Lyle Fass–Word on the Street, 4-10-09;2005 Burgundy Pricing

[Ned Hoey]

Lyle et al,
Price tremors of Burgundy started with '99s, but were, as it turns out minor. '02 was more serious, and signaled that Burgundy was on a fast track to unaffordability. Top '02s saw 50%+ jumps. Then the freakish
'03s came along and between very short yields and a very weak dollar, prices stayed very high. 04 was a pause
in the progression, but in feb 07 when Allen Meadows issued his Greatest vintage in 50 years comment the roof blew off prices for 05s.
Something that is important to remember with Burgundy is that it operates very differently than Bordeaux as far as distribution goes. Bordeaux production is at an industrial scale compared to the very small amounts produced by Burgundy's producer/farmers. Cellar door prices in Burgundy are very stable, rising slowly and incrementally year to year. Bordeaux ex chateau prices rise and fall significantly depending on vintage. Most cellar door prices for 05 Burgundy were at the most 5-10% above 04s, some didn't rise at all. Where all the increases came from were from all those in the trade between the domaines and consumers. The problem is that production of premier and grand cru Burgundy is essentially what it is and cannot grow, yet awareness and interest in Burgundy continues to increase at exponential rates. The interweb has seen to that. Too much disposable income was chasing too little wine and the trade was entirely willing to capitalize.
One reason Burgundy prices have traditionally been stable is that while it is a revered region, demand has always been much lower than demand for Bordeaux. Vintage fluctuations over the years have meant that the Burgundy producers are far more interested in selling out their wines than playing pricing games. Long relationships and stable consistent pricing are the way this has been achieved. I think many people would be surprised to learn what Roumier has been getting at his door for a bottle of Musigny. Only DRC and Leroy have traditionally had exceptional and very high prices.
Recent events have now seriously disrupted the rather staid world of Burgundy pricing. In the past, crazy
secondary prices were pretty much laughed off. Now the feedback loop to producers has them raising prices for top wines based on what happened to the previous vintage. The 06 Richebourg from X went up to adjust
to prices seen for the 05. The increases were too big for producers to ignore. The thing is, in Burgundy,
prices once raised, don't go down. Those with cellar door access will either have to pay or risk losing access to that top domain, and that carries on down the line. Whoever declines is likely to lose their allocation
but then when the wines don't sell those at the end of the line take the hit.
So what should have happened with the 05s? For starters, the media, critics etc, should have been less hyperbolic about the vintage. They were effective at creating a virtual hysteria for the wines. The trade
should have acted with greater restraint, resisting the temptation to squeeze every possible penny of profit
knowing that they will need to sell the next vintage and the next... too. Sure, some short term money would have gone unmade but responsible business practices result in that sometimes. Finally, some wines sold for prices no one should have been willing to pay, Deep pocketed consumers were too willing to shell out obscene amounts. Level heads were outvoted by irrationally exuberant ones.
I guess it remains to be seen if some kind of equilibrium can be restored.

[dbp]

Ned,

Great post... you did a great job explaining the situation. The only part I take issue with is that "the media, critics etc, should have been less hyperbolic about the vintage." While I completely agree that their writings are what lead to this hysteria, how could they not report what they tasted? Isn't that their job? Well of course it is... That is why I trust Allen Meadows. Are you suggesting he not tell us his true opinion to somehow protect us from prices? Sure, perhaps he could have just given his notes without saying it's the greatest this that or the other thing... but if he believed that, I don't see anything wrong with writing it. It's the retailers who chose to blow up the prices and thusly, as you say, caused the producers to then bump the prices of future vintages. It's those in the chain of sale that are much more responsible for what's happened... THEY were the ones after intimidate gains, without considering what would happen to future vintages that weren't so exemplary. I can't point any fingers at the critics for reporting what they tasted... That's not where the greed started, and thus caused the current immovable wines.

David

[Lyle Fass]

Let me put on my retail hat for a second.

