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The Louis Vuittonification of Burgundy

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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!

18 responses to “The Louis Vuittonification of Burgundy”

  1. Will

    Great article Bill. I think this time has been coming for a long while. There are still good value wines in Burgundy but they are becoming harder and harder to find (at least on retail shelves). I hope a correction comes soon, but really hope that the burgundy vignerons don’t suffer too much (I’m thinking of friends I’ve made over the years in less famous domaines, rather than the famous names who I doubt will suffer)

    Cheers
    Will

  2. arthur

    I share your worries more and more. Hopefully the bubble will burst sooner rather than later as the more it will grow, the harder the landing will be…for the lesser know domains as these will be most impacted when it happens.

    We also need the price of the land to go down for family domains to be able to transmit their holdings. Which won’t happen unless bottle prices go down for a while…

    A bit of this vicious circle is required to end the nascent decadence or my beloved region will lose its soul

  3. Sue Boxell

    Having arrived in 2005 I have seen many changes and I certainly agree with what you have written. Furthermore in Côte Chalon nnaise there is some excellent wine being produced – much better value for money … I try hard to persuade clients to take a tour into this part of Burgundy with its stunning vineyard landscapes and ‘off the beaten path’ feel, not to mention the value for money
    wine and the welcome!

  4. Jeremy Seysses

    Bill,
    The demise of our négoce Morey Saint Denis is premature! It is in the villages of Gevrey and Chambolle that I have lost suppliers. The cuvées still exist, albeit in smaller volume than before. The Morey is still in production and in normal quantity. The future of these wines is threatened by pricing inflation, but so far, we intend to carry on. The question is: how much longer?

  5. jhasenpflug

    A very fine article Bill, and I wish you all the best for a wonderful Christmas and excellent New Year. I have personally felt many of the sentiments you express above, but especially the observation about how the culture of Burgundy is changing. In the last decade farmers have morphed into celebrities, domaines which I followed, visited, and bought each year are increasingly unavailable, and what I can now afford to buy is often outperformed by wines from Italy, Germany, or even other regions of France. Except for those one-percenters and extremely wealthy collectors who rarely drink or enjoy what they buy, Burgundy is facing a kind of shrug of the shoulders from the broader market. For those in the know, the well-connected, and the obscenely rich, many recent posts on social media seem to be a kind of one-off ejaculatory excess, as Burgundy passes into a new era (how many of those bottles are fakes?). For many of us who have been intimately involved with Burgundy for 25+ years, it leaves a bad taste, almost a sense of betrayal. I recently described my own feelings to a good friend who is also a Burgundy lover by asking him “Have you ever fallen out of love with someone?” I really do not see a crash coming, merely the passing of Burgundy into the realm of luxury fashion – whether one prefers Vuiton, Cartier, Ghurka, or any other prominently displayed label. In the end, the bottles become advertising, the image and eventually the flavors become a “brand”, and like Donald Trump will soon discover, the “brand” can be sabotaged or merely forgotten as the wandering eye is cast on the next objects of desire.

  6. sieber pablo

    hi Bill
    I still think that in each village you will find a wine for a good price.
    But it’s very hard to find it.
    For me with my age, it’s easy because I’m buying seulement wine for drinking in the next 8 years.
    many thanks for your great article

  7. Gilberto

    Good article, Bill. The price evolution and the changes in the region (Beaune is now disturbingly touristy) are really bad for the Burgundy lover. But I don’t think anybody specifically can be held responsible for this. Certainly not more the vignerons than others: many of them have seen the price of their wines spiral out of control outside their cellar doors and far away from Burgundy, and have simply wanted to take their share (some more, some less).

    On the consumer side I, like many, have been feeling every year a higher pressure to stop buying, but in the end, there are always enough producers whose wines are still reasonably priced that buying from them still makes perfect sense. Especially in view of the fact that other regions (Piedmont, for example) are following a similar evolution, perhaps at a lower pace and with some time delay.

