Wine Market Fatigue and the Tsunami Wave is coming Ashore

[Tom_Reddick]

Being more closely connected with the auction side, I tend to see things a bit further down the road. While I do not think we are in for dire circumstances, there is certainly some strong pullback in areas that have bubbled up in the last couple of years. I will need to see a couple more auctions before making better conclusions because we need to see reserve prices adjusted in circumstances where, Giacosa being a good example, large numbers of lots suddenly are not selling. Yes the demand at current levels is evaporating rather quickly for many things, but we do not yet know how far down prices are going to come because many lots with reserves based on spring activity are not selling.

I only get regular offerings from a couple of UK brokers, and I can confirm some slight softening in Bordeaux and Champagne, but Burgundy is as crazy as ever- especially DRC, Roumier and Rousseau.

The scary thing is that even if prices were to pull back a good 40% for the wines that have seen the greatest upswings lately- Giacosa, Leroy, certain Dujac wines, Raveneau Les Clos and Rousseau just to name a few- at those reduced levels we would still be very far ahead of where things were just a few years ago.

At the retail level, I can confirm that many of these cherries are still disappearing the second they arrive- and usually to collectors “on the list” so to speak. On a limited basis with 2016, and more broadly with 2017, Roumier is starting to appear more evenly spread in the United States again, but at the asking prices with standard markup are disappearing fairly quickly.

That is important to note because you really have two worlds here. You have the world in which core collectors who have bought the wines for years are buying and holding and drinking (and many of those collectors now going closer to the source to buy), and also the world in which the secondary market trades a portion of the production that finds its way there via numerous channels.

At this point there are so many people aspiring to join that first world, that even if the secondary market comes to near collapse and more of the wines are sold to people who plan to drink them- there are enough willing buyers out there to snap them up such that the secondary market supply can contract to a point where speculation and high trading prices are not affected too much.

And with some wineries, notably the DRC and their special lists, that equation increasingly leaves out the retailer. As in so many other industries these days, it is the retailer that is taking the real hit- either by virtue of losing big customers who are taking a more direct buying approach, or by virtue of increasingly painful tie-ins to get the cherries.

[blarmston]

Global economy is turning down, people are tightening their belts. Sure the price indiscriminate buyer still exists, but the marginal buyer is reducing their bid, or buying less. The latter is what drives the elasticity of wine prices. Once the greater fools paradigm goes away, markets collapse. Wine is no different. This is the bottom of the first in a long nine inning game yet to be played…

[William_Gladstone]

Being more closely connected with the auction side, I tend to see things a bit further down the road. While I do not think we are in for dire circumstances, there is certainly some strong pullback in areas that have bubbled up in the last couple of years. I will need to see a couple more auctions before making better conclusions because we need to see reserve prices adjusted in circumstances where, Giacosa being a good example, large numbers of lots suddenly are not selling. Yes the demand at current levels is evaporating rather quickly for many things, but we do not yet know how far down prices are going to come because many lots with reserves based on spring activity are not selling.

I only get regular offerings from a couple of UK brokers, and I can confirm some slight softening in Bordeaux and Champagne, but Burgundy is as crazy as ever- especially DRC, Roumier and Rousseau.

The scary thing is that even if prices were to pull back a good 40% for the wines that have seen the greatest upswings lately- Giacosa, Leroy, certain Dujac wines, Raveneau Les Clos and Rousseau just to name a few- at those reduced levels we would still be very far ahead of where things were just a few years ago.

At the retail level, I can confirm that many of these cherries are still disappearing the second they arrive- and usually to collectors “on the list” so to speak. On a limited basis with 2016, and more broadly with 2017, Roumier is starting to appear more evenly spread in the United States again, but at the asking prices with standard markup are disappearing fairly quickly.

That is important to note because you really have two worlds here. You have the world in which core collectors who have bought the wines for years are buying and holding and drinking (and many of those collectors now going closer to the source to buy), and also the world in which the secondary market trades a portion of the production that finds its way there via numerous channels.

