Bordeaux Wine Enthusiasts

G'Day...

The Chinese are moving on from Lafite to DRC..
http://ca.news.yahoo.com/prices-plunge- ... 19269.html

It will be amusing to see what this does to the price of DRC. Too bad Austrailian wines haven't become the 'it' wine for the Asian markets.

It is interesting that the decline in Livex was way more than in the 2009 Great Recession. In 2001-03 and 2007-09 wine had good defensive qualities as stock dropped about 50%.

I suspect that we could be close to bottoming because Chinese money growth is now re-accelerating

I guess a big chunk of that Livex drop was Lafite, and the rest is still only a small group of wines. This is a big story more from an investment perspective than from a typical drinker's perspective. When I look at Wine Searcher for the '09s I bought, they are all still more expensive now than what I paid for them. No '09 Lafite on my list...

Here's a slightly more detailed article:

http://www.winespectator.com/wso_dev.ph ... w/id/46287

This excerpt caught my eye in reference to AlexR's facts about volume growth of Bdx exports to China (most likely bulk wine):

And there is positive news for Bordeaux’s more humble winegrowers. The volume of basic Bordeaux exported to China has grown over 100 percent every month of the past year, according to Xavier Coumau, president of the Broker’s Union. And prices are inching up a few cents a bottle.

So the Chinese aren't limiting themselves to just the top wines (whether Lafite or the apparently au courant DRC) as status gifts, it sounds like they are actually buying the "regular" stuff. Do you think drinking Bdx is becoming a habit there or is this just another fad?

If Lafite is passé, does this mean I can look forward to Duhart repricing down to its peers?

I'm not sure how much of this growth in bordeaux consumption is bulk, but I would guess it is a large component. In bulk, the wine is transported in tanker trucks to either bulk tanker ships or ISO marine tanks for overseas shipment. It may or may not be labeled as Bordeaux or go into bottled wine....it might be blended, used for other food or industrial processes....(or possibly bottled and labeled as Lafite).....so it is really difficult to say whether Bordeaux consumption there is surging in the common household. If it is, China will figure out a way to be the low cost producer and supplant Bordeaux supply (at this low end of the market).

JonB wrote:or possibly bottled and labeled as Lafite

We have a winner!

At least we know that Bordeaux's hype machine can still find a silver lining in any cloud. The impact of percentage growth statistics is easy to overstate when the baseline is small. If basic Bordeaux shipments to China have literally "grown over 100 percent every month of the past year", then the 12th month must have seen more than 4,000 times as much wine shipped as the same month one year earlier. As long as the volume of basic Bordeaux exported to China was miniscule in 2010, then I admit it is possible that 8,000+ times as much was sent to China in 2011.

If the statement really meant shipments grew more than 100 percent year over year each month of the past year, then it means shipments have merely doubled which is easy to accept. Again, without knowing the volume sent in 2010, it's difficult to asses the real impact on the market. Are the basic Bordeaux vignerons buying new cars and tractors, Alex?

Guys
I have written dozens of notes over the last year about the nature of demand in Asia.
The market in this part of the world is rather fickle, and every few days I get a new email aaobut discounts on Bordeaux.
It is either a vertical of one estate (you name it, Pontet Canet, GPL, Montrose, Leovilles, Pichons, lafite, whatever) 0or more often lately, a horizontal of numerous right or left bank estates from various vintage.
The wines have been offered from the 60s onward in many cases.
More recently, they have been mixed bags (various vintages and estates) aand at heavily discounted prices.
I commented earlier last year that I'd been offered numerous back vintages of lafite that came from a negociant in Bordeaux at big discounts.
That one did surprise me.

Yet the market here is fickle and the Chinese get upset readiy if they pay $2000 for a wine and then see it being discounted the next month or so.
And that is causing consternation.
Pre-arrival (en primeur) sales are based on the obvious expectation that prices will increase later or supply is scarce and that is rarely the case anymore as tranches are leaked out over time creating artificial shortage on release.

Now the market in Asia has NOT gone sour.
There is a correction going on and I also know from being a private importer as well as local buyer that there is a lot of back vintages hanging around in estates, negociants, courtisans and importer holds.
The en primeur campaign here ofr 2010 did well.
The local importer I know sells in China and SIngapore and has contacts throughout Asia, and says that the value was greater than in 2009, though the volume was marignally down (meaning the unit price o average was higher).
Lafite sold well but some other high end wines struggled to sell as well as in 2009 simply as the market is waking up to the idea that price is not everything.
At the moment, top end wines are status symbols - and I won't repeat the jokes I make about them.

