Bordeaux drags market down in 2013

12th December, 2013 by Rupert Millar

The poor performance of Left Bank Bordeaux frustrated the predictions of merchants this year and although other fine wine regions have performed strongly the Liv-ex Fine Wine 100 is looking at an unparalleled third consecutive slump.

The five Bordeaux first growthsLiv-ex’s merchant members were overly bullish in their predictions for this year’s fine wine market performance, which suffered the twin indignities of an awful en primeur campaign and the withdrawal of China.

Every January Liv-ex: the fine wine market asks its global members to give their thoughts on where the market will go in the coming year, before taking another reading in the summer.

The Liv-ex Fine Wine 100 index (which measures the performance of the 100 leading fine wines on the market) closed at 260.78 in December 2012 (see chart below).

With average rises of 11%, merchants predicted a rise to 290.12 and despite the catastrophic 2012 futures campaign they were still hoping for a 9% rise to around 284.42 in late summer.

However, the index closed at 258.46 this November and a 10% Christmas miracle rise will be needed if the market is going to deliver on merchant hopes.

liv-ex 2013 predictions

source: Liv-ex

Liv-ex director, Justin Gibbs, told the drinks business that after two years on the slide it was no surprise to see the merchants hope for a bounce – though they were hoping for an 11% rise on the back of a market that had slumped 25%.

“Looking for a bounce was not completely nuts,” he said. “Merchants are stockholders and you need to make money on your stock. It’s a rare merchant that calls the market down.”

The year actually began quite well, he continued, climbing 7% in the first quarter, “then it got nailed by the en primeur campaign.

“It was the same as last year, the market climbed and got nailed by the 2011 campaign.”

Although the campaign “killed a lot of optimism”, there were still hopes that the Chinese market might provide some relief in time for the Autumn Festival – this, however, did not materialise; fine wine sales suffering enormously.

The chance that Hong Kong and China might buoy the market by buying in preparation for the Chinese New Year is also slipping away and Gibbs suggested that they may have enough stock to supply their needs for now.

In short, the fine wine market is looking at an unprecedented third consecutive slump.

Gibbs said that since the index was started in 2000, there have been slumps in 2004 (actually flat rather than a fall), 2008, 2011, 2012 and now 2013.

The Liv-ex Investables by contrast, going back to 1990 has seen slumps in 1998 (the Asian crisis), 2008, 2011 and 2012 and actually is half a percentage point up this year so it’s “just holding”.

Both indices are dominated by Bordeaux and this is the problem. Bordeaux’s share of trade by value on Liv-ex has fallen from 95% to 80% in around two years.

Those who might point out that the market is widening, this is true and the Champagne, Rhône, Burgundian, Italian and even Right Bank indices are all up this year – it hasn’t all been ashes and sackcloth.

But the share of the market taken by these wines is still small and it is not taking up the slack left by the doyenne of fine wine, Left Bank Bordeaux.

It is estimated that the first growths alone accounted for around £210 million in 2012, in 2010 they would have constituted a three quarters of a billion pound offering. That is a huge disparity to be made up just on the back of five wines.

“It’s why when we talk about the market we talk about Bordeaux,” said Gibbs.

Looking ahead to 2014 he thought the merchants might not be quite so enthusiastic.

“Three down years in a row is quite extraordinary. My guess is when we run the survey this January, it’ll be interesting to see what answers we get.”

Nonetheless, he added: “If I were a betting man, after three down years, I’d be looking for a bounce.”

On the other hand, with an en primeur campaign which may be in trouble before it’s even begun if it even happens at all, expectations may be reined in substantially this time around.

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