Consumers and importers alike have been complaining for years about ever increasing Burgundy prices. Many reasons – both structural and circumstantial, explain this trend. However, even if the impact for the Burgundian industry is manifold, negociants and producers are adapting to the new market situation.
Memories from the 90s
Back in 1993, a popular magazine called 50 millions de consommateurs (50 million consumers) published a special issue on the wines of Burgundy. On the cover, the reader discovered that the staff had tasted more than 600 wines from 25 francs to 200 francs (roughly from 3,8 to 30 current euros). In 1996, the Gault & Millau wine guide rated the main domaines of Burgundy for their guide. A Gevrey Chambertin wine from Denis Mortet – 1994 vintage - was selling for 89 francs (13 euros) when now the same wine – 2014 vintage - will cost between 60 and 70 €. A Nuits St Georges from Domaine Lecheneaut was selling for 24 € and now for 65 € - considering the same vintages. And the impact of inflation is not enough to explain these differences in price. It would only account for 38% during the period 1994 – 2017. Besides, these examples correspond to very good, well-known domains, not the stars of Burgundy by any means.
The latter are fetching rocket-high prices: 18.141 GBP for a case of Domaine Romanee Conti, 1.115 GBP for a case of Domaine Leflaive, 2.776 GBP for Comte de Vogue in Chambolle Musigny, just to name a few.
High Pressure on the Burgundian Industry ExplainsIncreasing Prices
Many reasons do explain this current price level, both structural and circumstantial.
Burgundy wine has become in some cases a financial commodity, subject to stock market speculation.The link with the inner nature of the product – in this case wine – is lost. What counts is how much money a speculator can get from a sound investment in a few Burgundy bottles.
In the past few years, recent acquisitions of top vineyards, made at ridiculously implausible prices, do participate to this speculation. Domaine Bonnneau du Martray, with vineyards on the famous Corton hill, has been purchased by the billionaire Stanley Kroenke in 2016, also owner of the well-known Screaming Eagle winery in Napa Valley, among others. The amount of the transaction is said to be over 100 million € for 11 ha. Bonneau du Martray mainly produces two reputed Grands Crus: Corton Charlemagne (white) and Corton (red). In 2014, the Chateau de Pommard (20 ha) was bought by Michael Baum, a billionaire who built its fortune in the Silicon Valley. Back in 2012, LVMH, the luxury group of Bernard Arnaud purchased the Clos des Lambrays, with tis 8,7 ha in Morey St Denis. Even though, the amount of these deals has not been revealed publicly, it is very likely that it reached several tens of millions of euros.
On the more “technical side”, according to Frederic Gueguen, president of the Chablis appellation and also secretary general of the BIVB - Bureau Interprofessionnel des Vins de Bourgogne (Interprofessional Bureau of the Wines of Burgundy), the vineyards do not produce enough to cope with demand. Many old vineyards with low production have to be replaced and a considerable surface of vines have been affected for decades by trunk diseases (esca, phomopsis dieback and eutypa dieback) being the more common. All of these produce decay of production in the first place and end up killing the plant. To this day, there is no easy cure to the above mentioned diseases.
On top of that, the structure of the Burgundian offer tends to provoke an inflation phenomenon. Grands Crus appellation, at the top of the classification, represent only 2% of the production in volume. Them come the Premiers Crus – 10% of production, followed by the Village wines – 36% - and the regional appellations – 52% of the total. For the very rare Grand Cru wines, the demand outstrips the supply, which has resulted in spiralling prices. In part, this state of fact makes that the prices of the rest of the wines – Premiers Crus, village and regional wines – are pushed up. The real issue here is that every producer must make sure that the quality justifies the price increases of the entry level and lesser-known appellations.
On the more medium to short-term time scale, extreme weather events linked to the effects of climate change are deeply affecting Burgundy prices. Since 2009, hail, frost, mildew have hit the vineyards in Burgundy, making that there hasn’t been a normal vintage since that date. As a result, wineries have no stock and prices have gone up. At the end of the day, a winery is a business: bills have to be paid, investments have to be done and a profit has to be made in order to survive.
When survival is at stake
Consequences are many, both on the industry and the consumer. Burgundy of France is an example.
Long-term sustainability of many wineries in Burgundy is at stake.
First because some vignerons have lost the equivalent of three vintages in eight since 2009. For instance, the lesser known appellations of Savigny and Beaune do not command the high prices of the grander parts of the Cote de Nuits and vignerons are not able to make up the financial shortfall with big price increases. Some domaines could be in real danger if 2017 is another tiny vintage.
Second, Burgundy is losing market share in key countries like the UK, where, says Frederic Gueguen, wines from New Zealand are increasingly popular and stealing part of the space Burgundy held on the shelves. The risk is that the consumer diverts himself durably from Burgundy in favor of more affordable wines.
Third, due to the high-price positioning of top appellations, Burgundy wines suffer from an elitist image, when in many cases this does not correspond to the reality of the market. Mr.Gueguen compares the cases of Chablis versus Sancerre. For many consumers, he says, Chablis is more expensive than Sancerre, which far from being always the case. Petit Chablis and Chablis appellations are commonly pretty affordable wines.
Answers to current Burgundy problems are not easy to find.
To face the continuous lack of wine, according to Frederic Gueguen, new vineyards should be planted. But that requires extending the current surface of the existing appellations, which in turn means that the INAO (Institut National des Appellations d’Origine – National Institute of the Appellations of Origin) has to approve such extensions, a process that takes between ten to fifteen years to achieve.
Then the structure of the businesses is also adapting to the new situation. There is an intertwining between the activities of negociant and vigneron. The negociant becomes more and more land owner and the vignerons sellers and negociants. This is a good thing because in order to face adversity, businesses are adapting to the new situation and make what it takes to stay profitable. For instance, Domaine Dujac established its negociant business in 2000. Jeremy Dujac says: “I realized that we had great wines from great parcels in famous locations,” “But we didn’t have any entry-level wines. And I saw that Burgundy drinkers were getting older, and we needed to attract the millennials with affordable wine. So I persuaded my father that we should set up a business on the side to buy the fruit to make these wines. ”Dujac has three red and two white negociant wines: Pinot Noirs from Gevrey-Chambertin, Chambolle-Musigny and Morey-Saint-Denis; and Chardonnays from Mersault and Puligny-Montrachet. They’re not cheap, but they represent good value.
Simultaneously, new opportunities arise for lesser-known appellations that are now on the rise. At the on-trade level, sommeliers who still want to offer their clients Burgundy wines at affordable prices will turn to look for wines in the Maconnais and Cote Chalonnaise regions to fill their wine list with well-made wines which do not need much ageing before they can be drunk.
Concurrently, prestigious appellations will continue their price increase. Thiebault Hubert, from Domaine Hubert-Verdereau in Volnay said: "For the past five vintages we have had many frost and hail incidents, all resulting in extensive losses. In 2016, we are down 60 to 70 percent on our normal production. And the total quantity harvested over the past five years is half of what our production should be." Hubert has been increasing his prices steadily since 2012, and he presumes a further 15 percent increase by the time the 2015 vintage is released and a similar increase for 2016. "I do not really want to increase the price, but we have no choice. We have been very careful these last few years, and have held back from investments, but we need to continue to pay our staff; the vineyard costs remain the same, irrespectively of the yield at harvest…"
The 2017 vintage will be of utmost importance. Depending on the quality and quantity of fruit, stock levels could be positively impacted and price increase tamed to some extent. At the end of the year, more information was available and a clearer view of the price evolution of the wines of Burgundy was known.
Published in ISSUE 102 on Fine Wine and Liquor
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