The economies of most Asian countries is strong. CAGR in China is predicted to be 8-9% next year, a bit lower in SE Asia and India, though still strong.
The big issue for Bordeaux is the train wreck in Europe in particular.
The EU is predicted to contract by abouot 0.5% next year and expensive wines (from everywhere) is a likely cut.
Anyway, the speculators and arbitragers may just have to settle on wines like Ducru B, the Pichons, Leovilles, whatever.
I'm moving downward along with others.

Claudius,

Very interesting analysis. Thanks for sharing.

I know so little about China... Presumably, it is very difficult to have a handle on all that's happening in that large, populous country....

Me being me, I will express one doubt though, about "en primeur sales are based on the obvious expectation that prices will increase later or supply is scarce and that is rarely the case anymore as tranches are leaked out over time creating artificial shortage on release". I think the latter part of this sentence is largely an urban myth.
Like so much to do with futures, there are absolutely no statistics whatsoever to support your take on this - or mine!
Sure, *some* châteaux release in tranches, but the second and third tranches are not hoarded and held back as one sometimes hears. There is a progression in price, yes, a testing of the waters, but this has been going on for decades, i.e., is nothing new.

I think your use of the term "correction" is spot on.
You mention that the 2010 en primeur campaign went well. American and English boards were very sceptical of this vintage *anywhere*.

You write "At the moment, top end wines are status symbols". I'm wondering if it has ever been any different... including in the West!

You say, rightly that "the big issue for Bordeaux is the train wreck in Europe in particular".

Finally, you write "I'm moving downward along with others". Yes, I've joined the club too! I spent last week-end in Côte Rôtie and came back with a trunkful of wine. You can find really good stuff there for under 30 euros a bottle, and superlative stuff for 50-60.

Best regards,
Alex R.

Hi Alex:

I think the wine status symbols in the USA were not Bordeaux.
But the boutique California wines sure were (Harlan,Screaming Eagle, Dalle Valla Maya,Dominus). I'm sure I left some out.
I can't tell you how many times a new collector would brag about owning or tasting such wines,but had never tasted a First Growth.
I'm lucky to have joined this crew whose primary interest is drinking great wines over a wonderful dinner in a atmosphere of comaraderie.

Bon vivants!

Vie la BWE!!!!!

AlexR wrote: I spent last week-end in Côte Rôtie and came back with a trunkful of wine. You can find really good stuff there for under 30 euros a bottle, and superlative stuff for 50-60.

First Burgundy and now the Rhone? It's good to see you broadening your cellar! Although we've had a mild winter so far, hunkering down with a good Northern Rhone and a nice stew is a fine way to spend a winter evening.

Living in a wine producing region has huge attraction to almost any wine lover, but living on the East Coast of the US has meant easy access to a wide array of the world's wines. This has been the reason I for one have so long resisted your advice to explore the lesser-known wines of Bordeaux - at every price point there are fine alternatives from other regions.

Ciao,
Tom

DavidG wrote:

JonB wrote:or possibly bottled and labeled as Lafite

We have a winner!

Took the words out of my mouth!!

Alex
The Asian market is immature and thus there are giong to be swings and roundabouts as the buyers actually work out which wines they like and are actually worth it. The label buyers are not going away any time soon!
The most recent data I have is 2009, and in that year, imports amounted to 171M litres and $US442M (indicating low litre costs) with the value increasing in that year by 23%. Note that it includes bag in box and bulk wine (some is packaged locally). Also note that China is increasing its own production - 960 kilolitres in 2009 (up 37% from 2008).

Other research suggests a doubling in local consumption between 2005 and 2010, and there are expectations for CAGR of 15% or so for the short to medium term.
Whether it is consistently maintained is another matter though the "noveau riche" are accounting for strong increases in demand.

Now before we get too excited, it accounted for 3% of total wine consumption in 2008 and around 3.5% in 2009, and even if the consumtion has increased steadily since, the total share is about 4-5% in 2012 which is not much given that China accounts for 20% of world population (1.4B out of 7B).

There is little doublt that growth since 2000 has been strong - consumption has trebled since then - and the average value per litre has steadily increased as well (though I can't imaging that it will at the same rate in future).

It is worht noting that while there are many long term wine drinkers in China now, the rapid adoption of wine means that it still remains a trendy and fashionable product for many, and tastes and preferences will continue to change rapidly.