Burgundy, its market, and the big wall coming:

I have to say, extreme lover of Burgundy’s wine and people as I am, I have the fear that harder times lie ahead. I hate to write notes such as this, but whilst my reports of the actual wines of 2014 are laced with joy, my view of their market is becoming ever-darker.

Since 2005 there has been a step-change in global pricing. Unlike the decade of the 1990s where there was typically a small price increase each year to cover inflation (plus 5% on the price of the old bottles in the cellar), the prices of some domaines’ wines in the market have tripled – and more – often re-sellers earning much more money per bottle than the producers of those bottles. Critical and merchant hyperbole must bear a significant responsibility, but they cannot alone explain the ‘Louis Vuittonification’ of the produce of Burgundy. Each vintage being reported more in the manner of a fashion show with more articles devoted to the cost of the wines, than the contents of those bottles.

Since 2009 there have largely been small volume harvests – pity the poor vigneron(ne)s with vines from the centre of Meursault to Pernand-Vergelesses, three times hailed. The Côte de Nuits has also seen much lower harvest volumes but don’t for a moment think that there are not crocodile tears to be found at the premises of certain Côte de Nuits producers, increasing their prices 15% per year ‘in sympathy’ with their brothers and sisters in the Côte de Beaune – whilst making maximum yields… There will always be somebody!

Essentially the recent years’ marketing of Burgundy’s wines into new markets such as China, largely via Hong Kong, supported, since 2010, by a significant reduction in the output of the ‘famous domaines’ has been largely synergistic in terms of their effect on pricing – most obviously for an echelon of sought-after wines (and their vocal would-be buyers). The problem is that the increase of bulk prices for traditionally harder to sell labels has also tracked, at least to some extent, those most sought-after wines. Large negociants were trying to dampen down sales of Petit Chablis (2013) earlier this year as they were losing money on the bottles – because it’s a question of what the end market will pay for a bottle – a wall if you like – and bulk prices were/are too high for some merchanted grapes/must, to achieve that.

Burgundy has two large pricing problems – iniquities – one internal and one external.

• Externally; if all the wines you would like to drink cost significantly more than, let’s say, Chianti-Classico – you will more often than not, buy the Chianti in a restaurant. Many, many restaurants who used to list villages and 1er Cru wines, have replaced them with Saint Romain and Rully – and even they are a hard sell. Anecdotally, the market for good burgundy ‘has tanked’ in France in the last six months. And I’m sure that it’s not just the case in France. Note, from a recent article in a trade-publication: “When you can get three [cases] of Haut-Brion for the same price of one [case] DRC Richebourg, is the price of rarity justified?” In my own opinion, maybe a small premium, but no more.
• Internally; there is a problem of imbalance when villages wines from the Côte de Nuits such as Vosne, Gevrey and Chambolle typically cost more than great 1er Crus from the Côte de Beaune – whites included.
  Both of these problems need rectification.

But bulk pricing is multi-faceted; an undoubted driver is the lack of volume – historically such ‘volume-related’ price challenges have been moderated by large merchant houses or ‘maisons’ who would harness either their buying power, or their stocks, to moderate the ups and downs of pricing – but with consecutive low volume vintages, and empty warehouses, these maisons’ market-making ability has been massively curtailed.

The higher prices are, however, not just ‘yield-related;’ competition is also a large driver in the last vintages. Of-course competition will become stronger for a dwindling resource, but there are also so many new entrants who want to become negociants that the competition for grapes is further magnified.

The Hospices de Beaune wine auction was often seen as a barometer of pricing, but the increases of recent years, have more and more been dismissed as ‘its own thing, and a result only of charity’ yet we should not so easily dismiss this. The day after this year’s auction, the courtiers were indicating that anyone who HAD to buy today, would see 20% higher prices. Actual settlements have been nearer 10% for those who needed wine to fulfill orders, but that’s still another 10%, and overnight too! Perhaps the most recent increases can be attributed to the growing hype towards the 2015 (red) wines, but it seems that every year there is yet another reason for more than a ‘cost of living’ increase.

Land pricing and inheritance costs are certainly drivers that go all the way through the hierarchy of wines, so it’s not just the sought-after premier and grand crus that have problems, it’s also the more basic, volume oriented ‘commodity/everyday’ wines – at least the negociant versions. Established, low debt domaines have an advantage on pricing, but Dujac, for instance, have stopped making a négoce Morey-Saint-Denis, because it would have been more expensive than their domaine version [oops – see comment from Jeremy, below]. It IS still possible to find great pricing on Saint Aubin 1er Crus (less than €20 direct) and Beaune, Pommard and Volnay 1er Crus (less than €25, direct) from domaines – indeed many, many wines and of both colours – but the rest is becoming messy, indeed very messy in the Côte de Nuits.

Prices are also, slowly but surely, changing the culture in Burgundy too – and that’s my greatest personal worry. There’s an old saying that ‘In Bordeaux you can buy everything and taste nothing, but in Burgundy you can taste everything and buy nothing’ – well, I have the impression that that’s also changing. More and more doors are becoming closed to the casual visitor and the range of wines being offered to taste is shrinking as the grand cru bottles become ‘too expensive to open.’ For a long time the Bordeaux market was seen as the bad guy, but the market sentiment is also trending towards a similar impression of burgundy wine, with no nuance between Montrachet and Mâcon.

And the big wall coming?

Eventually, there will be a market correction, maybe followed by a couple of, or more, years of introspection and pain. I’m sure that the pricing inertia will hold for the exceptional (weather) 2015s, particularly given the modest volumes, but, for a moment, just imagine a 2016 vintage of high volume and average quality – who is going to buy at recent pricing? Or higher pricing? That would be the straw that breaks a camel’s back, at least for a period of re-alignment!