Opinion: An excellent 3rd consecutive vintage for Bordeaux wines, what does this mean for the prices?
After a nightmarish year for French vineyards where the pandemic has seen income plummet and winegrowers forced to send their unsold wines to distilleries, sometimes be turned into a hand sanitizer, the sector is trying to bounce back.
In Bordeaux, the epicenter of the world fine wine market, the wine harvested during this difficult period has just passed through its first campaign, often called “wine futures” in English.
the first The system dates back to the 18th century and was modernized in the 1970s to look like what we know today. Like futures contracts on financial markets, it allows producers to sell their wine while it is still in barrels. The wine is then finished, bottled and delivered to customers approximately two years later.
This campaign is being carried out as a finely organized system. Each year, for a week in spring, oenologists will come to Bordeaux to taste the wines and publish their notes and notes. There followed a two-month period during which each château sold its wine to consumers through a complex system of brokers, traders and merchants.
This well-oiled machine is nevertheless subject to many uncertainties, which go beyond the current pandemic. It’s because first the sale involves an unfinished vintage of uncertain quality released into an unknown future economy.
How do wine merchants value this unfinished wine? And what is the right price for a vintage like 2020? We have built an economic model to simulate reasonable exit prices for the current campaign.
In Bordeaux, demand and therefore prices depend mainly on quality and less on quantity. After a drop in prices between 2011 and 2016, the Bordeaux market rebounded in 2016 thanks to a great 2015 vintage. This was followed by an even better year 2016, for which prices increased substantially but not excessively.
In 2017, the vineyards were affected by a severe frost which resulted in a 40% drop in the wine harvest. The drop in quantities has prompted the châteaux to maintain prices close to 2016 despite the quality. Bad sales thus characterized, unsurprisingly, the 2017 first countryside.
The 2018 vintage, sold as exceptional, saw significant increases, even though price levels were already very high. If quality should have generated a solid demand, it was not – the fault of the châteaux for being too greedy.
Last year, the pandemic and associated lockdowns almost led to the cancellation of the first campaign for the 2019 vintage. Finally, an adjourned and abridged version took place. Perhaps surprisingly, and thanks to exceptional quality and reasonable prices, it was a success.
The pandemic is forcing castles to make an effort on prices. This is where the difficulty of this market lies: sellers had to lower prices to ensure a successful campaign while being careful not to send too strong a signal to the market at the risk of making the many wines of 2017 and 2018 unsaleable. still available.
Back to normal?
The 2020 vintage benefits from more favorable external conditions than 2019, but it is still difficult to speak of normality. This year, tastings were held remotely with samples sent to experts around the world. Tasters and producers met by videoconference.
Meanwhile, restaurants in France were completely closed between October 2020 and June 2021 and are only resuming their activities. Uncertainty about the economic recovery remains high.
However, the situation has improved since last year, the prices of fine wines have remained solid and the quality of the 2020 vintage promises to be excellent. There will be some great wines that will be at the heart of the market when they are released. But we do not know how the market will react to this unique succession of three consecutive excellent vintages. This is unprecedented and raises the question of the market’s capacity to so quickly absorb such a considerable volume of quality wines.
How to determine a fair price
In a forthcoming study, we have proposed a model to estimate the fair price of 69 prestigious Bordeaux wines at the time of their release. The approach envisaged is based on the principle that prices in primary markets (first) and secondary markets (bottles from previous vintages) cannot be substantially different.
The model includes variables measuring the economic situation, the quality of the vintage and the wine concerned, and its volatility (some wines have stable prices while others fluctuate strongly).
Below we use this model to estimate the fair prices of these wines for the 2020 vintage and compare them to those already released in the first market before June 7. The model can explain about 80% of the price variations of these wines.
The model suggests that a stabilization of prices compared to the 2019 vintage would be reasonable. And given the exceptional circumstances surrounding the release of the 2019 vintage, a slight increase (in the order of 5% to 10%) in prices in 2020 compared to 2019 would seem logical.
This table presents the fair exit prices – according to our model – and contrasts them with the real prices of the wines, both in euros. All but one of the wines were marketed at prices higher than model predictions. But the differences are often reasonable.
However, some wines seem very expensive compared to the prediction of our model, in particular Château La Mondotte from the famous region of Saint-Emilion and Léoville-Barton and Lagrange de Saint-Julien. Certain wines which had drastically lowered their prices last year did not increase much this year. This is the case of Malartic-Lagravière in Pessac-Léognan which, after a drop of more than 20% last year, is content with an increase of 9% this year.
At this stage, most of the price increases for the 2020 vintage remain moderate, which is consistent with the model. He suggests that the most significant price increases compared to the 2019 vintage should not exceed 10%, with the exception of a few wines like the rare Pomerols and some of the premier crus.
Among the wines that have already completed the first campaigns, some have increased their prices beyond the suggested threshold. Early signs from the market suggest the increases are excessive and have reduced demand for these wines.
With the influx of grands crus in Bordeaux and elsewhere in Europe, it would be wise for châteaux that have not yet communicated their prices not to be too greedy and to maintain attractive prices to ensure a successful campaign. It would be the best way to make Bordeaux bounce back after the pandemic.
Jean-Philippe Weisskopf is associate professor of finance at the Ecole hôtelière de Lausanne, University of Applied Sciences of Western Switzerland (HES-SO) in Delémont, Switzerland. Philippe Masset is Associate Professor at the HES-SO. This was first posted by The conversation – “How Bordeaux winegrowers set their prices after the pandemic“.