At this point there are so many people aspiring to join that first world, that even if the secondary market comes to near collapse and more of the wines are sold to people who plan to drink them- there are enough willing buyers out there to snap them up such that the secondary market supply can contract to a point where speculation and high trading prices are not affected too much.

And with some wineries, notably the DRC and their special lists, that equation increasingly leaves out the retailer. As in so many other industries these days, it is the retailer that is taking the real hit- either by virtue of losing big customers who are taking a more direct buying approach, or by virtue of increasingly painful tie-ins to get the cherries.

It is such a dysfunctional market in so many ways.

[Tom_Reddick]

It is such a dysfunctional market in so many ways.

It is certainly evolving very quickly on the retail side. I have not done any appraisal work in several months now as a great number of retailers are now getting into the game- locally and on a national level.

More and more the business model is shifting to a full-service option where you can have storage options- complete with inventory and appraisal services, social club type facilities and the like. Auction is now filling in for retail in a big way too. It doesn’t take long after a desired wine is released for it to being appearing prominently and frequently at auction- increasingly without ever having made it to a retail customer first.

Plus the really big retailers are continuing to push smaller wine stores out of business. Bad news for many customers at the higher end because in the big store scenario you are fighting against millionaires and billionaires for a share of tiny allocations of top wines. And when smaller stores lose those tiny allocations, that has a trickle down effect as many customers who bought across the board shift their loyalties elsewhere- to the national market where they buy what cherries they can, and to the lowest cost retailer for everything else.

The fine wine market in the three largest Texas cities- Houston, Dallas and Austin- is essentially owned by two entities in Houston and three entities in Austin and Dallas. Only 2 are single proprietor stores. Those are astonishing numbers when you compare to 20 years ago when you had several options in each city, plus a significant number of higher end liquor stores carrying modest quantities of high end champagne and Bordeaux. Keep in mind that Texas is a huge marketplace for the first growths, DRC and high end champagne.

Given the worldwide market for wine now plus the fact it is socially acceptable and cool to have an expensive cellar where just 20 years ago it was considered geeky or snobby, I think this was all inevitable. It is certainly not the end of the world for the small or specialist retail model, but it is a fundamental shift that did not happen with the previous pricing and market expansion booms, or at least did not happen on the scale we are seeing now- though the seeds were certainly planted.

[William_Gladstone]

Very interesting, I’ve a friend who is a retailer in New England- between him and his family they own a few stores and he is opening a new one.
and I listen to how Total Wine and more operates with predatory practises that are squeezing so many retailers out of business.
Total Wine is Receiving favorable pricing with ‘tricks’ even in states that the prices are posted.
I do not know Tom if you are in the wine business and what you do - however, finding a little corner or square that allows me to sustain working with something I am passionate about
I consider myself fortunate.
Being involved with some of the people who have a passion and integrity about their product, I’m so proud to be a small part of the chain.

I’ve been in a few other industry’s and I’ve never seen an industry that the producers of the product offer so little support for those of us who distribute that product for them.
Good luck man.

[Ian_Dorin]

If we are solely keeping this to California wine, then the perpetual conversations that I have had with a few friends about the state of the market is quite relevant. I think it’s less about the boutique, small production wines, but the mass market wines that are really causing the market to be flooded instead. Wines like Insignia are more than double what they were 15 years ago, and every time they raised the price, the market struggled to sell more. The price of Dominus has tripled in that time, and we are starting to see that market pull back and push on the price. Similarly with Silver Oak, and even this year, Opus One. When wines like this don’t dry up the market, the people who have an appetite for California wine begin to look elsewhere and will suck up the boutique wines at that point. The issue is that the boutique wines have priced themselves past these wines, causing a huge flood of $200+ California wine on the market. MacDonald is kind of the perfect example right now. If they could make 1000 cases and keep the wine the same price, it would still sell out since the wine would be at a price the market desires. I know some people that groaned about the price of Scarecrow this year, and still bought. Who wants to bet those same people don’t buy the 2017 if the price doesn’t come down? When everyone was critical about Bordeaux and it’s pricing, they listened and responded (although some did not of course). I think it’s time for California to wake up and realize that the market for great $50-$100 Cabernet is alive, well and healthy, now someone just needs to make it.

