Buying wine - En Primeur

There is some information on the mechanics of it here (and doubtless other places as well) http://www.bbr.com/ but hopefully our resident wine expert rodwsmith will be along with more info soon.

Steve.

Hello!

quote:

Originally posted by Richard Adams:
As I understand it the 2005 Bordeaux vintage is excellent.

Your information is good.

quote:

at sensible prices.

Hmmm. Well not many prices published yet, but 'sensible' seems frankly optimistic at this juncture. Depends how rich you are though, I suppose.

quote:

Also as an investment buying wine no longer attracts Capital Gains Tax.

I didn't know that, perhaps someone can confirm. I do know that Mr Brown, bless 'im, withdrew wine from the whole self-invested pension thing, having previously said that it would be included.

quote:

It seems like a win win situation.

Indeed. Remember however that the value can and may go down. I have supplied advice on what to go for and when professionally in the past and right now I think the market is favouring the producers. I do not think the prices will be sensible. I even heard that the First Growths are planning to open at €200 a bottle (I do not know if this is true, but it was only a few years ago that the €100 barrier was broached with much wailing and gnashing of teeth.)

Only buy that which you are (or will be) happy to drink, should it all go "wrong". And these wines will be many years away from being drinkable.

It works roughly like this:

Around now, the Bordeaux Châteaux release their prices in conjunction with a series of tastings in Bordeaux (The Union de Grands Crus). These are in many ways 'by invitation' and a very long way from being fun to be honest - six month old claret from barrels is near unbearably acidic and tannic and you pretty much have to book the dentist before you leave.

After these, the various negociants in France and brokers in the UK/USA (of which Berrys, Farr, and Fine and Rare are perhaps the leading examples in the UK) will take options to purchase and then sell these on with a commission. To you. However there is an element of their needing to buy quantities of the same producer's lesser wines if they want to buy the good stuff (or less good vintages in the past). There are grey areas of legality here, but a part of this will be passed onto the purchaser (you or me). Certainly they will look after their regular long-term customers and big spenders first.

For every story you may hear of, for example, Château Latour doubling in price between En Primeur sale and wine release, there will be less successful wines and the only people "allowed" to have had an allocation of the Latour will also have bought quite a lot of other stuff.

You pay on order. This is important, as you won't get anything in exchange for another 2 years. You can of course re-sell your allocation before you physically get it, but this does mean you must trust the intermediary. People have lost lots by buying, in effect, thin air from companies that then stop trading.

You can elect to pay duty and VAT on arrival (and further defer payment of duty). The wine will then be yours. Unless you have a cellar you will need to pay to have it stored somewhere appropriate, especially if you intend to re-sell much later on.

So, what determines whether you have made a wise choice?

In essence, luck. 2 (main) factors will govern this. 1) God. Almost all of the stories you will have heard of excellent vintages rocketing in value will be true, but not necessarily the whole truth. The greatest success stories were with the 1982 wines (which subsequently outperformed the London property market, and never collapsed) and the 1990s which also accelerated in price dramatically. What these two vintages have in common, however, is that they were then followed by some rubbish years.

If your crystal ball is very, very good you may know that 2006, 7, 8 and 9 will be ropey rain-ridden harvests following frosts in the Spring and mildew a-plenty. Then having purchased the 05s will be like winning the lottery.

However, everyone piled into the 2003s and the prices for these have hardly moved (the 2000s have failed to live up to the hype too). Indeed it is possible today to purchase some 2003s for less than their opening prices.

Worth noting that this century is only 5 harvests old and already we have had three "vintages of the century". There is no hyperbole-deficit in Bordeaux.

Factor 2) is a charming American called Robert Parker Jnr. I shall pass no comment here (google the name for some of the views). Suffice it to say that he might be upset with me for ranking him beneath God.

He will be tasting the wines around now and will publish his scores/assessments in about 2 months. Some Châteaux will wait until after he has published before releasing their prices. Indeed some properties now make wines to suit his taste, which is power way too far IMO.

