Sunday, January 26, 2014

My view on price [GohBerry] / A Buyer’s Market [Wine Spectator Feb 2010]

The Chinese's government-driven austerity drive present an interesting market trend for all wine lovers, even as recommended retail prices for selected labels continue to jump. For example, Penfolds Grange 2007 was around S$650 hundred and reportedly going beyond S$900 per bottle for the 2008 vintage.

In one way or another, I believe wine market is like share market, a function of demand and supply and is likely to see history repeating itself.

While the current trend is hurting the Chinese market quite a bit, assuming the spending cut in China will not be infectious as the GFC, I am of the opinion that the wine market will allow new collectors like me take my own sweet time to collect some good bottles.

In term of Vintage, my favourite Champagne region is showing quite promising 2006 vintage with 2008 being generally believe to match 2004, but may not exceed 2002. 



Meanwhile, Barossa Valley and Barossa Valley and McLaren Vale is showing strong potential for 2012 vintage.


Lastly, I would like to share a copy of the wine spectator article on the impact of 2009 GFC on wine markets, where most buyers cut back on spending.

The recession is turning the wine industry upside down, And wine lovers are taking advantage

Tim Fish, Mitch Frank
Issue: February 28, 2010

The e-mails arrive in your inbox every hour advertising fantastic wine buys in the midst of the Great Recession. They promise outstanding wines at prices so low they seem impossible to resist: Château Pétrus 2004, slashed from a release price of $1,299 to just $439; Caymus Cabernet Sauvignon Napa Valley Special Selection 2007, originally $150, now just $99; Silvio Nardi Brunello di Montalcino 2003 at $34, down from $58. Want Cristal? Louis Roederer Brut Champagne Cristal is 30 percent off at $179.

And not all of these "cellar specials" are high-end luxury wines. New York retailer Sherry-Lehman is offering Cloudy Bay Sauvignon Blanc Marlborough, once $31, for $19.99. Ridge Lytton Springs Dry Creek Valley 2006 is available online for $17.99, down from $35. Te Awa Merlot Hawkes Bay 2004 was spotted at a California outlet for $3.99, slashed from $17.99.

"It seems like every day there is a fire sale, at all levels," notes Madeline Triffon, who as wine director for the Matt Prentice Restaurant Group in the Midwest buys a lot of wine. "Inventory reduction, inventory blowout, severely reduced prices at all levels-it's a buyer's market."

Wineries, retailers and restaurants are trying a variety of tactics to keep selling during the hard times. Some wineries are offering second labels or cheaper wines. Tim Perr of Pali Wine Co. got into the California Pinot Noir business hoping to sell $60 single-vineyard wines.

Instead, he's now offering wines from larger appellations like Sonoma Coast and Willamette Valley at $19 a bottle. Other wineries, worried about damaging their brand image, are quietly selling a third or more of their wine to bulk producers, who are happily putting better fruit in their wines while keeping prices low. Still other wineries are offering brief fire sales on specialized Web sites that move excess inventory without compromising the brand.

Some of the best deals to be had are from regions desperate to sell out a good vintage before an outstanding vintage is ready for market. With 2004 in the wings, deals on 2003 Brunello di Montalcino are widespread. Similar bargains exist for 2006 Napa Cabernet and Sonoma Pinot Noir. As early buzz on the 2009 vintage in Burgundy and Bordeaux spreads, merchants are eager to sell off the 2007 Burgundy and 2006 Bordeaux, which have not been in demand. No one can predict what will happen when 2007 Bordeaux hits the market-it's considered a lackluster vintage, but the wines were priced as futures during the economic boom's last gasp.

As the holiday season began, deals on Champagne started popping up like mushrooms. "Sales just basically stopped with the top Champagne [last year]," says Trey Beffa, vice president and domestic wine buyer at K&L Wine Merchants. "There's more Cristal and Dom Pérignon available than I've ever seen."

For the time being, the power is in shoppers' hands. "Take advantage of the deals while they last," says Corinne Conroy, who works with Henri Lurton at Margaux's Château Brane-Cantenac. "Splurge if you can!"

Call it the age of the consumer. For the better part of the past two decades, wine prices seemed to know only one direction-up. But the worst financial crisis since the Great Depression has turned the wine industry upside down. After years of double-digit growth, wineries are facing flat or declining sales.

Several California wineries have quietly been put up for sale and failed to find any bidders. The tough times have not spared any region and there is a palpable fear that the next two years could see vineyards pulled up and barrels and tanks auctioned off. Constellation, the world's largest wine company, is cutting back its operations in Australia, trying to sell some of its assets. Foster's looked at selling its entire wine division, but decided to try and salvage it instead after taking a $517 million write-down on the division in 2008.

