As the recession bites and wine merchants start to feel the pinch, consumers are set to enjoy benefits of a buyer's market. Margaret Rand looks at the year's likely bargains.
Nurse, the screens! Forceps, please! Oxygen, swabs! We’ve got a full-blown recession here… And, unlike banking, there is no taxpayer-funded oxygen available for the wine trade. No transfusions, just a soothing glass of Syrah. The independent wine trade is being hit from all sides: a sinking pound, an antagonistic government and nervous customers.
If you sell £1,000 handbags you can plaster ‘50% off!!!’ all over your windows with a degree of impunity: your mark-up is such that halving prices for a couple of weeks doesn’t hurt. By contrast, most big, established, independent merchants take a margin of maybe 25%,
up to an occasional maximum of 40%.
Smaller merchants tend to take less, and the margin on a Bordeaux en primeur offer is around 10%, as it is on broking deals. Those figures are before you take into account the cost of financing stock or, in the case of en primeur, the cost of making the offer, which is considerable.
And if a merchant doesn’t sell its en primeur wines straight away, that 10% will not cover the cost of stockholding. So, should we be feeling sorry for wine merchants? Or should we just enjoy the price reductions that come our way as retailers strive to stay ultra-competitive?
And which regions and vintages will those bargains come from? Before we get too excited, it’s instructive to see things from the merchants’ perspective… The UK’s wine retail scene is not luxurious, but remains highly competitive.
Wine industry consultant Mike Paul says, ‘The wine trade has [actually] been in kind of semi-recession for years, with margins on the slide.’ So how will the independents
cope? The usual ways, is the answer: by being flexible and imaginative, by giving
better service, and by being leaner and fitter than their rivals.
On the plus side, Paul says that ‘family businesses are six times less worried about going under than normal businesses. Their cost base isn’t that high, and they have less debt and are better prepared for a recession. A lot of wine businesses are that kind.’
There are mixed messages coming from the trade. On the one hand we’re eating out
less, so sales to restaurants are down; on the other, we’re eating and entertaining more at
home. As Andrew Gordon of Private Cellar points out, ‘A bottle of Chablis premier cru
would set you back £44-45 in a restaurant. The same bottle is £12-15 retail. That’s exactly the sort of thing we were selling tonnes of at Christmas.’
Exchange rates
For Gordon, ‘The euro is potentially a bigger problem than the market. But the euro will probably become less of a problem before the market sorts itself out.’ Most merchants reckon the euro will have to come down, though that doesn’t help merchants buying wine now; and nobody expects it to go back to €1.40 to the £1.
If you bought your euros a few months ago, you’re spared the most recent falls, but
it’s still true that your Burgundy offer this winter looks considerably more expensive
than your offer of a year ago; and the 2007s, while often very nice, are not amazing.
‘Normally we offer 120-130 different Burgundies,’ says Gordon, ‘but this year we offered 40.’ ‘Last year we did an offer when the pound was worth €1.40,’ adds Zubir Mohammed of Raeburn Fine Wines.
‘It’s nearly 1:1 this year, and that’s a huge percentage difference. Prices are stable, but they’re up 25-30% because of exchange rates. And nobody wants to jack up prices in a difficult market. We’ve reduced our margins; most top merchants have.’
By cutting their Burgundy offer, the merchants are aware that they risk losing their allocation for next year: with quantities so small in Burgundy it’s a difficult balance to get right. Mohammed says he’ll take that risk with some producers who have put their prices up and are very good but not dissimilar to others.
He reckons that ‘the cheaper wines will sell, the excellent wines will sell, and the middle wines will be the problem – the village wines, the premiers crus. A lot of people are trying to increase their allocations of the top wines, but lesser premiers crus can be overpriced, and that’s compounded by exchange rates.’
The Bordeaux en primeur campaign is a different matter. Many merchants see little point in the Bordelais having a campaign at all this year unless they’re prepared to drop their prices by 40–60%, and the top growths will not want to do that.