If he really likes a wine (he scores out of 100, anything that gets more than 95 will climb in price, if he awards a wine "98-100" [he only ever awards ranges at this age of wine] then the maximum effect has been a quintupling of price) then you win.

For one man to have such power over the market is frankly scary (although, in his defence, he thinks so too). It's probably true to say that his influence is a little on the wane as a) there are lots of others doing the same (the Wine Spectator and Britain's Jancis Robinson amongst others) and b) the States is not the only market that matters as much as it used to be.

Bordeaux went headless-chicken mad the year that Parker was not allowed to travel to France by his wife and insurers because of the Iraq invasion. So great is his power that there is [allegedly] a contract out on him in Bordeaux, and he travels with bodyguards accordingly. You couldn't make it up, although you should try to watch a film called Mondovino for more of the same.

So bear in mind that you will have to pay extras, perhaps buy lesser wines in order to secure allocations of the mega-names, pay for storage, take financial risks against - amongst other things - the weather, and you will appreciate that this is a precarious investment opportunity indeed. And yet, time and time again it has proved to be very 'blue chip'. If you have money to spare and don't mind the idea of drinking it in the future as a last resort then go ahead.

I have certainly drunk some amazing wines in effect for free by judiciously playing this market. I buy through Farr myself (but I know the people). Actually the prices amongst the brokers tend to be very closely aligned.

If you need more advice then try to PM me over at PFM and I'll see what I can do.

I have to say that although this is a game I play myself I do find the whole idea of wine as an investment a little bit distasteful in all honesty. Wine is a drink, and some of the best wines in the world are traded so often that the chances of them ending up being drunk by people who'll enjoy them for their quality is nil. They become "esteem-currency" amongst businessmen in Shanghai, destined to be mixed with Coca-Cola, getting more valuable with each transaction. Still that's the way of the world I guess.

2005 was very probably an even better year in Burgundy, but this is even more of a minefield than Bordeaux.

Cheers!

Rod

You see, isn't Rod great? If that isn't a good reply I don't know what is!

Hi Rod

Wow! That's a lot to take in.
If I'm honest I was just thinking of a punt with a £2-3K and buying 2nd or 3rd growths, not Chateau Latour. I was hoping to make a few quid, but if not, being able to drink some nice wine at an affordable price.
From what you say there are too many pitfuls for the unwary and uninformed traveller that this can't be regarded as an investment.
OK so I'll take a view on that. I like wine. If I can drink nice wine at a reasonable (sensible) price then this seems like a good idea. I accept what you say re Parker but for the uninitiated like myself how do you know what is vfm?

Richard

quote:

[...] but for the uninitiated like myself how do you know what is vfm?

Richard

That's easy - you just wait for one of Rod's periodic posts then dash out and buy a couple of cases. Steve

Richard

Well you are obviously planning this for the right reasons (the chance to drink in future wines you otherwise could not afford or would not be prepared to pay for). If you happen to buy into one of the fly-away price wines, then you can sell it on later and act like a cheshire cat. Provided your motives are a love of the wine, then you are excatly right, it's a win-win situation.

You have a few weeks in which to spend a happy internet-hour or two doing some homework. Visit the sites of reputable companies that sell En Primeur (those mentioned above + the likes of Adnams, Lay and Wheeler etc). Read the notes that their buyers are sending back from Bordeaux (it's all the rage to do this as a sort-of running "blog"). But also get a feeling for whose palate and tastes match yours the closest. If you are seriously thinking of sinking £3k, then look at the regular lists for wines and vintages that you have tried and see if you concur with their views. Maybe even buy and drink some stuff. You will be making decision on mass purchase of wine that you will only be drinking in around a decade, on someone else's taste/advice. Make sure you share it!

Similarly, to protect your investment subscribe to the journalists - especially Jancis Robinson's "purple pages" and Broadbent on decanter.com, and read what people who have no vested interest are saying.