At the other end of the market, many small, high-end wineries with established names are treading water. "Napa Valley has been the hardest hit," says Rajat Parr, wine director for the Michael Mina group of restaurants. "We put a hold on [buying] high-end Napa Valley Cabernet six months ago." While many Napa producers refuse to drop prices, worried the discounts could hurt their brand image, Chuck Wagner decided to reduce his Caymus Special Selection from $150 to $99. "I felt that wine was not moving through the system as fast as it should," he says. "We set the price that would still allow us to make a living but be a little more realistic given the economy." He was rewarded by quickly selling most of his inventory.

Despite the grim news for producers, one thing stands out about this recession more than previous ones: Americans are drinking more wine. While dollar sales have declined, volume sales increased in the past year, according to Impact, which is owned by Wine Spectator's parent company. Wine is no longer a luxury that people will cut back on. Instead, they're buying more wine at lower prices.

The information revolution has made it much easier for people to find the bargains. Web sites like, and offer nonstop deals on good wines the industry is trying to move. Of course, consumers have to do their homework. Many such sites oversell the discounts. Jeremy Seysses, of Burgundy's Domaine Dujac, has discovered a few online retailers that jacked up the price of wines before discounting them, to exaggerate the savings.

Other sites, such as and, empower consumers to compare prices and find the best deals, often on their iPhones while standing in a store or looking at a wine list. "There is a huge price transparency now due to," says one major wholesaler. "This has cut into the profit margins on wine; it used to be that customers in one market didn't know what customers in another market were paying for the same wine. Now, with one click, you can find the best price and know what everyone else is paying."

That has reduced the ability of retailers and restaurants to engage in overly aggressive markups. "The restaurants are between a rock and a hard place," says Michael Calhoun of Landmark Vineyards in Sonoma. "People know how much a bottle of wine costs. I don't think restaurants are going to be able to sell a bottle for three times cost anymore."

Once the recession eases, will consumers look for luxury again? Tom Seery, 40, a wine drinker who runs a medical Web site in Seattle, doesn't think so. "I'm not a wine industry expert, but for me it seems that there are thousands of great wines to be had at below $20. It's hard for me to justify the next tier up."

Some in the industry think it's a good trend. James MacPhail, who produces two Sonoma Pinot Noir labels, dropped his prices 15 percent. "I don't see the high end of the market bouncing back. Frankly, I don't want it to bounce back. We all got a little too steep in our prices. It might be a good adjustment."

Some are looking at how the recession will shape the buying habits of millennials, the generation that has come of age since 2000 and that represents the next big segment of the market. "We really are very excited about the millennials," says Leslie Joseph, vice president of consumer research for Constellation. "They have come into wine at a younger age. They will be fueling our industry and providing a lot of growth that we need in the coming years."

Jesse Porter, 26, a director's assistant in Los Angeles, believes the current recession trends show millennials' buying habits. "In this economic situation, it makes so much more sense to buy a $10 Monastrell from Jumilla than it does to buy a $24 Syrah from Santa Ynez, or a $40 Napa Cab. People in the 20-something demographic aren't bound by prejudices regarding place of origin; they just want the most bang for their buck."

John Laird and his wife have a new rule. Since his job was recently eliminated, they don't buy wine for more than $15.

It's a common story in many households these days, except for the fact that Laird built his career importing high-end Bordeaux. Until recently, he was vice president of Chateau & Estate, the division of Diageo that made its name importing some of the best wines in the world. Still, Laird has not felt constrained by the $15 rule. "There is so much great, low-priced wine being made these days," he says. "It's hard to go wrong."

For years, the key phrase in the wine industry was "trading up." As Americans learned more about wine, they bought better quality examples and spent more per bottle. Now the buzz is all about trading down. Regions that can deliver solid wines at good prices, such as Argentina and Chile, are enjoying big gains. Many wine lovers are realizing that they can find great deals. "The recession has expanded the palates of consumers," says Sam Bronfman, formerly of Seagram's and now at Bacchus Capital Management, which provides financing for wineries.

People's spending habits began to change as home prices started to plunge in 2007. Then the financial crisis in September 2008 brought buying to a standstill. With banks no longer lending, there was a credit crisis up and down the supply chain. Retailers and restaurants curtailed wine buying, looking to sell the inventory they already had. Wholesalers and importers stopped ordering. Win­eries watched as cases started piling up in their cellars.

More than a year later, the credit problems have not gone away. Even when retailers or wholesalers ask for more wine, they place small orders. Their banks won't loan them enough money to carry large inventories.
Restaurants have been hit the hardest. People are dining out less, and when they do go out, they're buying wine by the glass, saving bottle-drinking for at home.

Jesse Rodriguez, now wine director at Addison, a Wine Spectator Grand Award winner in San Diego, got his start at the French Laundry in Napa Valley. "My last year there, we sold a little over a million dollars of wine a month for 10 months in a row-at a little, 14-table restaurant," he says. "I don't think people are whimsically saying, 'Sure, bring me the '82 Lafite' anymore. They're more likely to ask for something from the Languedoc."

