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Fine wine predictions: Burgundy hitting a wall?

Burgundy has roared ahead in recent years but are the region’s superstars going to hit a wall as prices climb higher? Have they already?

Wine Owners in its latest round of fine wine predictions considered the irresistible rise of Burgundy over the past four years.

In that time, said WO: “Extreme scarcity and overwhelming global demand for wines by the most sought after producers have made top Burgundy a consistently good bet.”

But, it added: “It is less likely that the region’s most highly prized and priced wines will continue to appreciate in the short term given the dizzy heights they have scaled over the last few years.”

The label that epitomises this view of Burgundy as an increasingly unobtainable sector of the fine wine market is of course Domaine de la Romanée-Conti’s (DRC) Romanée-Conti.

WO noted: “DRC recent releases (from the last four to five vintages) are under pressure in the secondary market. We have seen the spreads between selling prices and achievable secondary market values widen quite markedly, a further pointer to the very top of the market coming off the boil.”

It’s not so much a prediction as the “reality for the last three years”, notes Liv-ex director Justin Gibbs. He points to the DRC index which having peaked in 2012 has been running flat ever since, “and bouncing around in the 8%-10% bracket for the past few years. Can it push on? I doubt it.”

There have been murmurs and concerns that DRC might be heading for a Lafite-esque bubble for a number of years now, usually after fresh auction results threw up eye-watering price on eye-watering price.

Yet the great estate has so far managed to avoid the fall. There are a number of reasons for this, namely the extremely small size of its prize vineyard, Romanée-Conti, which never produces anywhere near enough wine to satisfy demand.

Secondly, as Will Hargrove of DRC’s UK agent Corney & Barrow points out, prices in the secondary market, most of all auction results, are misleading.

“Away from secondary market then prices haven’t changed as much as people like to think,” he says and it’s worth recalling that despite some punishingly small harvests in recent years the headlines have always been how little the Burgundians have raised their prices. DRC has never been “cheap” it’s true but its release prices are not those of the secondary market which means the wines are still “affordable” – if you have the means.

Agents are also very careful about whom their allocations are sold to, preferring drinkers to investors and while Hargrove admits there will be clients who want to “do the dirty” and buy and flip their wine for short-term profit, the agent can put a stop to this by no longer selling wine to that individual. And if it’s the agent doing it then DRC’s owner, Aubert de Villaine, has always said he would strip them of the privilege.

Tight control of distribution, therefore, serves to keep the market keen but also stable.

There is no doubt though and Hargrove admits this, that in the secondary market there has to come a point where DRC and other leading labels such as Henri Jayer, Armand Rousseau, Roumier and so on will reach their “ceiling”.

Again, Gibbs would argue they already have, former DRC buyers spilling out of that and trickling down to the next tier and consequently putting pressure on price and taking those equally illustrious labels to their upper limit.

Fears over stock and pricing still remain. Gibbs asks how many bottles of Romanée-Conti are actually being drunk while Goedhuis buyer, Toby Herbertson, notes that bottles in the secondary market are increasingly ending up in Asia.

As he explains: “One reason Lafite fell was there were no more European buyers. They could remember the time it was a tenth of the price. I would be wary or mindful of the fact that prices are getting to a level now that European, even American, buyers aren’t sure about.”

“Nervousness”, “wariness”, these are words that crop up quite a lot when speaking of the top end of Burgundy in the secondary market.

Prices are such now that there is several million pounds worth of high-end Burgundy on the Liv-ex market that is waiting for bids. Today Burgundy commands a 6%-7% of the market share by value which is far more than it used to 10 years ago but in terms of bids and offers it’s a poor second to Bordeaux’s performance and probably several others.

Gibbs reports that when the bid/offer ratio gets over 50% (that is 50% of offers attract bids) it shows the market is beginning to move. Overall the current ratio for the market is 62% – in line with reports of increasing signs of life for fine wine – for Bordeaux the ratio is 89% which is very lively but for Burgundy it’s a mere 15% – flat, lifeless almost.

“This is the problem with Burgundy,” says Gibbs. “Buyers don’t have faith in the price, and there’s a far greater risk at holding Burgundy at these levels. It’s a market that everyone would love to love but there’s an underlying nervousness.”

There’s another basic truth espoused by Hargrove which is that, “these things do find a ceiling but they’re not made to be traded and producers don’t want that to happen.”

It can’t be stopped of course and despite the sharp intake of breath some prices may cause the Burgundy market hasn’t collapsed and doesn’t show many signs of doing so either.

WO is, therefore, largely correct when it states that: “Burgundy is a vibrant market with an assured long-term future and some near-term risks around the very top of the pricing tree.”

But it should also be noted that Burgundy and other key markets such as Italy and Champagne are all at their peak right now.

And the only vitally important one that isn’t? – Bordeaux.

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