:
Gentlepeople,
I think we have reached a point in the United States and whatever our share of the market is such that the newer generation of wine drinkers have little to no knowledge of wines let alone good French wine. There is a proliferation of brands that has essentially made it impossible for these “opposable thumbed” tweeterst o keep track of. Information is at an overload level and will continue that way. Literally too many wineries and no brand recognition let alone loyalty.