En primeur in a good year does provide an injection of cash into a wine merchant’s coffers, even though it would be a rare merchant who relied on that. ‘A very good en primeur year is a very good year for us,’ says Gordon, ‘but we started out assuming that no one would want to buy en primeur from us, and we still try hard to run on a “no en primeur” assumption.This year will be a good test.’
Bargain hunting
So, if the latest vintages of Bordeaux and Burgundy are out, what bargains will merchants be offering us this year? In the UK, exchange rates are a problem wherever you look: South American wines, for example, are bought in dollars. A year ago the dollar was two to the pound, now that’s around $1.38.
But across the board, ‘the right sort of thing is selling,’ says James Price of Genesis. It’s just that ‘people need an excuse to buy.’ ‘People are looking at every proposition that slides across the desk,’ agrees Gordon:
‘Can I justify that? Do I want it?’ Some merchants are backing the Rhône. Genesis’ offer of Rhône 2007 was ‘a huge success’, says Price, and Alun Griffiths MW of Berry Bros is even more bullish: ‘I think it’s one of the best years in living memory. We’ve doubled our purchases, and we’re going to suggest that it’s the one to put your money into this year.’
And you can be sure that merchants offering Rhône, or anything else, will be keen to sell. ‘What people want to avoid right now is holding stock,’ says Griffiths. Older stock is where we should be looking for our wine purchases this year.
Despite Griffiths’ warning, wine merchants often have a lot of stock, matured in their
cellars; they have to, to be able to offer the sort of wines that set them apart from the
High Street. We should take advantage: these wines were bought at better exchange rates and often at lower prices; they have been ageing at someone else’s expense.
They’re now looking rather good value. ‘We’re well stocked with good vintages,’ says Mohammed. ‘The 2006 Burgundies are underrated; some are better than 2005. And they’re looking quite good value. The 2004s are starting to drink beautifully, and they’re better than people gave them credit for.
In Bordeaux we have 2001, 2002, 2003 and 2004, and they’re looking good value.
And 1999 and 1998 are even cheaper.’ Some merchants, like Berry Bros, happily admit that they’re overstocked. ‘In 2005 we bought lots, and continued to buy for three years, and then the market dropped. We’ve got more stock than we want; we were caught a bit by the
suddenness of it all,’ says Griffiths.
‘We’re trying not to buy at the moment. We have a few hundred cases of first growths, and we’ve dropped our margins to move them, because we don’t think that prices are likely to rise in the short term.’
If you bought 2005s from Berrys and now want to get rid of them, yes, they will buy them back – ‘every day we do a buy-back from somebody’ – but along with every other merchant, their advice would be to hang on to it if you can.
‘If you’re a buyer, buy in six months’ time,’ says Gordon, ‘but if you’re a seller, you should have sold six months ago.’ ‘There’ll be a lot of people trying to get out of Bordeaux 2005s,’ he adds. ‘There have been for a few months.’ Says Price:
‘I’m not buying top-end Bordeaux for stock. I’ll only buy if someone wants it.’ If anyone wants to buy blue-chip wines for the long term, then this summer could be the time to do it (see p37). And if you want to buy wines for drinking, then this year is already offering some very good deals.
The New Year bin-end sales had some good offers: lots of wines at half-price at Justerini & Brooks, with some lovely Italians and Germans, and some attractive prices at Berry Bros, too. Says Griffiths, ‘Our wholesale arm, Fields, Morris & Verdin, has seen a slowdown in
some areas, especially New World wine, Australia and California.
Our January sale was quite heavy with those, and we still have some.’ Berry Bros promises ‘a continuous sale’ on its website in 2009. More generally, Griffiths sees whites below the top level as being good buys this summer: ‘Retailers don’t want to keep 2007s which need drinking, so they’ll be getting rid of Loires, New Zealand Sauvignon Blanc, Mâcon – all those that need drinking.’ And reds?
‘Merchants might have bought heavily in the Rhône and Languedoc, and there might be some bargains there.’ Champagne, too. ‘There’s been a dramatic slowdown in Champagne; prices of the grands marques have increased steeply, and there’s been resistance. There could be some deals.’