    I am not good at making market predictions, so I have no idea whether and when the bubble will burst. Perhaps it will not and some wines will never become cheap or accessible again. In every city there are areas where house prices are much higher than in other areas, and even if there was a time when house prices in that area were still affordable, they may never become affordable again.
    As wine lover, the only thing we can do is to actively fight the rockstarification or mythification of some producers and wines and keep looking for very good, beautiful and affordable wines.
    Wine journalists and writers could help a lot, of course. Bill certainly does.

  8. soastrup

    Good post and good responses, I could not agree more. Fine Burgundy is in danger of becoming like fine Bordeaux – wines for well-off middle aged men. I hope Bill will focus on the producers that make good wine we can actually afford and leave the DRC’s and Roumier’s for Forbes Magazine.

  9. chambolle

    I’ve been a Burgundy lover since the 70s, and began buying in increasing quantities in the late 80s as my income allowed. I’ve visited regularly for going on 20 years. There was a time when anyone who conveyed a modicum of serious interest and knowledge could send a fax or make a call and arrange to taste with growers who are now in such demand it is virtually impossible to obtain an audience with them. It is also impossible to afford their wines. I can say ‘I knew you when,’ but I can rarely visit or drink their wines. Resale value has spiraled to the point that my cellar has become a significant asset, one I really cannot justify NOT monetizing. Meanwhile, first growth bordeaux has begun looking downright inexpensive.

    Spending time in Burgundy has become a very different experience as well, as the crowds have been growing like topsy, and the conspicuous spenders have encouraged many new ‘de luxe’ lodgings and restaurants. Big dollar investors have snarfed up domaines, the price of vineyard land has multiplied many times over.

    Burgundy has been called a rich man’s game for a long time, but until relatively recently, I always said that was a myth. It is not a myth at this point, not when a bottle of young Rousseau Clos de Beze is a 1500 USD proposition, one bottle of La Tache is two or three times that, and one bottle of Romanee Conti three times that. Some of the wines at this level now command more per bottle than they did per case up until a mere decade or so ago. When I can send two or three dozen bottles off to auction and buy a new BMW or fully fund four years of undergraduate tuition at a state university with the proceeds, something has gone terribly wrong. This is no longer about the fermented grape juice in the bottle, it is all about the conspicuous display of wealth, the willingness and ability to easily consume thousand, if not tens of thousands of dollars worth of wine in a single evening.

    It is entirely possible this will pass, or at least ratchet back to some degree. A few years ago you may recall a case of 2008 Lafite could sell for over 20,000 USD in Hong Kong. The wine is now about 5,000 USD a dozen. But auction prices alone do not define the tone of the region. My sense is Burgundy is no longer the stomping ground of a rather small band of geeks and obsessives who were willing to devote the time, energy and money required to master the complexity of the myriad climats and lieu-dits of the region. It’s fashionable, it’s crawling with the rich from all over the globe, and naturally it will develop the infrastructure to accommodate them. The ‘blue chip’ properties will, in many ways, become luxury branded commodities much like classified Bordeaux, albeit quite a bit rarer, and thus likely even more expensive, which will merely add to the cachet of ownership.

    Burgundy will likely remain my true love, and not all is lost. There is still a lot of affordable Burgundy, made away from the spotlight that now shines on the Roumiers and Mugniers and DRCs and Roulots and Coche-Durys and similar ‘investment grade’ rock stars, wines I have enjoyed for decades but now must pass by most of the time because I cannot justify the expense. Where I once drank Mugnier Chambolle-Musigny or C-M Les Fuees on school nights with a modest meal, I drink Marsannay or Fixin, St. Romain, Monthelie, Savigny, Chassagne rouge. My taste for white Burgundy now runs more to Chablis, and given the ongoing doubts about the longevity of the whites at the highest levels in the Cote d’Or, that isn’t a bad thing.

    There are other pleasures – terroir driven and deeply mineral wines from the Loire; great, rare old sherries that still sell for a pittance; grower champagnes; and closer to home, Oregon pinot noir that is beginning to find its own voice.

