Burgundy prices deter ordinary buyers
As Burgundy prices continue to rise, are producers at risk of withdrawing from the market?
If greed is a mortal sin, then Coche Dury, Jayer, Leroy, DRC and Rousseau did not receive the memo.
Bolstered by their absolute confidence in the price inelasticity of top-notch Burgundy, the region’s main producers are now asking for the moon. Even Chablis was affected; a Premier Cru from Raveneau sells for 10 times more than 10 years ago.
The sad fact is that the most exquisite bottles of Burgundy have floated on billionaire territory, never to return. The only reasonable advice I can offer is to cherish your memories of La Tache and learn to love Oregon pinot noir. The rather affluent collectors and enthusiasts of New York no longer interest the celebrities of the Gold Coast. They seek out the obscene wealthy – many of whom do not reside in the United States or Europe.
It bothers, especially with impoverished writers like me. Nothing would please me more than to witness a reaction against the incredible avarice and vanity of the Burgundians. Some quarters have suggested that this could happen over the next few years; Charles Lachaux d’Arnoux-Lachaux told Wine-Searcher that “one of these days the bubble will burst. In the short term, all is well; but in the medium and long term it is necessary [burst]. People will go elsewhere. “
In March, the owner of a wine merchant, James Hocking, estimated that “Burgundy’s stratospheric prices for the best wines seriously put off all but the richest collectors in the world.” He reported that many UK buyers were starting to wince at the idea of remortgageing their Porsches for an award from the DRC.
Yet, with the boom in global primary and secondary markets, is it really plausible that high-end Burgundy is heading for a downturn?
“I don’t really see the trend changing, due to the extreme demand for these first-rate wines on the world markets, compared to the very low supply and the reduced volumes of the last two small vintages”, explains Olivier Gasselin, Director of OenoTrade.
“Will producers regret their strategy going forward? Maybe, but I think we’re a long way from what’s happening.”
Indeed, globalization has given Burgundian producers the confidence to evaluate their best wines at the level they deem good. As markets have expanded and routes to market have changed, Côte d’Or is less concerned with marginalizing its historic consumer base. As Gasselin likes to point out: “Inflation is driven by demand from emerging economies like India, Brazil and Africa. Wines that were affordable a decade ago are now out of reach for most consumers.
Focus shifts down
Conversely, according to the Liv-ex fine wine exchange, the unintentional beneficiaries of this “anything goes” pricing strategy have been the less enthusiastic producers who still own plots in premier and grand cru vineyards. Take Musigny, for example: at one end, it’s home to Leroy Musigny, a wine that has increased its global average price on Wine-Searcher six-fold over the past five years, from $ 5,516 a bottle to $ 33,067 today. hui. It’s also home to Daniel Moine-Hudelot Musigny, a wine that currently costs $ 480 a bottle and whose average price has only increased by $ 41 over the past five years.
In established markets like the UK and US, collectors would seek greater value from their purchases, while avoiding village wines.
“While the release of the relatively bountiful Burgundy 2018 vintage has met with constant demand, there has been a noticeable shift in aftermarket buying habits,” says Liv-ex director and co-founder Justin Gibbs. .
“Demand has shifted from trophy assets in Burgundy to more affordable second and third tier producers. This resulted in a loss of market share in value, while the overall volumes traded remained stable. The Bourgogne 150 index was one of only two sub-indices to be in negative territory in 2020 – down 1.52%. “
Gibbs describes the growing bifurcation of the upscale Burgundy market. He concedes that the upper end of the category is one of the most price inelastic luxury goods in the world. And yet, as the Burgundy market grows, Liv-ex has noticed that more and more domains are seeing increased levels of trade, with some price fluctuations.
“The Power 100 lists have seen an increased level of ‘churn’, with Burgundy estates moving up and down in the rankings. This occurs when the prices of certain vintages rise rapidly a year but stop or fall slightly in the year. next, ”he said. said.
“For the first time in recent memory, there is some liquidity in the Burgundy market and prices will fluctuate for a while.
Has Burgundy alienated buyers from traditional markets because of the rising costs of major appellations and estates? Almost certainly. Are people like DRC and Jayer worried? Probably not; the appeal of the nouveau riche collectors in Rio, Johannesburg and Mumbai is too compelling to be overlooked. The newer you are to wealth, the more trophies and status symbols matter
Like the Bordelais before them, the Burgundian A-list are betting on the ranch of emerging markets. They are sure that saying goodbye to loyal former aficionados in London is a small price to pay to entice new money. “For many people, it has become increasingly difficult to find and afford these wines. Allocations for grands crus in particular are increasingly reduced, sometimes to single bottles,” notes Gibbs.
But it is far from a risk-free strategy. Instability is a reality in many emerging economies and Burgundy’s new trading partners may see their wealth threatened by political changes or currency volatility. For example: while the African economy is undergoing an impressive transformation, it remains both fragile and capricious, as the Angolan economic disaster reminds us. With the majority of its export earnings based on oil reserves, the dramatic collapse in crude oil prices in 2016 plunged the country into financial panic, with subsequent decline in consumer spending.
Likewise, much of the demand from collectors in Asia, Africa and South America is currently focused on the most recognized wines and labels. But the region still remains largely dependent on traditional sectors such as European distribution for wines that do not have the cachet of Montrachet and Musigny. Prices have gone up across the board, so even village wines are starting to look outrageously expensive. If things continue as they are, then Burgundy can find the chickens coming home to roost.
“I am concerned about pricing at the regional, village and Premier Cru level. These wines are starting to fall outside the reach of ordinary consumers, and this is where I agree with Charles Lachaux, people will go elsewhere. There are few. real alternatives to the best premier and grand cru of Burgundy, but there is a plethora of alternatives at the level of regions and villages around the world, ”explains Burgundian buyer Martin Tickle.
It is striking how the Burgundians are ready to withdraw quickly and easily from traditional and more stable markets and sectors. As it stands, their strategy is paying dividends, certainly in the upper echelons of the hierarchy. But if another Angolan nightmare occurs in Brazil or New Delhi, then it’s catch-22; New World collectors abandon you, while old school buyers won’t forgive you.
We would then find out if Burgundy was capable of a certain humility.