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Benjamin Robertson

Purse the lips and pass the spittoon. It is that time of year when global vintners descend on France's Bordeaux region to whet palates and prep clients on the latest cellar must-haves.
The only problem: no one is buying.
"The last five vintages, the collector, the end-user, the person the chateaux ultimately wants to buy the wine, they are out of pocket. They would be better off having not bought en primeur," said Justin Gibbs, the co-founder of Liv-Ex, an online wine trading and market analysis firm.
While global demand for drinking wines has never been stronger, a spate of poorly received, and arguably overpriced, Bordeaux harvests has dampened interest in what used to be a supercharged sales campaign for pedigree wine labels like Chateau Lafite Rothschild.
Unsold stock from 2011, 2012, 2013 vintages is between 10 per cent and 150 per cent higher than average, says Liv-Ex, while en primeur trading as a percentage of all Liv-Ex sales dropped from 15 per cent, when the well-regarded 2009 vintage was released, to 1 per cent during the 2013 vintage campaign.
The sudden demand drop is hitting the wine trade hard and merchants are openly complaining about vineyard pricing.
A form of futures contract, the French en primeur sales model is effectively a trade-off between the risks of buying an immature in-barrel wine that just might develop into an acclaimed full-bodied muscular claret, and the potential reward of a discounted price compared to buying in bottle.
The vineyards - also known as chateaux - benefit by generating cash flow on wines still in production.
"The prospect of another poor en primeur campaign this year could do real damage to confidence in wine futures and to the goodwill of consumers towards Bordeaux in particular," wrote 12 of the largest British wine merchants in a rare open letter of complaint to winemakers in January.
"If we don't think it will be value, we won't promote it," says Jo Purcell, a Hong Kong managing director of Farr Vintners, one of the letter's signatories.
Farr's sales figures tell the story. Five years ago when the market boomed off the back of newly minted Chinese entrants and investors chasing a historically remunerative asset class, the British-based firm sold en primeur worth £57.2 million (HK$656 million). Last year, Farr shifted just £1.4 million.
The toll has been especially hard for the 100 to 150 negociant middlemen obliged to buy annual allocations from the chateaux for resale to the global market.
In 2013, operating margins at Bordeaux negociants fell from 6.1 per cent to 4.4 per cent, while debt-equity ratio increased to 68 per cent from 53 per cent on average, according to Liv-Ex. Stock on hand equated to more than 240 days of sales.
Negociants that refuse allocations can be blacklisted, and there are now question marks over how many could survive another duff campaign. The chateaux will start pricing wines this month.
"It would be fair to say that prices should go up. 2014 is very good - almost great - but we have to pay attention to the market," Paul Pontallier, a managing director of top-tier winemaker Chateau Margaux, was quoted as telling online news portal Wine Searcher.
Vineyard owners point to the weak euro, down about 25 per cent against the US dollar and 10 per cent against the pound, from a year ago, as discount enough.
Bordeaux benefited from an Indian summer that helped ripen the region's signature cabernet sauvignon grape and produced "a very good-quality vintage", says Eric Desgouttes of Kerry Wines. Kerry Wines is part of the Kerry Group, the controlling shareholder of SCMP Group, which publishes the South China Morning Post.
Desgouttes thinks certain wines from the famed Left Bank appellations of St Julien, St Estephe and Pauillac should be "put in the cellar", though he, too, is watching the price.
"The vintage will either be bottom of the Premier League or top of the Championship," says Tom Stopford-Sackville of wine merchants Goedhuis & Co.
Purists scoff at those who view wine as a tradeable commodity but the combination of a maturing asset and an eventually imbibed supply has long attracted investors.
The discount that en primeur buyers traditionally enjoyed started narrowing in the late 2000s as chateaux noticed rising global interest in their brands, especially from emerging markets like China, and began raising en primeur prices.
Back-to-back outstanding vintages in 2009 and 2010 were followed by a succession of lacklustre crops. En primeur release prices were halved. Merchants wanted more. Buyers would not buy new wines when they can get older established vintages for the same price, Purcell said. The earlier rise in prices drove away a lot of Bordeaux's loyal followers, who went off to explore other wine regions, said Purcell. Bordeaux needs to win them back.


Drop in demand sours Bordeaux wine trade

While global demand for drinking wines has never been stronger, a spate of poorly received, and arguably overpriced, Bordeaux harvests has dampened interest in the sales campaign for pedigree wine labels. Photo: AFP

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