    Wine comes from everywhere, year in and year out. So does great wine. It’s a bit of adventure to keep tasting to track that wine down, and prrhaps these recent developments in Burgundy are much needed incentive to step outside my comfort zone more often.

  10. chambolle

    I should add I mean no offense by my remarks and hope none is taken. The entire region, from Chablis down to Beaujolais, remains my first and truist love. But where the Cote d’Or is concerned, I can’t help but feel nowadays that she has left me for younger, studlier, and far, far wealthier companionship. These things happen. It can’t be helped.

    1. Jerome Hasenpflug

      Chambolle, your comments are a wonderfully passionate expression of what I also tried to articulate. Thank you!

  11. Don Cornwell

    Bill:

    Very well expressed. Your words echo my own for at least the last 18 months. What you call the “wall,” I’ve referred to as the “impending crash” at least as it relates to the US and UK markets for burgundy It is plainly coming and I think the burgundians as a group are foolish for their inability to see it.

    As you aptly put it, it not just the tripling of prices of some of the top wines, but the fact that the burgundians have raised their prices across the board in most instances. (Yes, the price increases for the reds are much worse than the whites for the most part, although several white burgundy producers have also had absurd increases in pricing on the grand crus.) Throughout 2014 I had conversations with several burgundy buyers for the biggest retailers in California and the message I received was the same in every case — (1) their sales of 2011 vintage wines were extremely poor — nobody wanted virtually any of the wines at the prices offered; (2) their sales on 2012 were not much better except for the very highly allocated items — and wines that traditionally sold briskly were still sitting on their shelves and in their bins; and (3) that it is just impossible to sell village level burgundies for $100 or more per bottle and fairly pedestrian premier cru level wines for $150 to $200 per bottle. So a year ago this time, several major retailers were telling me that their stores would forego purchasing most 2013 burgundies unless there was a major price cut. The only exception would be where the offerings consisted almost exclusively of high end wines that they could easily sell, such as DRC, Vogue, Roumier and Rousseau. The burgundians didn’t cut prices on the 2013s and most raised them an average of 5% — but the unexpected fall of the Euro in from December 2014 through February 2015 saved the day for the US and UK markets.

    While I haven’t spoken to many restaurant owners/sommeliers about the issue, a couple of them have volunteered that they’ve just stopped buying burgundy altogether for their restaurants. They say it is pointless for them to buy bottles of grand crus that retail from $300 to $600 when they will have to sell the bottles for $600 to $1,200 in the restaurants.

    There are at least three other phenomena at play here as well.

    Yes, the rapidly rising demand for the best wines in Asia has played a big role in the escalation of pricing for the top wines, but what I’m hearing from friends in Hong Kong is that while the demand for the top 10 or 15 brands of burgundy is still quite high in Hong Kong and China, the demand for the other burgundies has fallen off considerably due to both changes in Chinese government policies on gifting to officials and because of weakness in the Chinese economy and the real estate markets.

    There also has been what I would estimate as at least a 10-fold increase in the number of merchants selling fine and rare wine since 2000. While I have not seen any statistics on this, I suspect that at least 80% of the purchasers of fine and rare burgundy in Europe today are people “in the trade” who are buying with a view of reselling the wines purchased to someone else at a higher price. This phenomena has certainly contributed to the frenzied rise in pricing of the top 10 to 15 burgundy brands and it has tended to pull up the prices for the closest comparable wines as well. It also means that there are huge stocks of old and rare wines sitting in the hands of brokers and retailers looking for the next higher level of pricing that they can obtain.