It is a rare opportunity that a vintage like 2005 comes along. Usually you have to push wines with write-ups, tastings etc, which is great and all, but with 2005 Burgundy people found the wines, and the wines did not find the people. You bet, in a business with slim margins, like wine retail, we are going to try and capitalize as best we can while also retaining our loyal customers. It is a delicate balancing act. At CSW we tried to balance this by say selling some bottles of Mugnier Musigny to loyal clients at a fair markup while selling to speculators at prices as high as we could get away with. Again an opportunity like this does not come around that often so we jumped on it. If you were loyal you would get the fairest price we could give you, if you were a speculator, we were going to charge you more. It's just part of the game. It was easy to tell who was who as at CSW because we had very loyal clients who bought every vintage no matter what. I knew who to e-mail when the '03's, '04's etc. came in. We e-mailed for the 2005's to an extent but did hold a small bit back and put it out at a higher price for the new purchasers. It's how the game works for Burgs. As Ned says. if you are dialed in and buy the wine every year, you are going to get it every year. If you don't well you're gonna have to pay. There were so many people who jumped in the pool for 2005 Burgundy, and not only jumped in the pool, jumped in the deep end. Why should hedge-fund Jed get all of my 2005 Mugnier Musigny at $500 a bottle when I know I can sell it to him at $1000 a bottle? I also know he ain't touching the 2006.

I also have to say I agree with Ned in that the critics over-hyped the vintage and so did people on the wine interweb. The buzz on e-bob started almost even before the grapes were harvested. I remember a thread on 2005 Burgs that was only there for a few speculators. It was like 100 pages long and just tracked prices. Never before had I seen that for Burgundy before.

Meadows also needed a coming out party and he got it. He was always so strict with his scores and then 2005 came and because of his reputation as a strict scorer, his high scores meant more. He knew it. Parker had 1982 Bordeaux and Meadows had 2005 Burgundy. Scores never sold Burgundy much before that. Rarity really ruled the roost on the top wines. RC, Roumier Musigny etc are expensive because they are rare. Rovani, I remember scored the 2002 Jadot Chapelle-Chambertin like 99 pts. or something like that and the secondary market went nuts for that wine. That was really an exception. No other critics I can think of have ever had two vintages associated with them like 2005 Burgundy for Meadows and 1982 Bordeaux for Parker. Granted the Parker story was a bit more theatrical as many panned 1982 Bordeaux and he got it right. Although there is an illusion out there that all 1982 Bordeaux is good. It's not. Maybe 40-60 wines are great with the rest being okay. I sure don't want to be drinking 1982 Greysac. With 2005 Burgundy, Meadows had an easier call as the quality was obvious.

Great comments. Keep 'em coming.

[focusisfragile]

Lyle and others,
Hi guys. Have you SEEN the 07 Leflaive offer yet?! Mine just arrived today. I had to make sure I hadn't been slipped a mickey, as I thought I might be losing my mind. Keep in mind, this is the PRE_ARRIVAL. Frontline (FL) Bourgogne Blanc is $50, 3 Case Assort (3CS) is $36.67. Now the juicy bits...Folatieres FL is $193, 3CS $140, Les Pucelles Fl is $230, 3CS is $167, B-B-M FL is $363!!!!, 3CS is $266, and the grand winner is the Chevlaier, at FL $480, 3CS $353. $480 dollars. Per bottle. I shoot you not. I wonder if the importer will sell its entire allotment. I'm sure we'll buy a ton of these wines, with the grand crus hitting the list somewhere aroun $1000-1250. This makes me want to cry. I opened an 06 Bourgogne Blanc the other day, and it was undrinkable. I'm sure there are some microbes living around a gas vent somewhere deep in the Pacific that would absolutely LOVE this wine, but for us Carbon dependent life forms, that much sulfur is just deadly. I can only imagine what the 07's are like...

[Lyle Fass]

FIF,

That is insane. But people, mostly restos will buy. I am sure they will be much cheaper overseas but Leflaive has always lived in a world of their own when it comes to pricing.