2005 Burgundy : The Game-Changing Vintage
All markets, including wine, have established pricing structures that are generally reasonably consistent over time. A vintage had never changed the pricing structure for one region almost overnight. That was true before 2005. Before 2005, pricing went up and down according to vintage, with great Burgundy still relatively affordable up to the 2004 vintage. Up to 2004, things were slightly more expensive because of the falling dollar. Then 2005 came and everything sky-rocketed. From Bourgogne Rouge to Romanee-Conti it all went up.
The Ancient Regime
But there still was an established pricing structure in Burgundy that was thoughtful and reasonable based on quality. There were a few labels in the ultra sphere, like DRC, Leroy, Roumier (Musigny, Les Amoureses) and maybe a few other bottlings here and there (Faiveley Musigny, etc), but it was a very established first tier of producers. They knew what they could charge, as did everybody getting a piece of the pie in the pipeline. Increases were nominal and went with the vintage and the dollar
There were established 2nd tier producers (as far as pricing) like Rousseau, Fourrier, Dujac, Musigny, Roumier, (excluding Muisgny and Les Amoureies) and the like. They also had an established set of pricing and were still affordable for the Burgundy geek who was not a zillionaire.
Then there were the 3rd tier of producers that Burgundy geeks focused on, as up until 2005 these were EXCELLENT values. Producers like Chevillon, Gouges, Barthod, Pavelot and the like were always fairly priced and provided excellent quality for the money. People could line up their wine budgets every year with pretty well established prices on these wines that would go into their cellars. It was easy, it was reliable and everybody was happy.
There was the 4th tier of producers, which were high-level reliable negociants like Jadot, Drouhin, Laurent, Faiveley, le Moine, Bouchard, and those prices were very dialed in pretty much every year with only nominal upward ticks.
The final tier was the 5th tier of producer, whose prices did not change that much and were personal favorites of wine lovers, geeks, collectors etc. Producers like Joblot, Dureil-Janthial, Bertheau, etc who all had their fans, but were not in demand like the first four tiers and had less mobility when it comes to increasing prices.
The Brave New World
Well this whole thing that I have outlined above all went in the crapper with the 2005 vintage. Things just went mad. First of all, the wines at the top end of the spectrum like DRC, Leroy and the Roumier cult bottlings went through the roof, Windfall pricing! Romanee-Conti at $10,000 a bottle and in many cases higher. La Tache at anywhere between $2,800 and $6,000. The RSV and Richebourg were $1,400 to $2,000. The Echezeaux was $500 and in many cases more and the Grand Echezeaux was a cool grand. Roumier Musigny was being offered out at $7,000 a bottle. These prices were astonishing. Never before had so many speculators bought into a vintage, which drove prices through the roof. Bordeaux buyers were trying their hand at the Burgundy game.
If we want to look at one wine and compare it to 2004, DRC La Tache went from $975 to $3,500, an increase of 259%.
The next important thing that happened was that certain producers went from the 2nd tier to the 1st tier. Rousseau, Roumier, Dujac and Mugnier all became mostly out of reach for most Burgundy lovers. Lower end Rousseaus like Charmes and Clos de la Roche were retailing for north of $300. Beze and Chambertin were quickly hitting four figures. Clos St. Jacques was a cool $500+. Lavaux half that. Every tier at Rousseau increased 150% or more.
The second tier wines (those that remained second tier) had almost as significant price increases. Fourrier Gevrey Chambertin 1er Cru “Clos St. Jacques” went from $120 in 2004 to $320 in 2005, a 167% increase.
The third tier wines went from being an expensive treat for the non-hedge fund managing Burg lover to completely out of their reach. Barthod Chambolle-Musigny 1er Cru “Les Cras,” for example, increased from $94 in 2004 to $250 in 2005, a 166% increase in price.
Fourth tier wines were similarly priced out of the reach of normal Burg lovers. You couldn’t even find a decent premier cru for under $150. High-level producers’ sweet spot village wines (Think Mugnier Chambolle-Musigny, Dujac Morey St.Denis, Lignier Gevrey-Chambertin) were $100 minimum. Louis Jadot Clos de Vougeot, for example, increased from $75 in 2004 to $150 in 2005, a mere 100%.
Finally, the fifth tier wines, every day drinking wines for Burg lovers, had significant price increases. Bourgogne Rouge had a new $30 entry fee and some went all the way up to $50. So many Burgundy lovers were priced out of the market due to this increased speculation. Jean-Marc Pavelot Savigny Les Beaune 1er Cru “La Dominode,” for example, saw a 77% price increase from $31 in 2004 to $55 in 2005.
