Market Analysis - Bordeaux - 2. May 2024

The En Primeur: An In-Depth Analysis of Bordeaux 2023

RareWine Invest stands firm on Bordeaux's no-show! We have decided against the 2023 En Primeur and urge investors to be cautious. Here is why...

RareWine Invest remains steadfast in its decision to steer clear of Bordeaux's no-show! In stark contrast to the majority of wine investment funds, currently engrossed in the En Primeur 2023, we have opted out and strongly advise investors to exercise caution. Our usual strategy involves presenting diverse investment cases supported by data, but this time, our analysis offers a more nuanced perspective on En Primeur 2023...

The En Primeur system, deeply entrenched in Bordeaux's winemaking tradition, has long been a cornerstone of the wine investment landscape. However, as we delve into the details of the En Primeur 2023 release, a nuanced understanding is essential to grasp its implications in today's market.

Understanding the En Primeur System
Historically, the En Primeur system provided a unique opportunity for investors to secure Bordeaux wines at favorable prices before they were bottled and released to the market. This practice allowed producers to measure demand, secure cash flow, and generate early excitement around their vintages. Yet, the system's efficacy has been scrutinized recently, prompting a reevaluation of its role in the wine investment sphere.

Price Reductions May Not Be Enough To Save The En Primeur System

Contrary to the anticipation that typically surrounds Bordeaux's En Primeur releases, the outlook for the 2023 vintage is clouded by uncertainty. A projected 30% price decrease reflects efforts to revitalize the En Primeur system amid challenging market conditions.

What is truly needed here is a release price that is accepted by the secondary market and ensures a positive price trend thereafter to the best extent possible. In essence, it preserves a return on investment for the buyer. However, several underlying factors challenge the effectiveness of this approach:

  • Diminished Demand: The allure of Bordeaux En Primeur has waned in the face of shifting consumer preferences and evolving market dynamics. Despite determined efforts to stimulate interest, demand for Bordeaux wines has stagnated, posing a significant challenge to the En Primeur model.

    The secondary market is flooded with heavily discounted back stock, often comprising wines from excellent vintages priced at levels close to—and sometimes even lower than—those 2023s discussed here. 2021 Chateau Haut-Brion, 2021 Chateau Angelus, 2020, or 2021 Chateau Pavie, to mention a few examples, are being traded at prices lower than the discounted 2023 prices.

    Additionally, with the anticipated 30% price drop in 2023, much of the 2022 vintage is expected to sell for less than its original release price once it hits the market.

  • Economic Realities: Additionally, a significant amount of additional backstock is declining in storage worldwide, losing value as it awaits market demand that has yet to materialize.

    Rising borrowing and storage costs have further strained the viability of the En Primeur system. With borrowing costs soaring to three times their 2020 levels and storage expenses escalating, producers face mounting financial pressures threatening the model's sustainability.

  • Quality Considerations: While Bordeaux has a history of producing iconic vintages, the 2023 release falls short of expectations regarding quality and market appeal. Moreover, given that the release prices for 2021 and 2022 were never truly embraced by the market initially, it becomes exceedingly challenging to determine if a price reduction alone is sufficient to salvage the system.

Mads Jensen, CEO of the RareWine Group, puts it this way:

"While Bordeaux holds a special place in my heart, setting personal sentiments aside is crucial. The investment prospects for the 2023 vintage appear bleak. One must be influenced by commercial motives to argue otherwise. The ratings suggest nothing more than mediocrity, and even with a potential 30% price decrease, superior vintages are available at more favorable prices. Naturally, a few magical wines can be found in every vintage, but it does not compensate for the overall picture of the 2023 investment case."

Mads Jensen, CEO at RareWine Group, tasting wine Mads Jensen, CEO of the RareWine Group, are cautious regarding the investment potential for En Primeur 2023.

Data Points Away From Bordeaux

At RareWine Invest, we approach wine investment with a data-driven mindset grounded in empirical analysis and market insights. Our decision not to participate in the En Primeur 2023 release reflects a thoughtful approach to investment, informed by our assessment of market dynamics and economic realities.

There will always be positive investment cases in Bordeaux, but data suggest limited opportunities in the 2023 vintage. By analyzing the 23* most prominent chateaus, apart from Petrus, Le Pin, and Latour, who are a story of their own, only a handful of cases are considered relevant for investment from the 2023 En Primeur campaign. And those few cases have low obtainability.

We have compared the ‘Ex Chateau Release Prices’ for the 2022 vintage to the ‘Anticipated Ex Chateaux Release Prices’ for 2023 by deducting the expected 30%. The same methodology has been used to calculate the ‘Anticipated Ex Negociant Release Prices’ for 2023. Also, we have gathered the market prices from Liv-Ex, Wine-Searcher, RareWine Trading, and the offering from Bordeaux negociants on the most recent vintages from 2016 to 2022 and calculated the price-per-point ratio using scores from the Wine Advocate (WA).

We created what we call a ‘Fair Value Methodology’ sheet, comparing the 2023 vintage to the ones from 2016 to 2022, showcasing that despite a calculated price reduction of 30% on the 2023 vintage, the wines are less than 18 % cheaper per point than the average price-per-point across the 2016 to 2022 vintages. This underlines that the 2023 vintage is indeed average at best and that price raises are highly unlikely for the foreseeable years. The price-per-point ratio is too high. If prices were to rise, it would be possible to find better quality at a cheaper price in the older vintages.

