How is the current financial crisis going to affect Bordeaux wine?



A MORE INDEPTH LOOK AT A NEWS STORY I WROTE FOR DECANTER ON OCTOBER 10, 2008

The world of fine wine is no longer proving immune to the global financial crisis, despite a few robust performances in recent auctions in New York and London.



‘Bordeaux wine, inevitably, is being hardest hit,’ Max Lollondrolle of Berry Bros and Rudd says, ‘as it is perceived as an investment rather than a drinking wine, and not many people are building up their portfolios right now. The first growths have lost up to 25% over the past few months, but there is a lot of trading going on, and some great bargains. We are working hard, putting in long hours and being more aggressive in terms of offers, and diversifying more into Champagne, Burgundy, Italians and other regions that offer wines to drink now.’

According to Livex, the fine wine exchange, the overall index was down 3.7% from August 31 to September 30, 2008. Jack Hibberd, Research Manager at Livex comments, 'The popular back vintage such as 1995 and 2000 are holding their value, and the second wave of classified growths such as Lynch Bages and Pontet Canet have also held their prices. The 2005s on the other hand have been going down, particularly those wines which went up dramatically over the past year such as the first growths and their equivalent. These are down between 10 and 20% (although still above this time last year).'  

'It's definitely a buyer’s market – but we had our busiest month last month. Some feel wine is still a good long term investment, others are looking to make the most of being able to buy wines to drink. Currently there are no signs that the market is having the same downturn as in other commodity and financial markets. Certainly there is no large scale panic, even if there is some softness in prices. I imagine the gains we have seen in the past two years are behind us for the short term.’

According the most insiders, merchants with large on-trade exposure, are likely to be hardest hit because it is restaurants that are seeing biggest drop off in sales of super-premium wines. Hughes Lepin, sommelier at Alain Ducasse at the Dorchester, says, ‘The average bottle spend has dropped 40 or 50% over the past six months. We are looking at buying third wines, such as the excellent Pauillac de Chateau Latour, rather than even second wines that are still too expensive.’  

Simon Freeman, sommelier at Hibiscus in Mayfair has also noted the affect on Bordeaux wines. 'We are putting on quite a few bottles of easy drinking Bordeaux from 04s and 02s, especially Saint Eilions that are drinking really nicely now. Often people want to spend under £100, and will now give me a budget and ask me to recommend something, while a few months ago they would have chosen the best name they could find on the list.' Asking the sommelier's advice is a surprise side effect of the financial crisis. 'Customers are also asking advice on vintages, on bottles that they might not have heard of.  We have to think a bit harder but it is very satisfying to recommend something that people enjoy. Often the people that buy the most expensive wines are not always the ones that would enjoy those wines the most.’



There are other bright spots. According to Leigh Claridge, UK Sales Director for Maison Sichel negociants, the value supermarkets such as LIDL and NETTO are reporting sales rises of around 25%, as customers look for bargains. ‘With the increase in duty, plus the credit crisis, a lot of people are still buying wine, but choosing to drink it at home.’  

Back in Bordeaux, the president of the Negociants' Union, Allan Sichel, is being level headed but realistic. ‘We are anticipating difficult times, yes, but most negociants will be well placed to weather the storm. The bigger problem is for smaller winemakers due to the small volume of crop in the 2008 vintage, which will be coupled with low prices. The grand crus can adjust, as they have the financial backing to withhold months or years of difficult times. But the rest of Bordeaux, have just started to recover from a few tight years. They could sustain the low values of their wines if they had good volumes, but this year they don’t have the volumes and they cant get the backingfrom banks – that is going to make it difficult for a lot of small properties.'



'Negociants may have to sell their stocks even at a loss, but should able able to find the cash flow to keep their business going. They may have to change their strategy for a few years away from top growths, but do at least have options in front of them. We don’t know of course what will happen, but our customers are beginning to feel the pinch, particularly restaurants. Is it just a short-term reaction to the overall panic, will they readjust later on? Will people stop buying very expensive wines, or will a drop in consumption have an effect on the lower end? We just don’t know at this time...'


'I'm not ruling out that some merchants could go under or lay off staff, because of course another worry is customers going bust and not being able to pay for the wines they have ordered. Everyone is concerned but not panicking right now.’

But Stuart Whitwell, managing director of Intangible Business brand valuation consultancy in the UK has some positive news for the region. ‘Bordeaux has the best brand value in the world. The value in the top Bordeaux isn’t going anywhere, even if the prices drop for a few years.’