This is one case where, so long as it is safe, it is sensible to put your eggs in one basket. Your £2 - 3k is far from inconsiderable, and will secure you decent advice and service from the major players - but buy from those that feel right, not necessarily from someone else because they are £20 cheaper. They will look more favourably on your request for a case of a noted "winner" if you are buying a couple of cases of a charming Third Growth that isn't moistening the pants of any investors.

Then you will be assured of buying now wines that will cost far more to purchase than you spent when they become ready to drink, and will very possibly have appreciated in value more than the same money invested elsewhere.

For a maximum return on money, in the light of everything said above (and let's face it if it were easy then everyone would be at it) the things that will go up the most are (in this order):

- The "odd" one. A property that outperforms its norm the most, producing a reputation-altering number (this has happened to Chx Montrose, Gloria, La Lagune and Mission Haut-Brion in the past, amongst others)

- The best performing First Growth(s) / boutiquey Pomerol(s). Likely to be Latour, Margaux, Lafite, Le Pin, Pavie and Valandraud

- The classic bankers. Including Léoville-Barton, Pichon Lalande, Lynch Bages, Pape-Clément, Petrus, Cheval-Blanc, Conseillante, anything made by Michel Rolland (and actually you really must watch Mondovino)

Then the rest.

Just as with Vintage Port, there has been just a bit too much top-notch Sauternes (amazing recent vintages) of late for the prices to be rewarding to investors IMO.

Most of the brokers are estimating a 10 - 15% increase on the 2004 release prices, which seems reasonable (although might make for some bargain 2004s for drinking) and are already taking pre-orders and requests (along the lines of "buy for me at up to such-and-such a price")

Only one other thing, for future trading it must be in whole, unbroken cases. If you want to sell some, and drink some, then you will need to buy multiple cases - and almost everything comes in cases of 12.

I am off to Spain today (Andalucia, work, very tough) and running the Reading Half Marathon on my return (wish me luck) so am unlikely to be internetty until next week, apologies in advance therefore for no further responses.

Salut

Rod

Richard,
for what it's worth: I ususally buy Saint Emilion Grand Cru from an owner I have known for years (and hence his wine) at 12 Euros a bottle, he sells it on the "normal market" for 15 Euros. I also buy Burgundy wines: Pommard at 14 Euros, sold at 19 Euros, Nuits Saint Georges 1er Cru bought at 18 Euros, sold at 26 Euros.
I think it is important to know the owner and his wines, that way you will not be dissappointed. Good luck,
Uwe

Well I finished the Reading half Marathon in an unexceptional but nevertheless self-gratifying 2:10 (have done the distance in 1:50 before) despite a fairly nagging blister and more hills than I thought Reading had, frankly.

Accordingly tonight I shall be celebrating the end of my enforced abstinence from alcohol with something very valuable (at the moment) that may well once have been en primeur...

I shall keep my ear to the ground (grepevine even) next week as a few of my friends were in Bordeaux last week and I may pick up a few nuggets of info.

Cheers

Rod

Hi Rod

Well done on half marathon. I've been looking at few wine merchants sites and have a few ideas of what I like the look of, mainly those wines that I know I like to drink. It would be good to hear a few of your nuggets though

Cheers

Richard

I just heard that Léoville Lascases opened at a mind-boggling €150 and (they say) could sell twice the production at current demand from the States alone.

Cos d'Estournel is at €100 and a few decent St Juliens have gone with €80 (inc Ducru). Astonishing prices. The First Growth estimate is probably right and maybe even - lord help us - conservative.

My personal advice for drinking (but almost certainly not investment) would be closely to monitor the 2004 prices in the merchants as I think they may well go down (they have to make some cash to accommodate the above apart from anything else!) 2004 was a good vintage with many excellent wines whose only real "problem" is that it was sandwiched between 03 and 05. These will provide the best wine for the money in the glass I feel sure. Judicious assessment of the Parker ratings may also present the odd investment opportunity, but I wouldn't bank on a big return.

I'll speak to my friend at Berry's over the weekend to get his feel and let you know of anything interesting.

Cheers

Rod