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Market Report - Issue V

Published 6th February 2013

Please Note:  This is not Atlas' most current Quarterly Market Report. The last two published Market Reports are only made available to clients who store with us. This is accessed by logging in to our website. 


I. A Welcome Sign

II. The rise and… rise of Angelus

III. Different Talk about Bubbles

IV. Italian Renaissance

V. The Price of Everything and the Value of Nothing

VI. And finally…

I. A Welcome Sign

Undoubtedly 2012 was a year of turbulence for the fine wine market as much as any other. While many commentators expected a correction of some sort, the scope and degree were unforeseen.

The chart for the Liv-ex 100 – a broad index principally composed of Bordeaux – shows the dramatic drop since August 2011. Clearly this index is affected most dramatically by the fortunes of the First Growths; it is this category which witnessed the greatest fall with the much publicised Château Lafite-Rothschild registering the most dramatic change. While many clients have reduced their First Growth holdings over the last two years we have seen a dramatic increase in interest in the Second Growths, Pomerol and St. Emilion, Domaine de la Romanée-Conti and Super Tuscans as such targets showed greater resilience in the market.


The last quarter of the year saw a steadiness return to the market. Activity returned slowly, but surely, and the line started to flatten out. To predict when the market might start to recover proved, and continues to prove, tricky. There are still various significant stock holders in the market who hold higher levels of stock than they might wish of wines for which the price has come off. Some of these merchants have resiliently maintained prices of a year or more ago, waiting for a turn in the market as they are not prepared to relinquish stock below cost.  A glance across the price lists of various major stockholders suggests this is still the case and therefore we do not expect a full-fledged recovery just yet as we believe there is more stock to move into the main market stream in the first half of this year. By way of example, as we write, one merchant is offering Château Lafite-Rothschild 2005 at £3650 while another lists stock at £6150; both are for original wooden cases of 6 bottles, in bond.

Interestingly, at the lower end of such brackets stock is starting to move, led first and foremost by the lesser vintages of the First Growths. Essentially prices have corrected to a point at which a drinker feels once again encouraged to buy into a First Growth that might cost them £250 per bottle to put on their table.  Also with this correction wine funds and speculators have begun to consider it an opportune moment to step back into the fray. This has led to a significant change of direction in the Liv-ex 50, which  charts the progression of the last ten physical vintages of the five left bank First Growths of Bordeaux. 


It remains to be seen if this trajectory will be sustained. I don’t believe its progress will be unobstructed though I do believe there is cause for optimism across the broader market. This is evidenced by a comment in a recent Liv-ex blog which talked of the value of bids on the exchange hitting ‘an all time high’ in mid January. The number of individual bids also hit a three year high, underlining that interest to buy is increasing. Is this a sign that canny stockholding merchants are considering re-loading their books in expectation? Or does it indicate a return of private client interest on the back of a significant correction? Either way these are firm commitments to buy and that has to be taken as a positive sign.

January’s figures show positive news across the various indices as can be seen by this round up:


As regards the selection above, I find it difficult to see value in Chateau Pavie 2000 at £4561 per 12 and yet it is still well-bid on Liv-ex’s exchange and in volume. The current state of the Bordeaux market will continue to throw up these anomalies. 

II. The rise and… rise of Angelus

Invariably riddled with debate, angst and inevitable litigation, it appears that the St. Emilion authorities may have synchronised their view almost perfectly with market sentiment this time. Both Château Pavie and Château Angelus are now classified alongside Châteaux Ausone and Cheval-Blanc at the pinnacle of the new Saint-Emilion hierarchy as released last September. This places the two properties in the classification of Premier Grand Cru Classé (A).

Many regard this as a welcome step, suggesting that it is not unreasonable for St. Emilion to possess a similar number of ‘First Growths’ to the Médoc. Saint-Emilion is however distinct from the Médoc in that its system of classification allows for promotions and demotions every ten years, whereas the 1855 classification of the Médoc remains unchanged – the sole exception being the promotion of Château Mouton-Rothschild in 1973 after many, many years of lobbying by the Rothschild family.

Since the reclassification last autumn, market activity around both Château Pavie and Château Angelus has increased. A Liv-ex blog recently highlighted just how well each Château has performed over this period.

