Tim James: Upping Cape wine prices and the sluggish secondary market

By , 10 June 2019

Upping Cape wine prices and the sluggish secondary market, Tim James: Upping Cape wine prices and the sluggish secondary market

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Why should wine lovers want to pay more for their tipple? It’s hard to explain, but there seems to be more agreement than I’d have expected (certainly amongst the commentariat) about the need to raise prices of South African wine. One of the most fervent promoters of expensive South African wine getting more expensive is Mike Ratcliffe, the chairperson of the Stellenbosch Wine Route and a co-owner of Vilafonté. In his gung-ho account on this website last week of how “a dramatic amount of change is coming to the top-end of the South African wine market”, he concludes that “success will have positive ramifications for the entire wine sector and requires total support”. Yes, total support!

Well, of course, producers and retailers of top-end wine want prices to rise – they want to make lots more money. But there seems to be this insidious expectation that the rest of us must cheer them on as their prices get more and more exorbitant. (I see Vilafonté Series C 2016 on sale for around R1200 per bottle! What does Mike think it’s worth?) There seem to be some simple and some more complex explanations as to why we might support the strategy.

Crude patriotism might well come into it. We want to be seen alongside Bordeaux, Napa, etc as producers of wine that’s sufficiently respected by the international market to be worth the absurd prices that some of those wines achieve. Against a patriotic urge, rationality fails. A version of this might be straightforward fairness. If Paul Sauer is as good as a top Napa cab, then it should also be selling for hundreds of dollars a bottle. That’s undeniably only fair, after all.

Then there’s the argument that Mike seems to invoke when he claims that much higher prices for top-end wine will help the “entire wine sector”. In fact, that argument is far from being entirely plausible. Look at Bordeaux. Few wines get the prices that the grandest Bordeaux does, and nearly-grand Bordeaux also does spectacularly well. If Mike’s argument were correct, the entire Bordeaux wine sector should be thriving in their tailwind. But the opposite is true. An article by Roger Bohmrich MW points out that, even leaving aside the top classed growths, the elite Médoc communes were getting an average of 59 euros per litre (2012 figures) and regional Bordeaux red just 4.4 euros. In 2010, the number of wine-growing properties in Bordeaux was down to just over 7 000, having fallen from 12 000 in 1998. Much the same sort of thing, then, that’s been happening in South Africa: ever-higher prices for the elite, low prices for the also-rans, and a declining number of producers (and continuing poverty for the workers, as usual).

If Mike were correct, it shouldn’t be happening in Bordeaux – or on a larger scale in prestigious France, which it is, as the bulk producers of the Midi know all too well. (Whether bordelais farmers are also turning to lemons and blueberries, I don’t know.)

Mike’s suggestion is simply another version of the trickle-down theory so beloved of the rich and greedy. The ever-widening disparity in earnings around the world since Reagan-Thatcher doctrines started to dominate is the result. In our little sector of the economy, more expensive top-end wine will largely mean … more expensive top-end wine, and richer producers of those wines. That’s all; little benefit to anyone else. Already, South African producers that consistently sell reasonable volumes of wine at a minimum of a few hundred rands per bottle, and that’s low for many of them, are making a great deal of money – including many of the avant-garde. (NB, I’m not disputing their right to do so, so don’t sidetrack me there!)

One probable reason for some people agreeing that wine prices need to rise is the widely reported crisis of profitability in part of the industry as a result of low grape prices. In fact, a decent rise in the price of grapes would have a pretty small effect on the price of cheap wine and a virtually invisible one for expensive wine. But anyway, again, let’s not confuse that issue with the (further) raising of prices for elite wines.

Upping Cape wine prices and the sluggish secondary market, Tim James: Upping Cape wine prices and the sluggish secondary marketIt’s perhaps too early to say whether the Strauss and new Cape Fine & Rare auctions are going to be of much help in achieving Mike Ratcliffe’s vision. The inaugural Strauss auction this past weekend was a very muted success, at best, though I look forward to seeing a positive spin put on the results. More than 20% of the lots went unsold, and many of those that did get sold went at their lower estimates. Actually, when I a week ago predicted an 80% success to Roland Peens he said he’d “be very happy with 80%, even though CWG and Nederberg have always been 100%”; and perhaps he genuinely is.

[The original final two paragraphs have been deleted, as they contained invalid conclusions based on faulty analysis/misreading of some auction results – some comments below refer to these deleted paragraphs. The error is regretted].

  • Tim James is one of South Africa’s leading wine commentators, contributing to various local and international wine publications. He is a taster (and associate editor) for Platter’s. His book Wines of South Africa – Tradition and Revolution appeared in 2013.

