In the early hours of June 24, the mobile phones of executives at BI began buzzing with e-mail alerts. BI is a London-based wine merchant, known until recently as Bordeaux Index, and the messages signaled heavy trading on their Internet platform. "The [Brexit] referendum results had come in and the guys in Hong Kong were trading, bang, bang, bang, £100,000, £100,000," recalled BI head of marketing Giles Cooper, sitting in a conference room at the firm's headquarters in London. The traders were buying Bordeaux first-growths. By mid-day, BI had done 1 million pounds in trade.
The trigger for all this trading was Brexit, the United Kingdom's historic vote to leave the European Union. The referendum results sparked a massive decline in the value of the British pound, and within moments, wine held by U.K. merchants was a lot cheaper for international customers.
Outside London, at the Basingstoke offices of historic merchant Berry Brothers & Rudd, buying director Max Lalondrelle reported similarly heavy trading. "We'll have one of our best months, with trades coming from private customers outside Britain."
The Brexit vote has triggered jubilation among supporters, turmoil in financial markets, dismay in Brussels and a whole lot of uncertainty around the globe. The wine trade is feeling the uncertainty—the U.K. is a crucial market for European winemakers. But leading members of the industry say they believe there will be little fallout in the short term. No one seems to know what the change will mean in the long term, however.
In 2015, France exported 18.4 million cases of wine worth 1.2 billion euros to the U.K., with Champagne, Bordeaux, Burgundy and the Rhône accounting for 45 percent of the volume. This is not a market that France wants to lose. The U.K. is a crucial market for Italian and Spanish winemakers too, as well as most other wine-exporting E.U. nations.
There is little fear in Bordeaux that Britain will isolate itself. "The Brits are traders. They will continue to trade and be part of the wine trade. Britain won't cut itself off from trading or other countries," said Allan Sichel, CEO of Maison Sichel and the new president of the trade group CIVB.
Meanwhile, there's muted relief that the 2015 futures campaign is out of the way since the weakened pound would have made sales more difficult. "I locked in our currency pre-Brexit," said Lalondrelle. "I'm not a currency trader. I want to know the cost of the wine the day I make the purchase."
In the short term, the pound's decline is good news. The large stock of Bordeaux wine sitting in London warehouses is the cheapest in Europe, explained BI managing director Gary Boom. "Already we sell more wine [by value] back to Bordeaux than we buy from Bordeaux, because of the exchange rates. Quite often, the most expensive place to buy Bordeaux, outside en primeur campaigns, is in Bordeaux."
But when the existing U.K. stock runs out, prices will rise, because it will cost more to replace it. This is business as usual. Both London merchants and Bordeaux négociants explained to Wine Spectator that the so-called "collapse" of the British pound isn't any worse than fairly recent fluctuations. "We've seen these same exchange rates in 2008, 2009 and again in 2014. We're used to dealing with this in the wine trade," said Sichel.
And despite the alarming (or alarmist) headlines, some point to other non-E.U. trading partners as an indication of what to expect. "Take a look at Switzerland," Yann Schÿler, CEO of négociant Maison Schÿler, told Wine Spectator. What is the impact of them not being in the E.U.? None."
If anything, cool heads prevail in Bordeaux, perhaps because the roots of trade between the English and Bordelais extend back to Eleanor of Aquitaine. They've weathered the Napoleonic wars, trade wars, World Wars and economic crashes. Sichel, while personally distraught over the votes, admitted, "This crisis is minor, insignificant compared to what has been overcome in the past in the wine business."
It's the unknowns that weigh on the minds of wine producers, négociants and merchants. "In the short term, it's put confusion and volatility in the market, it's an unsettled situation, and that's not good for business," said Jean-Charles Cazes, director of Château Lynch Bages.
The uncertainty springs from two issues. The first is the timetable for the U.K.'s exit from the E.U. "What we really need to know is when it all comes into effect," said Lilian Barton-Sartorius of Château Léoville Barton. "For people from the U.K. working for us, when does the barrier come down? There is a whole lot we need to get in perspective."
Since June 24, the U.K. has seen an unprecedented crisis in leadership. Prime Minister David Cameron has announced his pending resignation, refusing to oversee his country's exit from the E.U. Today his party announced that Home Secretary Theresa May will most likely become the next prime minister.
The second issue focuses on the future, particularly the trade agreements Britain negotiates with various countries, and how those agreements impact wine. The British government has a deficit to finance. "Will [the U.K.] raise duty further to cover the missing revenue?" said Schÿler. "Remember that import duty is already quite high in the U.K., much higher than Switzerland."
A tariff could make lower-end wines less attractive, though it's unlikely to impact the demand for top-end Bordeaux. Simply put, Bordeaux produces more volume than Burgundy or Napa, and there's little market for top-end Napa Cabernet Sauvignon in the U.K. because merchants can't get the volume.
The longterm outlook, aside from the possibility of tariffs if the U.K. and E.U. get into a tit-for-tat trade war, also holds potential. Once the U.K. has left the E.U., it can negotiate, for example, a Free Trade Agreement for wine with China, like Chile and New Zealand have. This is a potential boon for the U.K. merchants, already some of the biggest players in the global market.
"Where's the opportunity? If you asked me what was the one deal I would love, short of no tariffs on the European Union, it would be negotiating a tariff-free environment with China. That would be the Holy Grail," said BI's Boom, who elucidated how U.K. merchants could buy wine from around the world, including the U.S., and ship it directly to China. Currently, the E.U. faces a 30 percent wine tariff into China. "We would sell so much wine. We would really just nail that market completely."