Commodities news Real Estate Alternative Investments

Bordeaux First Growths – what really is the state of play?

Share this article!

June was another tough month for First Growths, with the LX50 (Bordeaux First Growth index) retreating 3%. This means that since June 2011, the price of First Growths has dropped 40%.

But what does this mean in real terms? Well, as reported by Liv-ex this week, ‘a 96 point First Growth (Haut Brion), with 8 years in bottle (magnum), traded at £2120. That is less than £180 per bottle equivalent. The same price the market pays for virtually any vintage of Opus One.’

Opus One , a Napa Valley Bordeaux blend – the brainchild of the late Mouton owner Baron Philippe de Rothschild and Robert Mondavi in 1978, always set out to become ‘the first growth’ of US wine – but achieving it in this fashion, was probably not how they saw it happening.

When put into this perspective, it does seem a remarkable change in fortunes for the premier grand cru classés of Bordeaux – which just 3 years ago, were expected to reach a minimum £5,000 price level for any vintage (or £400 bottle price equivalent).

Acker Merrall & Condit’s – the world largest selling fine wine auction house reported this week that Bordeaux wines have accounted for just 30% of their sales this year, down from 40% in 2013 and 50% in 2012.

However in contrast to the data from auction houses and Liv-ex, there have been bullish comments from wine merchants and traders in recent weeks. London’s oldest wine merchants Berry Bros believe ‘there are no fundamental reasons we won’t see trading (in Bordeaux) at previous high levels’ meanwhile, Gary Boom, founder of Bordeaux Index a fine wine merchant and trader has seen ‘demand for Bordeaux up 30 per cent in Asia this year’ believing that ‘the market may have turned a corner’.

So on one side of the coin we have circumstantial evidence from both the world’s largest wine auction house and the world’s leading fine wine exchange that demand and pricing for Bordeaux’s greatest estates remains low, whilst on the other we have two of the world’s biggest wine merchants claiming a corner (and perhaps a bottom to the market) has been found.

But what about the end consumer – the buyer, collector, the investor? Has and will their interest finally be peaked? Because on the one hand, the appetite for buying high priced wines doesn’t seemed to have dwindled. At the same time as the market has fallen for Bordeaux, Burgundy has outperformed it considerably posting gains of 48% in 5 years, and according to Acker’s CEO John Kapon, Burgundy is helping to pick up the slack left by the void of top end Bordeaux sales. So in reality there hasn’t been a shift in people wanting to spend money on fine wine, just a shift away from people wanting to buy high priced Bordeaux.

As Robert Parker markedly pointed out a few years ago at the height of the boom, ‘wine consumers, are the true marketplace since they actually drink these wines, and then tend to replenish their stock, buttressing the marketplace’. So will consumers be attracted back in at current market levels? Interestingly, UK based wine educators ThirtyFifty reported in their newsletter this week that this month was the first time in 6 years of asking the question: ‘In the current economic climate are you cutting back or spending more on wine?’ There is a big gap in favour of spending more.

This would suggest an interesting cross-road has been reached, at the same time that wine buyers are finally looking to spend more money on wine – prices of Bordeaux grand cru classés are at their lowest point in 6 years.

Interestingly looking at the market and prices for Bordeaux, the one area, as I reported last week that we have seen greater resilience has been in the more mature, older vintages of Bordeaux that are ready to drink. So perhaps this suggests that we are moving into a more consumer driven market.

I mean when you put in perspective, you could pick up a case of 6 year old, 95 point 2nd Growth Bordeaux (Montrose 2008) for £550, or £45.83 bottle equivalent – or you could spend close to £40 on a house red in your local gastro pub, top quality Bordeaux doesn’t look so expensive anymore? Especially when you consider Robert Parker, the world’s pre-eminent wine critic only a few years ago proclaimed to his readers to ignore these ‘glamour wines as they will be beyond the reach of all but the wealthiest millionaires and billionaires’.

It was interesting, that in this very same week, a notable wine collector in Singapore emailed out of the blue to arrange a time to speak, because as in his words ‘prices for Bordeaux are looking interesting’ again. Whilst a customer based in Washington DC ordered 3 cases of Haut Brion 2005 for his home cellar because ‘the price looked so good’.

And the wine market has been here before – in 1989/1990, the end of the 90’s and following the Lehman Brothers crash in 2008. Prices have always consistently bounced back.

If these price falls have coincided with increasing global prosperity which will attract traditional consumers back into the market, then it might just lay the foundations for a more healthy, sustainable market for Bordeaux first growths over the foreseeable future. My advice would be, that if you fancy buying some Bordeaux for laying down or consuming immediately, it’s a great time to buy. As an investor it’s equally attractive to buy but don’t expect a short term explosion in prices – invest for the long-term.

Add Comment

Investing is speculative. When investing your capital is at risk. This site is not intended for use in jurisdictions in which the trading or investments described are prohibited and should only be used by such persons and in such ways as are legally permitted. Your investment may not qualify for investor protection in your country or state of residence, so please conduct your own due diligence. This website is free for you to use but we may receive commission from the companies we feature on this site. Click here for more information.