Comments

12 comment(s)

  • Hennie Taljaard10 June 2019

    Shown below is the top prices paid.
    Does seem to be a good snapshot of SA’s most desirable labels.

    • Jaubert Muscat d’Alexandrie 1800, Fortified, 275ml Bottle: R51 210

    • GS Cabernet 1966, 1 bottle: R34 140

    • Klein Constantia Vin de Constance 1986, Natural Sweet, 500ml Bottle: R34 140

    • Klein Constantia Vin de Constance 1987, Natural Sweet, 500ml Bottle: R22 760

    • KWV Muscadel 1930, Fortified, 3 Bottles: R21 622

    • Lanzerac Cabernet Sauvignon 1963, Six 375ml Bottles: R15 363

    • Sadie Ouwingerdreeks 2009, Mixed Case, 6 Bottles: R25 036

    • Klein Constantia Vin de Constance 1997, Natural Sweet, 3 Bottles: R11 380

    • Klein Constantia Vin de Constance 2007, Natural Sweet, 6 Bottles: R17 070

    • Sadie Family Columella Vertical Case 2001 to 2012, Red Blend, 12 Bottles: R34 140

    • Meerlust Rubicon 1984, Red Blend, 6 Bottles: R17 070

    • Mvemve Raats De Compostella 2008, Red Blend, 6 Bottles: R17 070

    • Kanonkop Black Label Pinotage 2006, 6 Bottles: R14 794

    • Niepoort & Sadie Cape Charme 2008, Red Blend, 6 Bottles: R14 794

    • Vilafonté Series M 2007, Red Blend, 6 Bottles: R13 656

    • Vilafonté Series C 2006, Red Blend, 6 Bottles: R13 087

    • Boekenhoutskloof The Journeyman 2005, Red Blend, 6 Bottles: R13 656

    • Kanonkop Paul Sauer 1990, Red Blend, 6 Bottles: R14 225

    • Alheit Radio Lazarus 2018, Chenin Blanc, 6 Bottes: R11 380

    Source: https://www.topwinesa.com/2019/06/some-stellar-performances-at-fine-rare-wine-auction-but-22-unsold/

  • Kwispedoor10 June 2019

    Well said, Tim.

    Regarding “a small sub-section of naysayers”. As far as producers go, I suppose most would like to make more money so there would not be many naysayers there. I have, however, noticed that some producers that have already reached a certain point of commercial success are not as greedy as others. Some are really passionate about wine themselves; to the point that who enjoys their wine is something that actually matters to them – more than getting even richer. Once you go over a certain price point, your wines will only ever be bought by rich people, thus including a large section of people who doesn’t fully appreciate what they are drinking (more of a status thing) and also excluding real wine aficionados who don’t have the requisite discretionary income. The Sadie Ouwingerdreeks range is arguably the most obvious case in point. They could clearly be sold for quite a bit more and still be sold out before the next vintage would be available. And what would R. Lopez de Heredia be able to sell their Vina Tondonia white wines for if they left it to the open market?

    As far as consumers go: personally, I would like to see government get involved in guiding the bottom end of the market towards a higher pricing model (Emile Joubert explains the sad and shameful state of affairs eloquently here: http://winegoggle.co.za/2019/06/01/no-country-for-plastic-wine-and-its-low-life-boozers/). Bulk wine exports and this low end is where things need to change most regarding higher prices, for a variety of reasons.

    Sure, higher prices for our best wines would help the image of the industry and it would be fairer in the global context, but a mere consumer like myself will simply be alienated from the more expensive stuff. If a wine costs R700 per bottle, I’d be stupid to throw money after it if I can buy something of the same quality at R250. And if I can find good quality at R150, why on earth would I pay R300 for the same quality? Normally, if you price your product too high, people will stop buying it. With luxury goods, it’s a bit different – some will stay and some will go…

  • Matt A10 June 2019

    Hi Tim,

    While I share many of your sentiments, to be fair the current release Vilafonte C is circa R1,200. The lots of 2006 and 2007 went for around R12k which works out to +/- R2k per bottle. So quite a lot more than their release price back then at maybe R500 or R600. But it does beg the question as to how much room there is to push the current release prices any higher.

  • Tim James10 June 2019

    Matt – Thank you for the correction. That was very careless of me to divide the Vilafonté lots by 12 instead of by 6. It makes my rhetorical point weaker, but I think the most useful comparison is still to the current retail price, not the original one.

  • Jaco van Zyl10 June 2019

    Hi Tim

    Some interesting and valid sentiments.