This is just as well, looking ahead: ‘I was in Champagne in November, and growers were putting in for a 5% rise. The houses need grapes and wines, so they’ll probably have to pay. That means more price rises in the pipeline.’ It’s a view reiterated by Steven Spurrier
in his investigation opposite: we should make hay while the sun shines. More price rises are what most see on the horizon.
‘Unless something dramatic happens to the pound and euro, the price of wine will rise inexorably,’ says Charles Lea of Lea & Sandeman. ‘Wine that is now in stock was
bought in the autumn, or a year ago. I can’t see any reason why wine should be
any cheaper than it is now. It really hasn’t gone up very much, and a lot of price rises that have happened haven’t necessarily got through to the shelf.
Wine will go up to a point that is really quite shocking.’ Oh dear. Prepare for one last mad summer fling.
With Bordeaux’s en primeur tastings just around the corner, the battle lines have been drawn. As ever, the merchants are talking down prices, while the châteaux are talking up quality. The problem is that both sides have a point. Indeed, UK merchants feel they have several – major currency problems, a market in crisis, masses of unsold 2007s, an indifferent 2008.
Meanwhile, several much better back vintages have dropped dramatically in price, providing less of an incentive to buy the un-bottled ’08s – unless they are priced at levels so low that cash-strapped customers really will be getting a bargain.
As ever, the view from Bordeaux is sobering. For months, several proprietors have been suggesting the ’08s are pretty good, including Pichon-Longueville’s Christian Seely. ‘I think 2008 will be an agreeable surprise. Unfortunately, a lot of people have already decided that it is not very good, which in my view is just plain wrong. You really do have to taste it first.’
2008 was a small crop and expensive to produce, and it is hardly the fault of the châteaux that there is a recession or that the euro is so strong. Perhaps even more importantly, some châteaux further down the pecking order simply can’t afford to cut prices. One is Jean-Christophe Mau, a négociant who also owns Château Preuillac in the Médoc and Château Brown in the Graves.
‘We have invested heavily to make better wine and our cost price this year was much higher. That makes it very difficult to reduce our prices when we already sell at €10 and our cost is €9.30. It’s different for the first growths who are selling for €200 a bottle.’
Then there’s the issue of the négoces. If the top châteaux do take the unlikely step of dramatically reducing the prices of their ’08s, that would make the unsold, unloved ’07s look even more expensive than they do now. And that in turn would put considerable financial pressure on the négociants who are sitting on them.
‘The last thing anyone wants is to see négoces go under,’ says Simon Staples of Berry Bros. ‘That could rip apart the whole fabric of en primeur.’ So where does it leave merchants if prices don’t come down significantly?
The almost inevitable answer is that we will see a repeat performance of last year, with many merchants maintaining their key allocations but walking away from anything they are not confident of selling to their private customers.
Of course, second-guessing what the Bordelais will do is asking for trouble. But the smart money is predicting that we will see a very small campaign this year, with as few as 20 participating châteaux. Adam Brett-Smith of Corney & Barrow thinks the châteaux ‘will offer a much smaller amount of wine at a sufficiently attractive price to kick-start interest.
Then I suspect they will release second or third tranches at significantly higher prices. That way, they would not only test the market, they also gain plaudits for being pragmatic and listening to customers.’ David Wainwright of VinCapital also anticipates a strict selection. ‘By doing that, the châteaux will reduce the volume of their grand vin while increasing its quality, thereby justifying some kind of premium.
Then they can sell their second wines at more affordable prices.’ The majority view is the top, cash-rich estates will reduce their prices a fraction to preserve their dignity but keep most of the stock in their cellars. That would also have the advantage of not putting too
much pressure on the négoces.
The only downside is that it would not satisfy the UK or other international merchants, many of whom have been imploring the Bordelais to drop their prices significantly down to 2004 levels. ‘If we see first growths at £950 a case and the seconds at under £300, I think we would sell a lot of wine,’ says Alex Marton of Bibendum. But he’s not holding his breath.
Written by Margaret Rand