Who were these people paying these prices? The great majority of these people were speculators or rich Burg lovers who HAD to have every important 2005, or in some cases, any 2005 that was rated decently by Burghound.
A new reality quickly set in. Never before had there been such a pricing leap between vintages. Why did this happen? I think that there are a few reasons.
1) There is more hype for everything these days due to the vast channels of communication we have (and the vast industry of people committed to hyping things).
2) The financial and housing markets were awash in liquidity and the rich were getting richer.
3) So many other people bought into the hype machine and started buying Burgundy with the 2005 vintage who had never bought Burgundy before. This created an opportunity for retailers to cash in and definitely was a big factor in the 2005 Burgundian pricing bender. I was in retail at this time and as long as it had 2005 and Burgundy on the label, it sold.
Of course there were exceptions to the rule of crazy pricing. People who have been buying for years and were particularly dialed in to certain retailers got better deals than others. They still paid more, but even if they were paying 20-30% more than for their 2004’s they were happy. Everyone else was paying 50-100% more, so they felt good about their 2005 purchases.
Going Forward
The big casualties from all this are the vintages that followed and the massive disinterest from the consumer. The people who jumped in with 2005 were out because 2006 was a “terroir” vintage they could not speculate on. Also the 2006 prices were, and are still, too high. 2006 is mired as the very good vintage after the vintage of the century. So prices were still out of whack. 2007 seems priced a bit more according to reality but is still very high, especially for a vintage that is worse than 2006.
At this point in time, top 2005’s are down 40 to 50 percent at auction. La Tache was $5,000 at peak and now you can get bottles at auction for around $2,500. Also Ponsot Clos de la Roche was trading for $1,500 a bottle at auction peak and now was just sold for $9,600 a case, which is $800 a bottle.
The 2006’s are not selling through and will have to be closed out. As usual, retailers will take a loss after a hyped vintage which begins to question whether the hyped vintage, in the long run, is actually an economic boon or bust for them. Importers stuck with warehouses full of 2006’s that they overpaid for will be liquidating them for years.
2007’s are not selling at all. It is a lighter styled vintage along the lines of 2000 that not many people are interested in.
Let’s check in on prices of our benchmark wines for 2006.
- Tier 1 DRC La Tache is back at $1,300, only 33% above 2004’s price.
- Tier 2 Fourrier Gevrey Chambertin 1er Cru “Clos St. Jacques” is priced at $200, 67% above 2004 (nice work if you can get it).
- Tier 3 Barthod Chambolle-Musigny 1er Cru “Les Cras” is at $120 in 2006, only 28% above 2004.
- Tier 4 Louis Jadot Clos de Vougeot is priced at $100, 33% above 2004.
- Finally, Tier 5 Jean-Marc Pavelot Savigny Les Beaune 1er Cru “La Dominode is priced at $40, 29% above 2004.
Two points here. One, these are the prices in the midst of the worst economic contraction since the Great Depression. High-end wine is a luxury good and high-end wine sales are down across the board. If the Burgundians can really make the average 38% price increase (from our 5 examples) stick, then we have seen a permanent significant increase in demand for Burgundy.
Second, these are asking prices. Sort of like the house on your block that’s been sitting for six months with the sign on the lawn. Until the inventory starts to clear, it’s not a market clearing price. If retailers have to discount by 25% to move the 2006’s off the shelves, we’re back to 2004 pricing.
What to do? What to do? 2005 represented a new pricing paradigm and we can thank the great vintage combined with the massive marketing for that. It’s a shame, as so many people missed out on the 2005’s who love Burgundy.
Will the new economic reality of the post subprime crash push prices back to the levels pre-2005 or has a new generation of Burgundy addicts been created from the 2005 vintage, permanently increasing prices? Will things swing back to the pre-2005 equilibrium or have we been shocked into a new equilibrium? Time will tell.
Although I don’t have a crystal ball, I’d bet dollars to doughnuts that given the economic climate, there will be plenty of ‘special offers’ on the 2006’s. Given the economic climate and the huge spending on 2005 (depleting Burg dollars), there should be some pretty good bargains for the savvy, patient Burg buyers. Given the fact that 2007 and 2008 are not looking to be great vintages, I’d say that 2006 is a reasonable vintage for the price conscious Burg lover.
What has been your experience with 2005 Burgundy, Burgundy buying in general, and the 2006 and 2007 vintages? What do you think will happen to Burgundy prices going forward?