The Economics of Vintage

During the past week I (along with the owner of my store) have been filling out pre-order forms for the 2005 Burgundy vintage. As many of you are probably aware this vintage has received very favorable press for both red and white wines (slightly stronger for reds) and has generated quite a buzz in the wine community. These pre-orders represent the only opportunity we have to purchase many of these wines and there certainly is a sense of pressure. These wines aren’t cheap but demand for them may justify ordering multiple dozens of cases.

I’ve tasted through several of these wines and found them to be wonderful, although I haven’t had enough to make any bold pronouncement regarding their quality, and even if I had I certainly don’t have the pallet or experience to make such a declaration. However, the wines are wonderful and we have decided to make some fairly aggressive purchases.

What that means is I’ve spent a very large amount of time reviewing the pricing of these wines and sorting through pages of offers. Burgundy is expensive to begin with, and with the hype of a great vintage the prices move higher (and yes, the continued decline of the US dollar hurts as well, just like with any imported good). As a rule the prices for these wines are higher than the prices of the 2004’s, but the increases are quite varied. So having decided to make these purchases I now need to begin preparing for the inevitable question that comes with every “great” vintage: is it worth it?

(note: while the winemakers and importers may raise their margins to capitalize on the great press behind these wines, I don’t think retailers will; my owner and I are in agreement to operate on pretty much the exact same margin on wine at all times and given the retail options available to consumers these days I think people we forced to be consistent in their pricing or get killed by competitors)

My hunch is people who appreciate good wine will find the 05 Burgundies to be wonderful and worth the increased prices in many cases. At a minimum I think everyone will find them to be lovely. But that doesn’t really answer the question of whether or not they are overpriced.

The reality in the modern market is any “great” vintage out of France is overpriced, by definition. This is not the result of greedy Frenchman of devious merchants holding consumers hostage, but rather a result of America’s undeniable infatuation with having “the best.” The most obvious examples of this are in Bordeaux, but apparently it is now creeping into Burgundy.

Press for these vintages starts to heat up before the wines are even made available on the market, which means in many cases too many Americans have decided whether or not they will buy the wines before they are even bottled. Instead of enjoying wonderful wines too much of the American public is obsessed with having only the “greatest” wines, and the moment one or two wine writers decides a vintage is not destined for the history books the overall demand for the American market drops substantially (much greater than the actual quality of the wine) and once a vintage is declared to be “great” the demand skyrockets disproportionately as well.

What you must understand is the recent (i.e. last twenty years) growth in the American wine market has had a major effect on French wine prices, especially premium French wine prices. Upon release a case of Mouton-Rothschild from the legendary 1982 vintage could be had for around $75; today a single bottle of the same wine starts at around $1000, and the release price for the 03 first-growths is $300-$500. The American market has not merely driven up the prices on these wines–it has completely redefined the market.

The problem is Americans only buy these wines in the supposed “on” vintages. As a result the prices from vintage to vintage are almost unimaginably varied. For instance, if you came to me tomorrow and wanted a case of 2000 Chateau Lafite Rothschild (which was the first Bordeaux Vintage of Century in this millennia) my normal retail on that would be about $15,149. If you wanted 2003, which was the next Vintage of Century it would run you about $11,379. But if you were willing to suffer through the 01 or 02 vintage, that would be about $4,165. So you see the kind of vintage variation we’re dealing with here.

Obviously these prices are driven by supply and demand, which gets the real point. Since no one in America wants the supposed off-vintages the winemakers and the importers and the distributors all end up sitting on large quantities of wine and have a tough time selling it. As a result when the American public does decide to buy (which is pretty much only when the wine writers tell them to) everyone has to make up their losses from the past however many years it was since the last “great vintage.”

So are the 2000 and 2003 vintages or Lafite-Rothschild better than the 01 or 02? Almost certainly. Three to four times better? Certainly not. The same is true throughout the French wine market. So what do I advise you to do? First and foremost, remember the number one rule, which is wine’s great producers produce great wines. Give me an “off-vintage” first growth ahead of an 03 from some middle of the road Entre-Deux-Mers” producer any day. Next, don’t ever let a vintage hold you hostage. Yes the wines from the best vintages are tremendous and you should look to enjoy them if you can, and if the price is right. But don’t ever let anyone try to hold you hostage to a vintage. No particular wine vintage is worth completely shattering the bank for and dumping every resource into. Despite the accolades and superlatives being thrown around just remember what more than one experienced wine person has said: there is always another vintage.

Comments

[Andrew]

From a person directly working in the wine industry. Your remarks are right on.
Andrew