The fact that the Anticipated Ex Negociant Release Prices for 2023 are analyzed without a merchant margin adds to the despair. The margin is already included when using market prices to calculate the price-per-point ratio for the vintages before 2023. Unless you have direct access to buy the 2023 wines from the negociant the investment case is hard to find.

* Chateau Cheval Blanc, Chateau Lafleur, Chateau Montrose, Chateau La Conseillante, Chateau Pichon Comtesse, Chateau Lafite-Rothschild, Chateau Les Carmes Haut-Brion, Chateau Calon Segur, Chateau Pontet Canet, Chateau Figeac, Chateau Canon, Chateau Palmer, Chateau Haut-Brion, Chateau Margaux, Chateau Ausone, Chateau Angelus, Chateau Cos Estournel, Chateau Leoville Las Cases, Vieux Chateau Certan, Chateau Mouton-Rothschild, Chateau La Mission Haut-Brion, Chateau Lynch Bages & Chateau Beychevelle.

More Risks & Uncertainty

Let's imagine a scenario where a merchant sets a 10% margin for the 2023 vintage. Consequently, the relative value compared to previous vintages appears higher, making the perceived 18% reduction closer to 8%.

Furthermore, all scores for the 2023 vintage are preliminary barrel scores, providing only an indication of quality. The final assessment will come after the wine is bottled and officially released to the market. This introduces an element of uncertainty compared to previous vintages with established scores, making 2023 more of a gamble. Still, we are to address the stockpile at the chateaus and what it does to its pricing while we eagerly wait for consumption.

Second Opinion
To be fair, Wine Advocates scores are not the only truth. Therefore, we have repeated the above methodology with Vinous (VI) scores, but the conclusion is basically the same. Actually, it looks bleaker if we use scores from Vinous for most wines. The total price reduction-per-point is less than 17%, yet we are to add a margin to the merchants.

Learnings on the En Primeur 2023

A 30 % price decrease for a few chateaus, such as Cheval Blanc, Lafleur, Beychevelle, Les Charmes Haut-Brion, and, to a certain extent, Montrose (depending on the final score—99 or 100 will make it attractive) will initiate a massive buying signal. Overall, a 30% decrease could make the 1st Growth wines an appealing investment opportunity. Though, the attractiveness of this case also hinges on the less appealing options you might need to purchase alongside the 1st Growth wines.

On the other hand, data show that Angelus, Figeac, La Conseillante, Canon, Palmer, Haut-Brion, and Cos Estournel, among others, will be the least attractive investment cases from 2023 unless the prices are substantially reduced more than the indicated 30%.

To put things in perspective, an Anticipated Ex Negociant Release Price for Cos Estournel of €130 per bottle (without the merchant’s margin) might well be 30% lower than in 2022. Still, it is more expensive than the 2019 vintage, which is currently traded at €105 to €115, including the merchant's margin. The confirmed scores for 2019 is 97+ and 97, respectively, by WA and VI. The barrel scores for 2023 indicate no more than 94 to 96 points.

Another finding is a significant positive value-to-quality ratio in vintage 2017 for nearly all wines – again putting 2023 in a bad light compared to 2017.

Naturally, this is more complex than it might seem. Further price reductions or better scores than indicated can change the picture, but this is pure speculation.  

What About Petrus, Le Pin & Latour
There are always exceptions to be found. Petrus and Le Pin are based on different allocation schemes, and their scarce nature will most likely make them attractive investments depending on what else you are obligated to buy.

Chateau Latour is also based on another release model thus it is difficult to compare to the 2023 En Primeur.

Megatrends Reshape Consumer Preferences

As megatrends reshape consumer preferences, Bordeaux confronts a pivotal moment. While tradition and prestige anchor its legacy, adaptation is imperative for relevance in a dynamic market. Consumer behavior is shifting toward lighter diets; we consume less meat and eat more organic food. This favors wines with a lighter expression than what we have become accustomed to from Bordeaux. We advocate for limited strategic and selective investments in Bordeaux, mindful of its evolving narrative and potential for transformation.

One must be cautious buying 2023 Bordeaux for investment—even at 20-30% below last year’s release prices! Remember that the merchant’s margin is still not added, and most likely, buying the best cases is also often conditioned to buying other less attractive cases. Apart from the above-mentioned few good cases, we might see price reductions with the quantities already accumulated from the past and often better vintages.

Despite reservations about this year’s En Primeur investment potential, we deeply appreciate its wines' heritage. Iconic vintages like 1945, 1961, 1982, 1989, and even 2005 and 2016 continue to captivate enthusiasts worldwide. Nevertheless, we caution investors to tread carefully and consider alternative avenues for wine investment. As mentioned, 2017 has an attractive price-per-point ratio. Also, 2018, 2019, and 2020 offer good price-vs.-quality compared to the 2023 vintage.

In conclusion, the En Primeur 2023 release heralds a critical stage for Bordeaux's wine industry. While efforts to revitalize the En Primeur system are underway, the future remains uncertain. As investors weigh their options, a nuanced understanding of market dynamics and emerging trends is essential to navigate the complexities of wine investment.

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