The fine wine market has undergone an extended period of recession. Ella Lister considers some positive signs.
In last year's issue of The Vault, following three months of tentative price rises, I cautiously called the bottom of the market. In the second quarter of 2012 fine wine experienced a second significant dip, so that in the 13 months to July 2012, the value of Bordeaux first growths had fallen by 33 per cent, as represented by the Liv-ex 50 index (see figure 1).
For the rest of the year, prices flattened out, and in December even started to rise a little, although the first growths still finished the year 10 per cent down on 2011. In the first quarter of 2013, wine prices again began to rise, mirroring the pattern in 2012. This time, however, the uptick comes after a long period of stable prices, and a smoother transition may mean it has more chance of lasting.
Thinking outside the Bordeaux box
The Liv-ex 100 gained 7.3 per cent to the end of March. Largely made up of first growth Bordeaux and designed to represent the fine wine market, the index mirrored the first-growth only Liv-ex 50, as did the broader-based but still Bordeaux-only Liv-ex 500, although this was boosted by the inclusion of lesser châteaux which suffered less acutely than the likes of Lafite and Mouton Rothschild. By March of this year, the Liv-ex 500 was down only 1 per cent year-on-year, compared to 6.4 per cent for the first growths, implying that the second of the double dips did not affect the wider market in the way it harmed the top clarets.
In fact, outside Bordeaux, fine wine seems to have resisted the global economic slump entirely. As first growths plummeted in the summer of 2011, wines from Burgundy and Tuscany bucked the trend, while Champagne prices blithely maintained a steady level. Champagne, Tuscany, and Burgundy have all registered a growth of between 10 and 13 per cent since June 2011, and have outperformed the UK stock market as represented by the FTSE 100 (see figure 1). These regions have proved less volatile than Bordeaux, and not necessarily less lucrative over the long term, with Champagne, for example, registering a compound annual growth rate of 12.5 per cent over nine years - the same as first growth Bordeaux.
While Domaine de la Romanée-Conti (DRC) has seen more ups and downs than Liv-ex's Champagne and Super Tuscan indices, gaining quickly in the face of Bordeaux's crash and then losing 1 per cent over the year to March, a more generalist Burgundy index would probably show a steadier climb. Burgundy's popularity has continued over the last year, with Asian collectors, in particular, discovering growers other than DRC, for example Jayer, Leflaive and Rouget.
In Hong Kong in March, Christie's dedicated an entire two-day sale to a collection of Burgundy amassed by the region's former Chief Secretary for Administration, Henry Tang. "This single-owner collection sale was comprised of 71 Burgundy producers, many of which were unsung heroes that we wanted to introduce to Asian collectors," said Simon Tam, Christie's Head of Wine in China. The sale was 100 per cent sold, confirming the motivation of local collectors to acquire and discover fine wines from Burgundy.
Bordeaux futures rule Bordeaux's future
Burgundy accounted for a record 14.5 per cent of trade on the Liv-ex exchange in January, with Champagne and Italy also increasing in demand. Bordeaux's share fell below 80 per cent for the first time in four years. Nonetheless, Bordeaux still represents the lion's share of fine wine trade worldwide, and its destiny is crucial to the health of the market. While Bordeaux prices picked up in the first quarter, they remained flat through to mid April. This is not unusual as merchants and consumers await the en primeur releases with baited breath.
The 2012 vintage is a very good vintage but not a great vintage. The consensus in Bordeaux during the primeur tastings was that châteaux need to drop their prices significantly - preferably to the levels at which the 2008s were released - in order to entice buyers back into the market. At the time of writing, Mouton Rothschild was the first of the first growths to release its 2012 vintage, pricing a bottle at €240 ex-négociant, down 33 per cent on 2011, and the cheapest vintage on the market, but double the 2008 release price. Will it be enough to kick-start the fine wine market again or are we facing a triple dip? As Christian Seely of Château Pichon-Longueville Baron told me, "I have a long personal shopping list, which is usually a good sign". Having tasted the 2012s in early April I would have to second that.