[K_Tran1]

If we are solely keeping this to California wine, then the perpetual conversations that I have had with a few friends about the state of the market is quite relevant. I think it’s less about the boutique, small production wines, but the mass market wines that are really causing the market to be flooded instead. Wines like Insignia are more than double what they were 15 years ago, and every time they raised the price, the market struggled to sell more. The price of Dominus has tripled in that time, and we are starting to see that market pull back and push on the price. Similarly with Silver Oak, and even this year, Opus One. When wines like this don’t dry up the market, the people who have an appetite for California wine begin to look elsewhere and will suck up the boutique wines at that point. The issue is that the boutique wines have priced themselves past these wines, causing a huge flood of $200+ California wine on the market. MacDonald is kind of the perfect example right now. If they could make 1000 cases and keep the wine the same price, it would still sell out since the wine would be at a price the market desires. I know some people that groaned about the price of Scarecrow this year, and still bought. Who wants to bet those same people don’t buy the 2017 if the price doesn’t come down? When everyone was critical about Bordeaux and it’s pricing, they listened and responded (although some did not of course). I think it’s time for California to wake up and realize that the market for great $50-$100 Cabernet is alive, well and healthy, now someone just needs to make it.

Most of the wineries in Napa are making $50-100 cabernet.
The Insignia, Dominus, Shafer HSS are never going to be in that range. The small production wines people don’t have the economy of scale to make cabernet in the $50-100 and they are too small to make any difference anyway.

[Gordon_Fitz]

One of the great unknowns of modern CA high end cabs is aging potential. Investors, and wine enthusiasts, know what 1st Growth Bdx, high end Barolo, BdM, Burg, or CdP are going to do over time frames. In five or ten years will they want to be sitting on a 2013 Continuum? Some collectors and investors have made bets that may not pay off. If those wines start spiraling downward, both price and/ or quality wise, they’ll be dumped quickly on the secondary market that won’t be kind to them.

[David_Baum]

I’m with Ian. Yes we are heading toward global tougher economic conditions but there is still massive wealth out there. On my daily work I always tell people if a plague comes someone will clean up burying the bodies. Some segment of the economy will always do well as it’s a zero sum game. The wine market just seems to have gotten ahead of itself much like our housing markets did 15 years ago through speculation and irrational exuberance. That doesn’t mean a massive crash is necessary but rather a reset to more reasonable valuations. A little lower prices, a little wage inflation and a little time passing are a very powerful combination when they work together in concert

As an aside, if Macdonald chose to make all the wine they could and stopped selling fruit their max production is about 1000 cases. It’s a limited commodity

[Shan_A]

I suspect more than a few prior sources for deals, aka, email list offers and auctions have been impacted by (i) higher pricing generally and (ii) implementation of sales taxes. E.G., a NY fellow had great prices, but he has had to compete with more buyers for private collections in Europe… raised his own prices 10-20% to source more wine + match higher prices he saw from other email offers… and then added 10% tax on top of it. I look at his list now and the wines are 20-30% more than where they were just a year ago (all in with tax). I don’t even check some other email offers anymore and wonder how much goes unsold / what inventory velocity has been in 2019 vs. 2018.

[Nathan_Smyth]

Thank you for clearing that up, yes, I should have stated it is all of the U.S. wines… you are right… Absolute! The market is just fed up… I was in England a few weeks back and so many of the major California High end representatives were making the rounds, and I did not sense excitement at all,… and the offers I am receiving from California high end wineries is absurd…

Kinda off-topic, but as more & more folks go Keto or Paleo, those high-alcohol high-residual-sugar fruit-bombs from California will become verboten.