‘We [Liv-ex] first reported on the effects of the St Emilion upgrade in November, when the ten most recent physical vintages of Angelus were seeing on average an 11.3% increase in price since the brand’s promotion, whereas those for Pavie were seeing only an 8.4% increase. Since then, the gap has widened. Pavie’s vintages have risen, on average, by 10.5% since August, while Angelus’s have risen by 19.2%. Angelus was marginally more expensive than Pavie before the upgrade, but now the difference is more pronounced. Angelus 2002, for instance, was 3.4% more than Pavie 2002 in August (£1,328 compared to £1,284): it is now 21.7% more (£1,578 compared to £1,297).’

Pavie has always been something of a controversial wine. You may well remember the media friction created by comments from Robert Parker and Jancis Robinson a few year’s back. That said, if one considers that the 1855 Classification of the Left Bank was based fairly and squarely on market price and one were to apply the same criteria to the Right Bank, then Pavie would probably merit its new-found place in the limelight. It is without doubt one of the great St. Emilion terroirs, even if critics do highlight the modern, extracted style of the wine.  

The long and short of it is that to some degree the classification reflects critics’ assessment of the quality of the wines produced as well as market sentiment as to the price and positioning of the Château. For both Angelus and Pavie the new classification has served as a catalyst to push prices and trading activity. In the case of Angelus, this has chimed with what many members of the trade always believed – namely that, on the basis of its quality, it deserved to be viewed on a far higher plane and it is this sentiment that has led to substantial price increases since September.

It is fascinating to compare the market price (after this shift in value has occurred) of ten vintages of Angelus to Cheval-Blanc and to use Robert Parker’s score for the respective vintages as a quick guide to quality. It does highlight that the market price of Angelus should continue to escalate as global awareness of the brand increases.

III. Different Talk about Bubbles

Recently there has been significant commentary on Champagne and its success, or indeed potential for success, in emerging markets. At first you could be forgiven for thinking that the market commentators are once again looking for a story in a comparatively flat market.  However, as mentioned in the opening section of this market report, while indices give useful indications, they seldom tell the whole story.

Champagne has always intrigued me both as a style of wine but also as a category, one in which supply of the greatest examples could easily be eclipsed by demand. The fact that vintage Champagne may be consumed at a far faster rate than almost any other fine wine style adds to the intrigue. If fine wine follows wealth, Champagne is often one of the first categories to broach new markets. With what else might one toast success? The association with Champagne is one of the great stories in the history of branding. 

A report earlier this year highlighted just how and where Champagne was making inroads. I read about imports of Champagne to Russia and China, which have grown by 89.9% and 87.6% respectively year on year in 2010. Admittedly such growth occurred from a lowly base, but the percentages are revealing. The positive figures delivered by global Champagne sales of a mere 1% in 2011 owed much of that success to consumption trends in BRICs nations. LVMH are on record as saying that this growth was generated from regions beyond the more traditional markets of Europe and the US.

In mainland China, it is young professionals who are turning to Champagne in fashionable bars and clubs. It must surely follow logic that the new wealth class will favour branded wines; wines about which easy and quick assumptions can be made. In this respect, the branding of various Bordeaux Châteaux lingers way behind; Champagne is a dream brand, a brand as a category and a category populated by a multitude of iconic labels. It is the top cuvées that are being sought out the most; the so called ‘luxury cuvées’ – the wines that perhaps speak most of the person who is able to purchase them.

Add into this backdrop that European sales of Champagne are likely to decline. Indeed, the UK market did move towards a decline in 2011, and it isn’t difficult to see why the major Champagne houses are focusing their attentions further afield. And just in case you thought this was another story founded on Asian tastes, consider that Brazil’s market for Champagne has grown from a very small base by as much as 63% between 2009 and 2010. Consider also that Dom Perignon’s most impressive growth in 2011 was recorded in South America, and primarily Brazil.

Of the more exploited markets, the US returned to witness an increase in Champagne imports. Both Krug and Perrier-Jouet reported strong sales in Japan despite a slump off the back of the tsunami. And even Australia is on the chart with a surprising boom in sales attributed to the growth in high net-worth individuals emerging from the mining industry.

