Bordeaux's most prestigious châteaus were packed this past week, as more than 13,500 importers, wine writers and other members of the trade drove up and down the Left and Right Banks, getting their first tastes of the 2008 vintage. The annual futures tastings—the trade's chance to sample the wines before futures go on sale—were as busy as ever. The wines were surprisingly good, according to most reports. Despite a cold wet summer last year, a sunny fall ripened the grapes and most estates produced very good to outstanding wines.
Too bad no one was talking about them. Instead, the topic on every pair of lips was the worldwide recession, and whether it would kill the futures campaign before it started. "This year there are lots of question marks," said Jean-Charles Cazes, CEO of Château Lynch-Bages.
During a week when the leaders of the world's biggest economies were meeting in London to try and craft financial medicine and the World Bank predicted the global economy would shrink by 1.7 percent this year, it's not surprising that the quality of Bordeaux's 2008 vintage was not topic number one. Just as American wineries have been struggling with the global downturn, most overseas wineries are facing the same concerns.
Sales have slowed noticeably in the past six to nine months in most regions. The American and United Kingdom markets are particularly bad. American importers aren't buying much wine, according to several sources, because they're trying to clear what inventory they have and keep less wine in stock. Reports of wines being sold at a heavy discount, even below cost, are widespread. While Americans are drinking the same amount of wine so far, they're shifting to lower cost brands and drinking at home, rather than at restaurants or bars. (For more details on the recession's impact on the global drinks industry, see Wine Market Stagnates.)
All of those factors were prompting many at the futures tastings to ask not whether the top châteaus would be dropping prices compared to recent vintages, but by how much. Some even asked if estates would skip futures sales altogether and wait until the wines are ready for release.
That's unlikely. "My father always stressed to me what my grandfather and great grandfather learned—It is better to sell the wine when the customer is in front of you," said Cazes. He worries that canceling the futures campaign would send a bad message.
But will anyone buy 2008 futures? After the classic vintage of 2005, many top châteaus failed to make major price cuts in 2006 and 2007, despite lower quality. Bordeaux sales worldwide stagnated last year as volume declined. U.S. imports of Bordeaux slipped 3 percent. In Bordeaux's other big market, the U.K., the pound declined sharply in value compared to the euro last year, making the wines more expensive and an even tougher sell. That's led to pressure on the châteaus to lower prices dramatically.
"With a vintage like 2005, everyone is happy," said Pascal Loridon, marketing director for the Conseil Interprofessionel du Vin de Bordeaux (CIVB). "With a vintage like 2007 or 2008, everyone puts pressure on the châteaus." This year, it appears to be working. Several château owners told Wine Spectator that they expect the top classified growths to announce prices this year earlier than in recent campaigns (Château Angélus announced theirs today) and to lower them significantly. Some may also offer to help merchants with their 2007s, finding alternative markets for them. Of course, most believe the top properties' wines will sell eventually, if not as futures. But for the lesser 95 percent of properties, any long recession may be painful.
Other French regions are seeing similar problems. Burgundy, which has enjoyed dramatic gains in the past five years, is not feeling the pinch too much yet, but producers are concerned. "Our sales are good, but many of our professional clients, export and domestic, have asked us for extended payment terms," said Jeremy Seysses, of Domaine Dujac in Morey-St.-Denis. "We have heard reports that exports and sales have declined, and some growers are bottling their '07s but are still stuck with lots of '06 wines." Seysses plans to trim prices, partially because of the downturn but also because he believes the '07s are a bit more modest in quality than the '06s.
Joseph Henriot, owner of Bouchard Père & Fils, reports that sales have suffered noticeably in the past three months. "Shipments have declined mainly due to the fact that the importers, distributors, restaurants and retailers are selling their stocks to get cash before reordering," he said. Louis Latour told Wine Spectator that it is reducing wholesale prices 15 percent to 35 percent for the 2006 vintage.
But while most large négociants like Bouchard and Latour have the capital to withstand the downturn for now, and smaller prestigious domaines like Dujac always find their tiny allocations in demand, less well-known domaines could be in trouble. Peter Wasserman of Becky Wasserman Selections says that small domaines who tried to expand by making expensive investments in new cellars or switching to biodynamic viticulture during the boom may have too much debt now. "There are a few domaines going on the block," he said. Many Americans began buying Burgundy after the outstanding 2005 vintage. Wasserman believes the region may depend on Russia or Asia to pick up the slack now.
No region in France enjoyed bigger gains in the past few years than Champagne, which saw a 69 percent increase in sales to the U.S. from 2001 to 2006. But sales have fizzled in the past year. Shipments were down five percent last year, according to the U.S. Champagne Bureau. Shipments to the U.S.—Champagne's second biggest export market—decreased nearly 21 percent from 2007, to a little more than 17 million bottles. (For more on Champagne sales, see Bruce Sanderson's blog.)
Reports are similarly bad in other major European regions, including Spain and Italy. At VinItaly, the country's biggest trade show, held this past weekend in Verona, the mood was subdued. Exports fell by 7 percent last year, according to Unione Italiana Vini, though exports by value rose slightly. Marco Pallanti, president of the Chianti Classico Consorzio and co-owner of Castello di Ama, reports that Chianti Classico sales declined 10 percent in the first two months of this year. He says the Consorzio plans to stress that its wines are lower priced than some of Tuscany's other top wines in its marketing efforts.
While New World wine regions have fared better than those of Europe, mainly because they do better with value wines, no country has been hit harder than Australia, once the top source for values. Australia shipped 11 percent less wine by volume and 18 percent less by value in 2008, its first decline in 15 years, according to the Australian Wine and Brandy Corporation, a government marketing agency. Exports by value to the U.S. fell 26 percent, a huge change of fortune.
While sales by value to China increased 32 percent, it's still a much smaller market. Some Australian wineries are slashing prices and selling their wines below cost in hopes of keeping their share in various markets. After years of making their name as a source for values, they're finding they can't compete with other nations like Chile and South Africa.
One of the few regions enjoying good news is Chile's neighbor, Argentina. Exports to the U.S. grew 43 percent in value and 34 percent in volume in 2008, according to Argentina's Department of Customs. Nick Ramkowsky, co-founder of importer Vine Connections, believes the increase is due to the low price of the wines and that they're still relatively unknown by American consumers. The wines are also sold primarily in retail shops, at a time when wine drinkers are opting for retail over restaurants and bars.
Argentina's success shows that there are opportunities in the current hard times. For collectors, now may be the time to scoop up undervalued top wines that were too expensive during the boom times. For up-and-coming wine regions, the American consumer's new love for value wines offers an opening. If the recession continues to worsen over the next six months, every winery may be looking at slashing prices.