I know Cal-Cab guys who are already cutting way back on their purchases [& consumption] of Cal-Cabs for that very reason.

Plus the really big retailers are continuing to push smaller wine stores out of business. Bad news for many customers at the higher end because in the big store scenario you are fighting against millionaires and billionaires for a share of tiny allocations of top wines. And when smaller stores lose those tiny allocations, that has a trickle down effect as many customers who bought across the board shift their loyalties elsewhere- to the national market where they buy what cherries they can, and to the lowest cost retailer for everything else.

The fine wine market in the three largest Texas cities- Houston, Dallas and Austin- is essentially owned by two entities in Houston and three entities in Austin and Dallas. Only 2 are single proprietor stores. Those are astonishing numbers when you compare to 20 years ago when you had several options in each city, plus a significant number of higher end liquor stores carrying modest quantities of high end champagne and Bordeaux. Keep in mind that Texas is a huge marketplace for the first growths, DRC and high end champagne.

It’s all the Fake Money in the system - no one wins in business via innovation anymore - business outcomes are now determined by whomever has the best financialization.

Everything has been financialized.

[Plus the zoning laws force the small shops to rent commercial property at confiscatory rates, which inevitably drive the small shops out of business. And of course it’s the Big Guys, with the Financialization, who purchase the state legislators & county commisioners to create the zoning laws & zoning codes which require the small shops to carry the millstone of all that commercial rent around their necks. And around here, the system is so corrupt that the large grocery store chains sign contracts with the commercial real estate folks which forbid the realtors from renting to any other entity in the shopping center which might want to sell alcohol in immediate competition with the grocery store chains.]

BTW, 125 years ago, when we had grotesque wealth density curves similar to what we’re seeing again today, Congress passed the Sherman Anti-Trust Act, to put an end to the kinds of financialization & legalistic chicaneries which allowed the Big Guys to squash the small shops.

But no one [with any actual power] cares about the little guy anymore - our Elites are all utterly corrupt [on both sides of the aisle].

And I don’t see any end to the ubiquitous chicanery absent a < CENSORED >.

The UK market is driven by investment, not necessarily drinking.

In other words, you’ve got FAKE demand created by FAKE money.

In a healthy market, you would have REAL demand driven by REAL customers with REAL money, who actually consumed your wines [with their mouths & stomachs & kidneys & bladders] on a regular basis, and who wanted to continue consuming your wines over the course of decades.

But to prop up all the Usury & Financialization of the Fake Markets of the 21st Century, the Central Banksters have to keep pumping Fake Money upon Fake Money upon Fake Money into the system, in order to preserve the illusion that there is a demand sufficient for maintaining these ludicrously absurd asset prices.

Personally, I don’t see a happy ending to all this Fakery, but, who knows?, maybe the Elites will pull a rabbit out of the hat & actually succeed in creating an endless & permanent dystopia for their pets.

[Ian_Dorin]

If we are solely keeping this to California wine, then the perpetual conversations that I have had with a few friends about the state of the market is quite relevant. I think it’s less about the boutique, small production wines, but the mass market wines that are really causing the market to be flooded instead. Wines like Insignia are more than double what they were 15 years ago, and every time they raised the price, the market struggled to sell more. The price of Dominus has tripled in that time, and we are starting to see that market pull back and push on the price. Similarly with Silver Oak, and even this year, Opus One. When wines like this don’t dry up the market, the people who have an appetite for California wine begin to look elsewhere and will suck up the boutique wines at that point. The issue is that the boutique wines have priced themselves past these wines, causing a huge flood of $200+ California wine on the market. MacDonald is kind of the perfect example right now. If they could make 1000 cases and keep the wine the same price, it would still sell out since the wine would be at a price the market desires. I know some people that groaned about the price of Scarecrow this year, and still bought. Who wants to bet those same people don’t buy the 2017 if the price doesn’t come down? When everyone was critical about Bordeaux and it’s pricing, they listened and responded (although some did not of course). I think it’s time for California to wake up and realize that the market for great $50-$100 Cabernet is alive, well and healthy, now someone just needs to make it.