    Sorry to hamper on one aspect thereof, but re the Vilafonte Series C 2006/2007, the final price (including the sales commission) amounts to approx. R2300 per bottle. Even compared to the current retail price, that is not negligible growth, and is hardly an argument against the investment value of the wine. Storage costs is off course expensive, but if you are paying just below R100 per bottle per year, might be necessary to reconsider your service provider.

  • Tim James10 June 2019

    Yup. Bad para. Bad stuff by me, led myself astray. Apologies to all concerned.

    • Jonathan Snashall12 June 2019

      Dear Tim
      How much good do you think secondary market prices of say Penfolds Grange or Torbreck has done for the positive perception of Australian wine and therefore likely leading to less price resistance or sensitivity at lower price points? I refer to all three withering pieces you have written on the Strauss & Co auction.
      You wrote ‘Prices of grapes have, as we know, not risen much over the past decade, and it’s the grape farmers who are suffering most, as cost increases over the same period have risen greatly, and a lack of sustainability is a real threat, as is a decline in the general quality of the Cape’s vineyards’ here http://grape.co.za/2015/03/the-good-news-and-the-bad/ where you assert that 80% of South African wine doesn’t set the tone to improve the top end image and higher prices. What about the reverse? Why not the reverse?
      You wrote ‘Undoubtedly the money statistics would be important in defining success’ here http://grape.co.za/2017/01/the-most-successful-cape-wine-area/ and you wrote ‘So, for R700 (seems crazy now) I could buy a bottle of Château Lafite 1981 and….did so….I drank my first bottle of Premier Cru Bordeaux. I know that it was so wonderful (and the occasion so special) that it brought tears to my eyes’ here http://grape.co.za/2016/01/great-wine-experiences/ No doubt Lafite prices influence – and are influenced by – the secondary market inc auctions.
      Here, https://winemag.co.za/tim-james-more-on-cape-wines-increasing-yields/in apparent endorsement, you quote ‘Brand SA needs to gain margin in the international scale.”
      I have no doubt there are many more examples, but for now my dipstick search will suffice, while I noticed many where you are critical of higher wine prices. Like taste, value is very much subjective and relative – one man’s R100 is another’s R100 000.
      Your Bdx argument fails to consider the sheer volume of wine Bdx produces and basic economics. Bdx alone has more land to vine than SA and, when i last checked, is producing 900 million bottles red (excludes white) in most years.
      As for saying the result is ‘very muted’ when more than 75% of the wine sold – including within guide prices as far as I know (numbers to be confirmed) again reveals your bias and prejudice. It’s clearly a shallow comparison as is factually incorrect and not quite oranges with oranges, just bad apples

  • Matt A10 June 2019

    Easy mistake, Tim. Appreciate your a candor.

    Something that does still confuse me though, and maybe Roland or someone else closer to the auction can maybe elaborate on: I noticed a few instances where the first lot of a particular wine was sold (and not for an inconsiderable amount), but the second and sometimes third lot went unsold. Based on the price obtained for the first lot it would seem there were a few bidders involved, but then there was no interest in the second item? Eg Peter Barlow 2009.

    How does this happen? Peculiarity of online / absentee bidding?

  • Angela Lloyd10 June 2019

    The emphasis here seems to be very much on prices & increasing them, without taking into account reputation & consistency, both of which I believe are essential for a successful price increase. On that score, Kanonkop & Eben Sadie cannot be faulted. Their modest, incremental increases are accepted & acceptable for those two reasons & are why their wines did well on this auction. I don’t believe Those first-time (only-time?) wines selling for several thousand Rand do anything long-term for SA’s wine image, partly because of limited quantity.
    Regarding % of lots sold, Nederberg often had unsold wine & frankly, it’s nothing unusual on any auction. The more interesting question is who is buying & do they have an interest in the seller which affects prices. An issue that has arisen with the CWG Auction.

  • Jonathan Snashall11 June 2019

    Tim which, for you, is the lesser of the 2 evils – socialism or capitalism?

  • Roland Peens11 June 2019

    Tim this is an important debate. I believe that true fine wine prices will develop in a free, more mature market with increased opportunities for buyers to meet sellers. The South African fine wine market is small and fragmented, with very little market information and resale platforms. When brands and wines are compared side-by-side, the consumer has the power to render the secondary market price which in turn should effect the current vintage price. We are a young fine wine industry and there are (rightly so) an equal number of under-priced as there are over-priced wines.

    Matt, telephone and absentee bidding did make an impact.

    Post-bids are also being made and will be accepted for the next week. This is not a practice we are used to, but we pass on post-bids to the sellers for acceptance. 100% ‘sell-throughs’ on art auctions in South Africa are highly unlikely and art is a far more mature and larger market.

    We have improvements to make for the 14 September and are very excited for the next step.

    Roland Peens

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