The big question is for how long will Western Europe’s 80% of the Champagne market hold up? The houses themselves see the pressure elsewhere with the CEO of Bollinger Jerome Philippon commenting that he has ‘no doubt China will be big’ as ‘all the ingredients are there, from demand for brands, authenticity and desire to drink alcohol.’ He went on to say that for the time-being Bordeaux and Burgundy may be having the rub of the green, but was firm in his conviction that it will happen for Champagne. Other merchants in Asia have suggested that the market progression from Bordeaux to Burgundy then Champagne is replicated time and again with each and every nascent market, with most citing Japan as a case in point.

The CEO of Pol Roger, Patrice Noyelle is encouraged by the younger generation that are embracing Champagne consumption in Asia; ‘There is a new category of young, rich people who love champagne, and importantly, this group is growing fast’. The MD of the company that distributes Louis Roederer’s Cristal in China is even more bullish adding that ‘It has taken Hong Kong 30 years to become a major market for Champagne. China will probably take just five years. We are already selling out of our allocation of Cristal about eight months into the year’. Noyelle adds that more of Pol Roger’s Cuvee Sir Winston Churchill is sold in China than in either the UK or France.

Another compelling argument concerns production costs which have been driven higher by grape price increases. Remember many of the large houses buy in fruit under contract to supplement the small percentage of fruit that comes from vineyards they actually own. With production costs rising and economic uncertainty suppressing appetite in traditional markets, margins will come under pressure and houses will look to broaden their distribution into more nascent markets, where they may well secure a far higher price for their stocks. This in itself is likely to lead to a situation where the secondary market for Champagne surges with competitive supply heading east from Western Europe. The Bordelais struggled to control supply into Asia and soon found that some of their UK clients became their competitors (with directly supplied stock) in overseas markets. Whatever happens it is sure to be interesting, particularly for the supply and price of leading luxury cuvée Champagne. If you are a drinker you could do worse than look to acquire the outstanding 2002s which are now largely on the market as this was a low yielding vintage and a vintage of the calibre of 1996. Great Champagne vintages are few and far between, as Antonio Galloni commented in the most recent addition of Robert Parker’s The Wine Advocate. And if you are an investor would it not be worth recycling a little of your Bordeaux stock to have some representation from Champagne? The case at this stage seems compelling and a degree of diversification is likely to pay dividends.

Don St. Pierre, the former CEO of ASC Wines in Hong Kong suggests that the Chinese will ‘get a raging thirst for luxury Champagne, sending prices through the roof.’ Paulo Pong, an influential wine merchant and restaurateur, agrees ‘First Growth (Bordeaux prices) went insane thanks to the Chinese. At some point, the same could happen to Champagne.’

A word of caution is left to Noyelle, who adds that allocations to China will grow steadily and this would not be a short-term strategy. He suggests that ‘it’s not sensible to follow a booming market too closely’ He goes onto to explain; ‘It’s good on the way up, but on the way down you crash with it. That’s what happened with Bordeaux, but it wouldn’t be the case with champagne. We wouldn’t make that mistake.’

This might be a cautionary postscript for producers, but is likely to fuel investment interest, with clients prepared to take the risk and equally prepared to watch the market closely. How many clients made money getting in and out of Bordeaux on its rise during the last five years? Some are today still sitting on profits (even after allowing for the market slump witnessed this year) so why wouldn’t there be a risk-appetite for Champagne?

IV. Italian Renaissance

A rising interest in Italian wine has been something of a constant topic this year. Against the run of the market, the Super-Tuscans – specifically Sassicaia and Ornellaia, as well as the latter estate’s flagship wine Masseto – have all shown significant price growth and increased trade.

Liv-ex now runs a Super-Tuscan index, which has presented compelling data, not just in light of developments this year but over an extended period, as the graph below illustrates:

Liv-ex fine wine indices 5 year performance

 While some clients have been open to the idea of diversifying their portfolio, even if the motivation is investment and financial gain, others remain unconvinced that wines such as Sassicaia and Ornellaia could prove to be viable alternatives to the great and good of Bordeaux, despite their performance both separately and as a category.

Super Tuscan 5 year price performance by brand indexed

Why does Bordeaux occupy this seemingly unshakable and pivotal position? Why is it that Bordeaux accounts for the vast majority of investment grade wine? The reasons are many and varied – let’s explore them here.