Most of the wineries in Napa are making $50-100 cabernet.
The Insignia, Dominus, Shafer HSS are never going to be in that range. The small production wines people don’t have the economy of scale to make cabernet in the $50-100 and they are too small to make any difference anyway.

True, yes, but I have found those wines to be overpriced for what you get as well. I have had Napanook and Shafer OPF recently, and was
(I was blown away by Chappellet, but I digress)

You used to be able to get a lot of wine for $100-$150. God I sound old and jaded.

[Steve_Crawford]

Alan Eden’s death may have affected the excessiblee baller category of wines- saxum, macdonald etc.

[Yao_C]

I think it’s less about the boutique, small production wines, but the mass market wines that are really causing the market to be flooded instead. Wines like Insignia are more than double what they were 15 years ago, and every time they raised the price, the market struggled to sell more. The price of Dominus has tripled in that time, and we are starting to see that market pull back and push on the price. Similarly with Silver Oak, and even this year, Opus One. When wines like this don’t dry up the market, the people who have an appetite for California wine begin to look elsewhere and will suck up the boutique wines at that point.

Ian your point resonates with me and I’m a millenial

I think the existence of TD-9, Overture, and similar are a sign of this trend. They’re there to occupy the $100-ish price point and prop up the grand vin, which has escalated in price but isn’t selling through. But the wine drinkers get burned (at least those who care about the drinking experience, not the prestige) because these wines are not good value, and lose whatever loyalty they might have to the wineries in question. And this is tragic because these people would have been happy to stretch to the high-$100s for the proper ‘grand vin’ experience; once burned they’re not coming back

I find this similar to the slash and burn model of rapid customer acquisition (and equally rapid churn) that consumer-oriented startups (mostly in Silicon Valley) have adopted over the years, only to be caught out when the tide of easy financing starts to recede

[David_Baum]

Alan Eden’s death may have affected the excessiblee baller category of wines- saxum, macdonald etc.

More like it opened the door for the next village idiot to cloud our consciousness

[Markus_S]

… economy… as it’s a zero sum game.

Not really, as global markets keep expanding, even if you take inflation into account.

[David_Baum]

Always winners and losers but go ahead and split hairs arguing for the sake of arguing

[Ashley_T]

Agree, my hubby and I stopped buying Mailing list California Cab back in 2014. We have however been able to amass nice verticals of Screaming Eagle and Harlan prior to the prices getting way out of reach. Agree with William however, the wineries on that level have become plain greedy, and I hope prices come back down to reality in the future.

[Marcu_Stanley]

Wouldn’t people be surprised if the price correction hits only California premium wines? I would be. I mean, obviously California cult cabs are an extreme example, but prices for French wines, Barolo, etc. have also elevated enormously over the past few years or so. And not just for DRC/Roumier/Rousseau type wines where probably all the effective demand is from the superwealthy, but for plenty of formerly “middle class” wines as well. Look at the prices that some wines from places like D’Angerville reached over the few years. There has been an appreciable increase even in Bordeaux prices where supplies are enormous. You could have a major correction in French wine prices and still just be back to prices 18 months or two years ago.

See a few more days in stock market like the last two and I bet wine auction prices could drop real fast.

[Peter_Hirsch]

Speaking solely as a consumer, I remember buying ‘cult’ Calif cabs in the early - late 90s because they were reasonably cheaper vs Bordeaux (say 2nd growth stuff). Then Calif exploded their pricing in the mid '00s and the equation went the other way, with CA Cults demanding pricing over 2nd growths. Why buy new production $200 - $500 Calif Cult wines when you can buy quality right bank Bordeaux from great producers with some real age on it in auction for less than $150 and at times less than $100?