At Cru, a Grand Award winner in Manhattan, wine director Robert Bohr cut prices across the board on the legendary wine list in November. "We're trying to do anything to draw people in to the restaurant," says Bohr. "If something is $120 on the list, we'll make it $95 to get it under the three-figure barrier." He's also offering some fantastic wines by the glass at the bar. Cru's star chef, Shea Gallante, was let go as part of cost-cutting measures and replaced by relative newcomer Todd MacDonald.

"With unemployment hovering near 10 percent, consumers will continue to pull back spending habits," says Constellation CEO Robert Sands. "Until the economy begins to stabilize and then starts to recover, we believe that [restaurant sales] will remain soft."
For small, high-end producers, mailing lists are good a indicator. Top wineries such as Harlan report that their list customers are still taking allocations, but fewer bottles. "The number of folks actually dropping off our lists has not really changed notably," says John Alban of Alban Winery in the Central Coast. "The biggest difference is that we have had more people let us know that they are not in a position to buy something or everything right now, but wanting to make sure that they maintain their position for the future." A big advantage for this tier of producers is their reliance on direct shipping and a loyal customer base.

Newer wineries are struggling more. Less well-positioned to weather the economic downturn, they don't have big mailing lists yet and it's almost impossible for them to convince distributors to take on new brands right now. James MacPhail started his Sonoma Pinot Noir label, MacPhail, in 2002. He produced 3,200 cases in 2007 and does not expect to have sold all the wine by this spring, when his 2008s will be ready. But he's grateful for the customers he has. "I cannot see me sitting down today and doing what I did seven years ago and having any success, especially at today's price points," MacPhail says. "I don't think that model can work anymore."

Wineries that produce more than 50,000 cases a year but fewer than 1 million may face the most daunting challenge: They're too big to sell most of their wine direct, but too small to attract the attention of distributors these days.

And as tough as times may be for domestic wineries, imported wines are hurting worse, largely due to the weak dollar. "It's a double whammy for wines from the euro zone," says Leonardo LoCascio of importer Winebow.

Bordeaux's main trade body estimates that the region's exports are down 15 percent. The Bordelais will soon be selling the 2007 vintage, a less-than-average year that carried inflated prices when it appeared as futures. While 2009 is reportedly an outstanding vintage, no one knows if there is an appetite for it.

Circumstances are no better in most other regions. Pierre-Henry Gagey of Louis Jadot reports that Burgundy exports are down 20 percent. The Chianti Classico Consorzio recently instructed producers to hold back 20 percent of their 2009 wines for an extra 24 months. In Australia, industry groups recently issued a report asking growers to pull out vineyards on a large scale.

No region represents good times like Champagne, and just a few years ago, producers were exploring how to expand the appellation. Now they have agreed to hold back a portion of the 2009 harvest as reserve wines for future years.

Chris Adams, managing director of Sherry-Lehman in New York, has seen the drop in sales firsthand. "Last October [2008], we hosted a Cristal tasting and other incredible events. No one was buying. I was a party planner." At Addison, Rodriguez has secured such a great price on Krug Grande Cuvée that he's pouring it by the glass.

"The icon wine brands are paying a terrible price," says Stanislas Henriot of Champagne Henriot. "If the crisis continues, you may see the price of Champagne on shelves going well under the production cost."

Industry insiders are predicting that things won't improve soon. Sales did start to show signs of life last fall. "Since August, business has been slightly better," says Adams. "But it's not anywhere near two years ago." Others think the pain could last anywhere from two to five years. The managing director of a financial banking house said that his clients were suffering from post-traumatic stress disorder. LoCascio saw better numbers in September only to watch sales flatten out again in November.

"The new chic is value, and it's here to stay," says Landmark's Calhoun. "People still want a luxury product, but guess what? They want it at a value. The wine industry and restaurants have really entered a new phase."

But others think this is a short-term correction, that despite the talk of a new frugality, Americans will always aspire to luxury.

"If they traded down, they'll trade back up again," says Beffa.

Past predictions that Americans will trade in luxury for value have proved short-lived. During the 1990-1991 recession, Fortune magazine claimed it was, "the death of conspicuous consumption"; the dot-com boom was just three years away. While spending plummeted in the fall of 2008, in the worst phase of the financial crisis, it stabilized at the beginning of 2009 and began to rise again.

Regardless of what the next few years bring, the bargains are here today, and many consumers are angling to take advantage of them. Is it the age of the consumer? Right now it is.

With additional reporting by Wine Spectator tasting coordinator Nathan Wesley, based in New York, and freelance writer Suzanne Mustacich, based in Bordeaux.

Originally published on

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