Historical performance: There is no denying the price growth that the great wines of Bordeaux have shown over time, even allowing for the current market dip.

Prestige: Without doubt Bordeaux is, by its terroir and scale, responsible for a high proportion of the greatest wines in the world and this is borne out by the comments of many a wine critic. Many of the Chateaux are, in essence, recognisable, iconic, brands.

Scale: In the main Bordeaux benefits from scale. Production volumes are sufficient to allow many global marketplaces enjoy access to stock. Aside from perhaps the right bank appellations of Pomerol and St. Emilion, this is not a region of esoteric wines that are hard to track down. Stock is present in every market and therefore the pump is primed.

Liquidity: This ties in with the point on scale as with global recognition and sufficient scale to give good representation a global demand I generated and to a degree satiated. The same cannot be said of wines that are produced in minute quantities and appeal to a select few of the world’s wealthiest collectors.

Distribution: Though considered by some to be an archaic distribution mechanism, the Bordeaux Place has proved itself to be an incredibly effective structure for pushing stock into all global markets. Negociants (Bordeaux-based middle-men/ merchants) are allocated stock by the Chateaux. They then disseminate this wine into the global market in a controlled manner. An end merchant who turns down allocation one year is not guaranteed to pickup the same volume the next, so some degree of obligation is built into the chain.

Longevity: Historically a wine’s price rose as stock was consumed and rarity was heightened. It isn’t always the case in today’s market place where a dichotomy exists between the prices of mature stocks and recent, much-touted vintages. That said, wines that benefit from a small window of cellarage are seldom collected in the same way or the subject of speculation. The security provided by a maturity window of 30 to 50 years builds confidence in the opportunity for prices to increase as stock is consumed.

With this backdrop of success criteria, is it not possible for the Super Tuscan category to gradually perform in a similar manner?  Just consider how Sassicaia might fair if judged against these principles.

We have already covered the aspect of historical performance. They are clearly considered brands and are omnipresent in the global restaurant scene. Reviews are favourable and quality, as judged by leading critics, is said to be on the rise. The scale of production is not dissimilar to Bordeaux and decent longevity is on offer in all but the weakest vintages – after all they are essentially Cabernet and Merlot blends aping the success of this classic Left Bank Bordeaux blend. So this leaves us with the issues of liquidity.

Perhaps the liquidity that is common to Bordeaux isn’t there yet, but comments such as the following from James Suckling’s recent blog suggest that emerging markets may be starting to be convinced by the merits of the wines and perhaps increased liquidity is just a question of time. It is all very well to focus on the status quo, but the status quo only exists until there is a catalyst for change.

‘The Hong Kong and Chinese mainland buyers have – at least for the moment – fallen out of love with Bordeaux en primeur. Unless a very convincing case is made for it as an investment, it is unlikely that we will ever see them buying on the scale they did in 2009……………….There is no question that high-end buyers are switching from Bordeaux to Italy, the Rhone and particularly Burgundy, though there is also a market for top wines from Australia and California (despite what some find to be too alcoholic styles). One anecdote concerned a 28-year-old Hong Kong trader who had drunk all the first growths back to the 1940s and is now looking for something different.’ (James Suckling’s Blog: A Fact Finding Trip to Hong Kong and China, 24th October 2012).

Have lofty Bordeaux prices and excessive margins made in Asia left buyers cold on the subject of Bordeaux? If so, I doubt it is irreversible – one great vintage, one set of favourable prices and the love affair can easily be re-kindled and all will be forgiven. But this does not mean the trend towards Italian wine is going to be halted. Focusing on Bordeaux may well be the mantra for those interested in investment gain but some diversification into Italy might look like a shrewd move in several years’ time. The pricing levels of Super-Tuscans are interesting in themselves in that there is a general upward curve that comes with maturity. Buying relatively early in a good vintage still holds attraction, as it is invariably the best price that will be seen for the wine. We don’t see that same odd circumstance that is now commonplace with Bordeaux when the next great vintage is released at a price level which equates to the market price of a great mature vintage.

