Bordeaux prices forecast to fall further in the US

Prices of Bordeaux are expected to fall further in the US as heavily discounted stock from Diageo Chateau & Estate Wines continues to flood the market.

Elsewhere, it is thought that China may take longer than initially anticipated to become a major fine wine consumer.

John Kolasa, managing director of Château Rauzan-Segla, told Bloomberg: “What’s terrifying is what will happen to Bordeaux wines in America now that Diageo has bowed out.”

For 40 years Chateau & Estates had been building up a huge inventory of some of Bordeaux’s biggest names and was the first stop for US retailers looking for the region’s wines.

In October 2009 it began to sell off its inventory, reportedly worth US$125 million.

This created a scramble as companies, including Bordeaux châteaux, sought to stop the market being flooded with cheap wine or indeed to cash in on the chance to pick up Bordeaux well below wholesale prices.

2005 and older vintages were particularly targeted by the Bordelais buying back their own products in an attempt to halt the devaluation of their wine.

Clyde Beffa Jr, owner of Bay Area K & L Wines, and Chris Adams, president of Sherry-Lehmann, were both offered lists of Chateau & Estate’s wines at the time of the withdrawal.

Beffa reportedly bought many wines at 40%-60% off their wholesale price and went on to sell all of his Château Trotanoy 2006 at half price.

Adams said that Sherry-Lehmann was selling its 2006 at prices 10%-15% less than they cost en primeur two and a half years ago.

Wines such as Château Greysac 2005, which was sold at a premium with the Diageo group, can now be bought for as little as $12.

This buyer-friendly market is estimated to last six to eight months. However, K & L Bordeaux buyer, Ralph Sands, predicted a “blood bath” during this period with discounts of up to 50%.

Meanwhile, China has recently knocked the US off top spot as leading export market for Bordeaux outside of Europe.

In 2009 China bought 13.7 million litres – a 97% increase – worth €74m. The US by contrast bought 11.6m litres but still worth €139m.

Jean Pierre Rousseau, managing director of Diva wine merchants, told AFP: “The wine boom in China started three years ago and grows each year at an impressive rate.

“Before that it was Lafite, Lafite, Lafite. Now they buy petits châteaux, crus bourgeois and grands crus in volume.”

On the other hand, Don St Pierre Jr, chief executive of ASC Fine Wines, told AFP: “Most of the volume growth of exports to China from France is happening at the entry level or lower end of the price range.
 
“The better quality brands and wines have not seen big increases.”

Hong Kong has the potential to be a better market for Bordeaux. Last year alone it raised its volume imports by 24% to 4.2m litres and its value 46% to €109m.

The abolition of all tax on wine in 2008 has served to strengthen Hong Kong’s position and its auction market is now second only to New York.

Last year, Hong Kong’s 14 fine wine auctions took €45m and that looks set to grow.

Linda Sansbury of the Hong Kong Economic and Trade Office said: “The industry believes Hong Kong will overtake New York this year to become the largest wine auction centre in the world.”

However, these auctions focus on older vintages and only time will tell if en primeur will take off even there for the widely lauded 2009.

Rupert Millar, 18.03.2010