    The prices on burgundy have risen so high so rapidly that I’m told that virtually all of the traditional burgundy buyers from retail stores in the US have exited the playing field for new releases I spoke to the two biggest online sellers of burgundy in California this year and I was genuinely surprised when they said I was about the only person among their “regular” burgundy buyers over the past decade that was still buying any new releases of burgundy (and I have been buying very few bottles). They both said that there has been an “almost 100%” change in the identify of the people buying burgundies from them over the past four or five years and that the people buying the wines today generally have very limited knowledge about burgundy. These “new customers” are buying because the wines are in very high demand or “trendy” and have been recommended to them by others or they have read one or more of the available reviewers commentary about the wines and have the wealth available to purchase them. Both of these retailers were concerned that these “new customers” could disappear just as fast as they appeared.

    The final factor, and I think this is the most sad, is at least some of the pricing increases seem to be driven by ego more than anything else. Producer A who thinks he makes the best Romanee St. Vivant raises his prices constantly so that he can make sure that he is charging more than anyone else. Producer B, who makes Richebourg reads the reviews saying that he’s doing a much better job lately and uses that excuse to quadruple his pricing over a five year period — and marks up the rest of his product line similarly. Producers C and D who don’t want to be perceived as offering inferior wines to Producers A and B now feel “forced” to raise their prices as well, which only prompts Producers A and B to further raise their pricing structure to keep the perceived pricing distance relative to their competitors. It is the proverbial “vicious cycle.” Unfortunately it seems to have become petty and as overblown as an american soap opera in many cases. Meanwhile, a number of producers from the younger generation have rationalized to themselves that there has just been a “demand shift” for burgundy and that the 300% rise in pricing for many of the top wines is just the “new normal” and that merchants and restaurants will continue to buy all of their burgundy offered albeit at much higher pricing. I think not. As one of the burgundy buyers for a major California store put it to me a year ago, “when I have to buy nine cases of wine that I probably cannot sell for what I paid for them in order to be able to purchase one case of wine that everybody wants, the economics just don’t work anymore and it does not make sense to buy at all.”

    As in the case of Dutch tulip bulbs a century or more ago, it seems like the combination of circumstances is creating “perfect storm” conditions. Sadly, I think “the crash” is inevitable for burgundy and it is likely going to be pretty brutal for some producers and for many of the brokers in the trade

    1. Sycamore

      Excellent insights, Don — thanks. I agree with you in general. Unfortunately, my own crystal ball is pretty murky right now in terms of calling a crash here. The relative scarcity that plays into traditional supply and demand (realities or perceptions) may keep things going for a while, as will, unfortunately, the wealth imbalance seen worldwide today on an unprecedented scale. The “super-rich” will be able to continue to buy the wines of the “top producers” as long as, and at whatever quantities, they desire. The market correction will have to start at the auction houses — with lots going unsold at the absurd asking prices…..

    2. Behdad

      Spot on Don, spot on. Except for the notion that it will crash. It will stabilize somewhere insanely high. The reason is simple. The limited supply, the growing demand of people with far too much money to spend, and the fact that these wines have become as much status symbols as sources of pleasure. Just look at certain groups of tourists in the area who buy a lot of wines and leave half on the table. That happens at home and parties as well. If Bordeaux is any indicator then the 5x rise is no issue and it stabilizes, leaving quality producers who have the bad luck of being on the wrong part of the curve in the lurch as they have no choice but to wait until someone elevates them to cult status, and that will remain a gamble. This is even the case with rock star producers like Dominique Lafon and Ben Leroux who produce great stuff under one name but struggle to price up on their own labels.

  12. dvovil

    Long love italian wine!

  13. Winetemplar

    “As in the case of Dutch tulip bulbs a century or more ago, it seems like the combination of circumstances is creating “perfect storm” conditions. Sadly, I think “the crash” is inevitable for burgundy and it is likely going to be pretty brutal for some producers and for many of the brokers in the trade” the leverage in 1erCru’s books in their recent Chapter 7 filing surely ought to raise an eyebrow. Furthermore, the diminutive assets are declared as non-perishable. Not entirely wrong but surely also not perfectly correct either. Money’s simply too cheap and every dork seems to be in the trade speculating.

Agree? Disagree? Anything you'd like to add?

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