Wine magazine ‘The Drinks Business’ ran an article highlighting 10 trends in the Hong Kong wine scene. Asian interest in Italian wine was also commented on here with some explanation given for the increased popularity.

‘The Hong Kong and Chinese mainland buyers have – at least for the moment – fallen out of love with Bordeaux en primeur. Unless a very convincing case is made for it as an investment, it is unlikely that we will ever see them buying on the scale they did in 2009……………….There is no question that high-end buyers are switching from Bordeaux to Italy, the Rhone and particularly Burgundy, though there is also a market for top wines from Australia and California (despite what some find to be too alcoholic styles). One anecdote concerned a 28-year-old Hong Kong trader who had drunk all the first growths back to the 1940s and is now looking for something different.’ (James Suckling’s Blog: A Fact Finding Trip to Hong Kong and China, 24th October 2012).

The global wine market will shift and lurch over time, pressure points will come and go, but I find it hard to believe that the market focus will not broaden and perhaps we are just at the edge of such a move which has been brought forward by the global economic position as much as Bordeaux’s and Bordeaux-oriented merchants milking the cash cow that was the Hong Kong/ Chinese market.

V. The Price of Everything and the Value of Nothing

Pricing methodology for the fine wine market has been a hot topic of conversation these last few months. You may well have heard of the concerns that have been raised about the pricing methodology employed by a Luxembourg-based wine fund called Noble Cru. Noble Cru do not just focus on wine, they offer all sorts of exotic investments in the arena that the FSA wants to restrict to sophisticated investors.

Noble Cru are said to have amassed over 100 million euros worth of stock in only four years from an opening value of just two million. The numbers are clearly impressive but a report in the Financial Times raised concerns over just how the values were calculated. Noble Cru has claimed to have made an annual return of 13% since their inception, despite the fact that the Liv-ex 100 index has tumbled by 23% over the same time period. Financial commentators have suggested that these profits will disappear when the number of investors leaving the fund is greater than those joining! Liv-ex who act as an independent valuation specialist for wine funds, value Noble Cru’s 10 most significant holdings of Bordeaux at 26 million euros, while Noble Cru maintained the very same stocks were worth 37% more at 36 million.

A spat has ensued in the wine press and wider press for that matter, with Noble Cru insisting that their methodology of taking an average of two auction prices including commission and two wine merchants’ prices is robust. They have openly criticised Liv-ex’s model and the data it provides. As a consequence Liv-ex has had some very good press coverage on their model and how it operates. John Stimpfig of Decanter Magazine suggested Liv-ex were the best source of pricing information available and a former regulator at the FSA called Liv-ex ‘the only source of reliable pricing information.

At Atlas we concur and have made full use of the valuation system provided by Liv-ex since we launched some two years ago. While not perfect, the Liv-ex data which is drawn from their 400-plus members across the globe is clearly the most reliable pricing data in the market today. We show two separate feeds against client account listings, namely the Liv-ex Benchmark Price and the Average List Price.

The Benchmark price is calculated with some applied logic. It aims to focus on the best price available in the market via a merchant who is in physical possession of the case. This renders the data more reliable as it is not skewed by brokers each offering the same stock, nor is it skewed by one large stock holder sitting on a parcel of wine at yesterday’s price. It is however based on the lowest available price and doesn’t make any judgements on the volume of stock represented; it could just be one case that is in the market at that price.
The Average List has its own problems. Some merchants are reluctant to reduce prices in the current market and are therefore sitting on the stocks, which are effectively marooned at a higher price. This can distort a valuation and make it seem overstated. As a consequence we have opted to show both prices and to effectively show you the spread as, in reality, the value of your stock is likely to be somewhere between the two. None of this data is manipulated – it is purely matched to the relevant wines fed into our system and shown against your reserves listing online. 

VI. And finally…

I just wanted to apologise for derailing the quarterly pattern of these reports and for the late release of this particular issue. We are now back up to speed and the next issue will be out in April. Thank you for bearing with us and I trust that the articles are of interest. If you have any comments on the details enclosed or wish to discuss any of the aspects covered, please do not hesitate to contact any member of the team or myself.

Should you have any questions or comments on this Market Report, please do not hesitate to contact any member of the Atlas team on +44 (0) 20 3017 2299, or by submitting the form below. 

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