Michael Fridjhon: Bordeaux’s bubble bursts – and lessons for Cape wine

An interesting corollary of the general decline in wine sales worldwide has been the collapse of the wine investment market. This is not something immediately evident to the average South African fine wine drinker, However, if you were living in the UK and had been buying Bordeaux En Primeur for many years (ostensibly for your pleasure, but often because you were told it was a great investment and a useful component of your retirement portfolio) you would be acutely aware of the situation.

The Bordeaux wine trade has long depended on the concept of En Primeur sales – which work like this: a percentage of the latest vintage is offered for sale by the chateaux through the Place de Bordeaux. Typically the campaign begins in the April after the vintage. The incentive for the buyers is that the earliest price would (in theory) be the lowest: in the heyday of demand the chateaux would release several “tranches” over a few weeks or months with the price for each succeeding parcel higher than the one before. Buy early, buy cheaper is the message. Built into the idea is the expectation that as the wine ages and gets better, bottles are consumed, so that rarity increases alongside its enjoyment potential – so that a growing shortage coupled with added pleasure would drive the prices upwards.

This model has worked well enough – certainly from the 1980s and until late late 2010s (so, depending on whose hymn-sheet is being held up to scrutiny, probably 2018/9). But for much of the past two decades most of what Bordeaux was offering for sale at increasingly elevated prices was acquired for investment not consumption. The pipeline was filling, there was little or no off-take, and buyers were beginning to discover that they could not sell their purchases for the anticipated profit. Anyone who did the arithmetic properly soon worked out that the opportunity cost involved in tying up money in stock, plus the actual costs of storage etc, could not be covered by the prices buyers were prepared to pay. So by 2025, when the 2024 vintage came to the market, there was simply no demand while the prices in the pipeline kept on falling.

The numbers are instructive: Farr Vintners sold £60m of the 2009 primeurs and less than £2m of the 2024s. No one was buying the Koolaid. Meantime, based on average purchase prices, several of Bordeaux’s best vintages were under water – even before taking into account holding and storage costs: for example, 2009 was at -7%, 2010 (an even better year) was at -19%, while more current releases were no better: 2016 is at -11%, 2018 at -26% and 2020 at -29%. There are a lot of people talking up the prospects for the about-to-be released 2025s (a small but seemingly very good vintage) but the truth is that the game is up.

The reason for this is not because – as Greg Sherwood MW has asserted in these pages – technology has provided data-transparency where previously trader “expertise” called the shots. It’s much simpler than that: the size of the problem was too large to conceal any longer. The negociants who are the middlemen in the en primeur universe have huge unsold inventory so they simply cannot continue to participate in the charade. Nor are their customers buying; the investors are not investing (they are trying desperately to unload their holdings without the whiff of panic permeating the trading floor). To quote Monty Python, prices are not so much flying as plummeting.

This is – and was always going to be – the endgame to a bubble. Forty years ago you could buy a decent classed growth Bordeaux for R15. You can apply any index you like for inflation and rand devaluation but you won’t get anywhere near the R3,000 per bottle the 2022 vintage of the same wine was supposed to be selling for. Growing demand pushed up prices but – and this is the nub of the problem – a huge chunk of that demand was not consumer driven, it was speculation.

What, you may ask, is the relevance of this looming crisis in the Bordeaux trade to the Cape fine wine business? The answer is a great deal: wine investment has been touted by a number of players in the industry. Their message has often been framed using the indices of big name Bordeaux, essentially suggesting that the same returns which were achieved between 1990 and 2020 by the European fine wine funds are possible here.

So far many appear to be right – but this is because the trade is so thin that the results can be manipulated. The head of an auction house which has made a name for itself recycling collectible Cape wine once admitted to me that the only reason the prices look so good is that the volumes are very small and so demand (for the moment) exceeds supply. To paraphrase his comment “if there were ten cases instead of six bottles of any of the trophy wines on our sales, the prices would fall through the floor.”

It’s not too late to learn a lesson from the catastrophe unfolding in one of the oldest and best respected wine producing regions in the world. It starts by remembering that wine is not a commodity to be traded but a beverage to be enjoyed between friends.

• Michael Fridjhon has over thirty-five years’ experience in the liquor industry. He is the founder of Winewizard.co.za and holds various positions including Visiting Professor of Wine Business at the University of Cape Town; founder and director of WineX – the largest consumer wine show in the Southern Hemisphere and chairman of The Trophy Wine Show.