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Lemmings to the Sea?

John Tilson • 8/8/10        Print This Post Print This PostComment Bookmark and Share

A few years ago I was in Napa and stopped by the Dean & DeLuca store.  In perusing through the myriad of wine racks, I was taken by the Cabernet Sauvignon section.  It was huge!  I was struck by not only how many bottles were priced at $100 and up, but how many in this lofty price range that I had never heard of.   After counting 20 or 30 I gave up.  As I left the store, I could not help thinking that this had gone too far.  How many people were there to support the market?  To me, it looked like the top of the market.

Today, the market has come down substantially.  The “wine by the numbers,” game, with a few exceptions, has clearly rolled over.  The “wine on steroids” school of wine production is in decline led by the collapse in demand for California Syrah and a lot of Cabernets and Pinot Noirs as well.  A recent New York Times article entitled “Is There Still Hope for Syrah?” highlights this fact.  It begins:

“There’s a joke going around West Coast wine circles.  What’s the difference between a case of Syrah and a case of pneumonia?  You can get rid of the pneumonia.”

The article also talks about the beginning of Syrah quoting the California Department of Food and Agriculture statements showing that 194 acres were planted in 1990, but by the end of the decade it was 10,000 acres and now stands at 20,000 acres!  This phenomenon coincided with the wine critics’ promotion of the bigger, richer, better syndrome with “big” wines getting “big” scores.  But many of these wines tasted the same and big, jammy, fruity, alcoholic wines began to appear all over the place.  And not just Syrah, but Cabernet and Pinot Noir as well.  That, combined with the increasing amount of big Australian wines, particularly Shiraz,  resulted in an over supply of wine on the market.  Big scores meant that “collectors” rushed to buy the wines.  How much was  produced versus the amount consumed and collected is the $64,000 question.

Today the “big numbers” this and the “big numbers” that are being offered at discounts of 30-70% off former asking prices.  Hardly a day goes by that I don’t receive offers for these types of wines from various sources.  Now I am wondering just how many of those “big number” wines are still out there looking for a home?  My guess is plenty because I think there is more to it than just classic market saturation.  By that I mean that it is possible that there is a secular change in people’s taste.  When my friends and I first started drinking wines many years ago we gravitated to the “bigger is better” school.  But we soon tired of Late Harvest Zinfandel which was the biggest, highest alcohol wine out there at the time.  We began to favor balance and finesse over sheer power.  So it is that I believe a new generation may be following the same path.  “Big wines” with “big numbers” get tiring.  And, if there is a secular change, look for the style of the wines to change over time.  And, along with it, expect the price points to continue to adjust to the new economic realities.

Whether this forecast comes to pass, remains to be seen.  But today, the market and prices are clearly adjusting nearly everywhere with one big exception:  2009 Bordeaux.  And, while I am not suggesting that Bordeaux is in the same category as Syrah and other New World “fruit bomb” style wines, I do believe that it is trending in that direction.  And, I can’t help but wonder how much of this wine is being purchased for investment versus consumption.  If it is mostly for investment, as I suspect, then we may be on the verge of another “bubble” here.  If you think the last “Vintages of the Century” (2000 and 2005) were hyped (for a comparison of the 2000, 2005 and 2009 vintages, please see Michael Troise’s chart at the end of this article), well they pale in comparison to the 2009 campaign.  For the last few months, there has been a deluge of emails from all over the world offering 2009 Bordeaux for sale.  Virtually all the wines have “big numbers.”  From obscure wines selling for $25 a bottle with “big numbers” to the $1,000 – $3,000 per bottle offerings for first growths (virtually all of which have been proclaimed perfect), there is a massive out pour the likes of which I have never seen.  How many are actually being sold is another matter.  In fact, now that all Chateaux have completed their offerings there is a real question of how much wine was, in fact, sold from the Chateaux and how much was held back?  Time will tell.  But the financial condition of most of the Chateau owners today is so strong that many can hold back substantial quantities in the hope of even higher prices in the future.  If that doesn’t happen, they can just continue to hold inventory and wait for the next vintage.  The wine in the trade channel is another matter.  The wines will continue to be offered for sale and the push will be to sell and re-sell at higher and higher prices.  But this is by no means a certainty.  The only thing we know for sure at this point is that the Chateaux and some merchants have collected their money.  But not everyone has chosen to play the game.  In fact, some merchants have chosen to stay out of the game altogether.  Here’s an example of commentary from one large seller of Bordeaux.

