Bordeaux 2016: HK’s wine merchants cautious after EP 2010

As the 2016 en primeur draws to a close, Hong Kong and China’s wine merchants are showing more caution towards this year’s campaign, prompted by price increases and lack of return.

The caution shown among wine merchants reflects a diminished interest in Bordeaux’s annual en primeur, as retailers seem to have lost confidence in gaining profits from the campaign, especially those saddled with stocks from past vintages, that are sold at generally the same price or cheaper than first purchased.

“We love the wines, but we’ve learned our lesson from the 2010 vintage. We are cautious. We are not buying some wines en primeur because they don’t make financial sense,” commented Eric Desgouttes, general manager of Kerry Wines, a leading wine merchant in Hong Kong and one of the city’s biggest en primeur buyers.

The company buys en primeur wines exclusively for the Asian market, mainly for Hong Kong and mainland China. When asked if Kerry Wines slashed its purchases this year, the wine merchant replied that the quantity bought was “definitely less,” adding that any price increase above 12% this year is considered “too much”.

This year, the number of merchants from Hong Kong and mainland China returning to Bordeaux for en primeur was visibly smaller as Bordeaux prices increase despite vintage variations. In challenging vintages, prices are driven up because of limited quantity, while in better vintages, prices are raised because of the resulting better quality.

COFCO, the state-owned wine importer in mainland China, which claims to be the biggest en primeur buyer in Asia, slashed its purchase volume by half, in response to the combined factors of this year’s Bordeaux price increase, consumer’s lacklustre demand, and Chinese currency’s depreciation, as previously reported by dbHK.

“Retailers’ confidence in en primeur is definitely dropping,” stated James Pun, product manager of YesMyWine, a major en primeur buyer in Hong Kong and mainland China. The wine merchant cut back its purchase volume for en primeur by around 30%, Pun revealed, noting that, however, its en primeur purchase value is around the same as last year.

“It’s still called en primeur but it’s not what I expected any more,” he commented, referring to the thin profit margins wine merchants can reap from the campaign. “A lot of merchants are losing money on the 2009 and 2010 vintages and we are one of them. We are losing money on the 2010. The reason I didn’t want to take that stock is because 2010 was a big lesson for us.”

Compared with a few years ago, when he could make easy decisions to snap up the best sellers in Asia without much worry, today Pun’s decisions are more selective and restrained, largely due to price increase, which averaged around 15% over previous year. “Prices are making people nervous, in the end they (YMW clients) have to analyse and curtail their spending,” stated the wine buyer.

Photo source: Fine and Rare Wines

Citing first growths as examples, which normally turned out to be sought-after wines in China, despite vintage variations, he said: “Before, first growths were in high demand. This year, clients do more research to compare prices. The campaign started in mid-May, but at the beginning, sales are very slow, and it was towards the end when the sales started to pick up, so I can only assume they [customers] are doing more research.”

For example, Pun noted that Château Margaux’s technical director Paul Pontallier’s passing in early 2016 before en primeur spurred interest for 2015 vintage as it was his last vintage, compared with this year’s lukewarm enthusiasm for Margaux 2016, stressing that “I have to be careful. Normally it’s a wine that’s in high demand, but it can change in the market every year.” Other wines that performed well, according to Pun this year, were Château Pavie, which has received four 100 point scores from critics, and Château Léoville Las Cases, a wine awarded two 100 point ratings from critics.

For Kerry Wines, Desgouttes observed that this year, Château Mouton Rothschild has performed quite well among the first growths, which is also echoed by Tom Sackville, chief executive of Goedhuis & Co Fine Wine Merchants.

The company sells about 20% of en primeur for the Hong Kong market, Sackville revealed, adding that a combination of value for money and brand appeal is central for this year’s en primeur success, which is also why Mouton did well this year, he explained. The highly rated wine was released at €420 a bottle ex-négociant (up 9.4%) and at the same volume as last year, while Haut-Brion, which was released at the same price, was more popular in the UK than in Hong Kong, according to Sackville.

“We have done less business in 2016, mainly because of currency issue, but top wines with high scores did very well. It’s quite satisfactory, better than we expected,” he concluded.

For Berry Bros & Rudd, where Asia also accounts for round 20% of its total en primeur sales, this year has seen some return of interest from its former clients who stopped buying en primeur a few years ago. “We have a number of customers from China and Hong Kong coming back to us for the 2016 vintage,” said Nicholas Pegna, Asia director for Berry Bros & Rudd in Hong Kong.

Asked if overstocks from back vintages is deterring mainland customers from coming back to en primeur, the wine merchant replied, “It’s actually less about overstocking, but more about consumer fatigue,” but overall described himself as being “pleasantly surprised” by this year’s campaign despite a slow start in the first half of the campaign.

Speaking about this year’s campaign, Watson’s Wine, Hong Kong’s biggest wine retailer, said it did not cut back on volume or value this year, according to its general manager Jeremy Stockman, but stressed that the team were “very selective” this year. “Some wines were overpriced, and we are very selective this year,” he commented, adding the wines in general from the vintage are “lovely but not cheap”.

The merchant bought wines early on in this year’s campaign, direct from Châteaux and négociants, and stored the wines in well-conditioned warehouse facilities to ensure authenticity and most importantly, perfect conditions for the wines, he added.

Addressing mainland clients’ diminished interest in en primeur, Stockman suggested it was a result of fast crash after the 2010 en primeur. He explained that the overt enthusiasm people have shown towards 2010 vintage also happened at a time when a lot of Chinese wine merchants, armed with ready cash, jumped onto the en primeur bandwagon without knowing much about the wines or having an established tradition with the campaign.

Referring to the 2010 vintage Bordeaux as wines “that will last for a long long time but will take longer to sell,” the merchant added that “those who are looking to gamble did not profit”.