Anson: What Brexit may mean for Bordeaux en primeur

Jane Anson looks ahead to the Bordeaux 2015 en primeur campaign and talks to trade experts about what impact the UK referendum on EU membership could have on pricing and consumer demand - in a market that has no shortage of Bordeaux wine.

Yes, it’s that time again… just under three weeks until the Bordeaux 2015 en primeur vintage is submitted to the annual en primeur microscope.

It’s actually pretty notable how little fanfare there has been in the lead up to the tastings so far, despite the vintage ticking all the right boxes in terms of weather conditions and quality potential. There’s no doubt that there is a quiet confidence in the wines (last week The Independent ran an article suggesting that 2015 will be a great year, ‘maybe one of the greatest ever’). But I guess even the most hardened chateau owner can read the ambivalence of international markets towards a system of selling that has seen few winners over the past five years.

What’s happening in the market?

The latest market figures from Bordeaux négociants, care of Eleanor Wine in February 2016, show that the 2013 vintage (the one that is hitting the market now, just as the 2015 en primeurs are to be tasted) is being offered at either at or below release price in 90% of cases. A full 63% has not budged in price either way, with 27% trading at below opening price and just 10% showing a rise (the best rise, with an impressive 74%, is Petit Mouton, and there is also a cheering 19% rise for the increasingly strong Chateau Carmes Haut-Brion). The percentage drops for the worst performers are not as miserable as you might think by the way – the worst drop is 7% for Pagodes Cos d’Estournel, but its release price was only 2% under that of 2012, clearly not enough for the vintage.

Even the better quality 2012 vintage has 55% of estates being offered either at or below release price, and just 45% seeing an increase since En Primeur (although this compares favourably to two years ago, in 2014, when only 17.6% had increased in price).

But the Bordelais are both super resilient and super thick skinned when it comes to valuing their wine, and it has been pretty much universally accepted that their exit prices for the 2015s are going to be higher than the last few years.

The logic of Bordeaux when it comes to pricing a quality vintage makes this a certainty, and after four years of relatively weak vintages (even if that is a little unfair to the 2014s) there is an appetite for the good stuff.

On top of that we all know that, whatever they say, the historical set up of Bordeaux means that châteaux don’t have to worry too much about whether Berry Bros, Corneys, Zachys or Watson’s are happy with the prices – they just have to worry about whether the Bordeaux négociants are going to buy.

Will things change for Bordeaux 2015?

So, is this ever going to change? I think just maybe it might, and it will be the châteaux themselves that (knowingly or otherwise) drive it. Négociants have suffered just as much as everyone else in the chain over the past few years, and the new habit of châteaux keeping stock back to age in their own cellars is turning the screws on them even more. There is a big difference between buying 500 cases of a wine, selling half of it and storing the rest for selling at a more attractive price down the line, and simply receiving a handling fee for passing on an older case coming direct from châteaux cellars. Being a simple middleman is not a sustainable business model considering the amount of wine they have to buy at prices that are already over what the market wants to pay.

Impact of Brexit

We’ve seen the tension growing between the two sides for the past few years, and 2015 is going to provide an interesting test of just how far châteaux are willing to push their new strategy. And there is an added variable this year that is going to help observers understand whether châteaux want in or out of the négociant system; Brexit.

That might sound overly dramatic. The United States is clearly looking to buy some 2015 wines, even if China will almost certainly not have forgotten the lesson it learnt in 2010. England is already outside of the euro zone, but pound sterling has fallen against the euro in recent weeks amid uncertainty surrounding the Brexit referendum.

Exchange rates ‘will affect campaign’

Giles Cooper at BI – the new name for Bordeaux Index – says, ‘Essentially anything that affects the exchange rate is going to have an effect on the success of the campaign in England. Clearly Brexit is sending some fear through the financial markets and the pound is weakening against the euro – making it that much more expensive to buy the wines’.

Max Lalondrolle at Berrys does a good job of translating what this actually means.

‘Let’s imagine Château X releases at €20. If exchange is 1.3 as it was last week that would be £185 per case for me to buy, £205 for the consumer. If the exchange rate drops to 1.25 then that becomes £192 to buy and [to maintain the same selling price] £205 for the consumer. But if after June 23 sterling stabilises, and the exchange rate goes back to 1.4 as it was last year, the cost price would be £175 and selling price £192 – or pretty much exactly what I would have been selling it on to a consumer a few weeks earlier. If other merchants buy at that later price, they can undercut everyone else in the market, make a big margin and undermine the whole En Primeur system in the process. We want to be a part of the conversation for any successful wines this year, but the threat of Brexit will make us that bit more cautious about what we buy’.

How important is the UK to Bordeaux en primeur?

Does it matter? Well, according to négociant Jean-Baptiste Bourotte (among many others that I spoke with), it does. ‘The UK has a huge impact on the rhythm of the campaign. How the London trade responds, even if they don’t buy vast amounts, sets the tone for certain key wines in markets around the world’.

Getting an exact figure on what percentage of en primeur sales is represented by the UK is a pretty difficult task. The Bordeaux Wine Bureau didn’t want to tell me, and most courtiers and négociants confirmed that it was particularly sensitive information. However, a little bit of perseverance and finding the right doors paid off, and it seems that the likely figure – on the conservative end – is around 20%, with most of that accounted for by the big players in the market (the ones who, every year, shout the loudest about prices).

‘This remains a vintage that will see primary interest from European markets such as France, Switzerland, Belgium and the UK,’ Bourotte points out. ‘We expect America to buy the 2015s, but they may largely stick to the €10-€25 wines that have been so strong over the past few years. Asia remains a question – they are certainly interested in the vintage, but are not convinced by the en primeur system’.

Signs to look for in the Bordeaux 2015 campaign

So, let’s enjoy what promise to be wonderful wines in 2015. And at the same time let’s look out for whether châteaux show any signs of concern about currency fluctuations and the impending threat of Brexit. If they cheerfully release small amounts of highly priced wine and ignore the concerns of the UK market, then we know they are yet again happy to see stock levels rise in their own cellars, confident that the quality means they will find buyers at a later date. The move towards châteaux setting up their own distribution will have taken another step forward. And the irony will be that, once this happens, they will have to start worrying about what the final markets think about pricing, because négociants won’t be there to pick up the tab.