Max Marinucci of The Wine Connection (www.wineconn.com), had the following to say about 2009 Bordeaux:

May 7, 2010:

“Now that prices for the latest and greatest from Bordeaux are trickling in (the 2009 vintage), it is a wonderful time to reexamine what is already out there that truly gives value for your hard earned dollars.  As we have stated before, our position on 2009 is clear and, from what we have seen so far, Bordeaux still tends to bury its head in the sand.  There seem to be many good wines at decent prices but those are certainly not worth buying on futures, for the most part.  Yesterday, Lafleur de Gay was released at what seems to be a $100 retail price.  That wine would be a tough sale at $60 and if that is any indication, others may follow suit and overprice their wines for this market.  Make no mistake, some wines will sell to those who belong in the price is no object category but I fear that many wines will just be sitting around to be discounted later.  Contrary to what Mr. Parker says (and he’s a very interested/vested party), I would exercise great caution with 2009.”

June 24, 2010:

“I’m sure you’ve seen the mockumentary This is Spinal Tap, with Nigel Tufnel proclaiming that his Marshall amps were louder, since he made the highest setting on the volume knob, 11,

Cos d’Estournel 2009   $3,600 to $4,000

Leoville las Cases 2009   $3,800 to $4,200

That’s Prats, Delon & Co:  always one louder!

Not happy to play second fiddle to Bruno Borie (who’s wine is being already discounted, albeit too little too late), they have stepped up a few notches on the insanity gauge.  Yet, some people believe Cos will receive the highly coveted “Parker Ultimate Blessing” (100 points) and turn it into a $500+ bottle of wine and are buying it today, looking to lock the price.  Not going to happen and you can take that to the bank (literally).  Remember the 1990 Montrose?  That’s a 100 point wine but you know what?  It is still Montrose.  End of story.  Surely, whoever bought it on futures for $50 did well but that’s not the same with Cos 2009.  That 100 point score is already built into this price, or very close to it.  Bottom line, keep you cash for two years and buy it then if you really want it.  Trust me, it will be out there.

From a consumer’s standpoint:  who gives a crap, as there are plenty of superb wines out there.  Speculating?  Buy and sell Apple stock.  Wine at these levels of (aside from two or three names, maybe) is for people who have so much cash that they have literally run out of things to buy and need new or interesting items to play with.

Leoville las Cases 2009?  No big surprise there, as Delon still believes Las Cases should be a First Growth and therefore should be priced as such.  Whatever.  Again, you can buy just about any other outstanding to legendary vintage for less or the same as 2009.

Angelus 2009?  Also $3,600 to $4,000

Again, Bouard has not seen the memo that their 2005 was wildly overpriced and never sold well on futures or now.  So why not make it even more expensive since the world is in such better shape that it was in 2005.  Still scratching my head there but why should he care anyway.  Once he passes the wine onto the negociants and down the chain, his pricing mistakes are no longer his problem and he’s sitting on a juicy pile of cash.

I’ve never made it a secret that I had grown sick and tired of playing the Bordeaux Futures game and looking at my peers offering and trying to sell these wines at these prices is truly embarrassing.  If you want to give people what they want, fine, but hyping the hell out of it to make a sale even though you are perfectly aware that it is a joke, is just wrong.  I know that many will be forced to put their money where their mouths are in a few months but I don’t think it will be pretty.  Good luck to all.”

June 29, 2010

“Apparently quite a few negociants have now released second tranches of many wines, at even higher prices, even though the first tranches apparently did not sell well.  Puzzling but true.

Anyway, someone must be selling something but to find out exactly what, is an exercise in futility at this point.  All we know is that prices for all the First Growths, La Mission, Cos and many others are in a rarified atmosphere and only time will tell if the stars will align…”

So there you have commentary from one large Bordeaux retailer that is passing on the 2009s.  Other people tell me that they are not sure that the 2009 Bordeaux are as good as advertised.  Or even if they are, are they worth a lot more than other “Vintages of the Century?”  Then there is the matter of paying these high prices for wines that won’t be delivered for 1-2 years.  And given the global economic situation, who knows what risk there is in currency?   Finally, we have now had three “Vintages of the Century” in the past 10 years, several “very good” vintages and no “bad” vintages.  What will happen to future prices if this trend continues?  How long until the next “Vintage of the Century?”  Two years, three years?  These are legitimate questions that every buyer should consider.  For me, I am thinking of the trend to “big numbers, big wines” and what is happening there.  This time it’s “big number, Vintage of the Century” Bordeaux.  And, even if most of the 2009 Bordeaux do go to the Orient as many suggest, it is still hard to envision a continual escalation in prices in a deflating world.  So for now, I am reminded of Lemmings to the sea.  I do not want to participate in this journey.  Caveat Emptor!

In vino veritas,

John Tilson

MichaelTroiseChart

EXPLANATION:

Robert Parker Score:
R  =  Release
C  =  Current

Prices:
R$  =  Bottle price on release (the best price offered to retail buyers)
C$  =  Current bottle price (the average auction price this year)

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