In their latest report on Bordeaux fine wine, Liv-ex lays out the case for greater transparency in En Primeur pricing – a lack of which has been the main source of growing discontent with the system among collectors and merchants alike.
“While the rest of the market has become increasingly transparent, En Primeur prices continue to be determined – or ‘discovered’ – via private negotiations between châteaux, courtiers and négociants. It is often unclear how prices are set,” says the report.
The opacity surrounding pricing decisions has cost the industry not only millions of euros, but also a certain amount of credibility. Liv-es argues that the continuation of these outdated practices will erode buyers’ confidence even further, and significantly hinder the future of the age-old system.
Why buy En Primeur?
There are several advantages to buying En Primeur, and Liv-ex insists that the system is “worth keeping” despite its current faults.
The practice of selling blue chip fine wine before bottling provides producers with immediate cash flow and gives buyers the chance to acquire the wines at favourable prices, offering a secure opportunity for investment.
It also succeeds in fixing the wine world’s attention on this particular area of France for several months a year. “En Primeur is the wine industry’s most effective global marketing and distribution machine,” says the report. However, it is not functioning at its best.
Putting a price on fine wine
The problem is, fine wine prices are traditionally set in private negotiations that give the buyer (whether trade or consumer) little or no insight into how the figure has been reached. This turns them off particular wines and generally erodes confidence in the whole set up.
In addition, this outdated method increases the risk of mispricing. According to Liv-ex’s calculations, ““releases have been as much as 30% over or under priced, potentially costing the industry hundreds of millions of euros.”
For instance, the under-pricing of the 2008 vintage led to an influx of approximately €300 million into the supply chain at the expense of the châteaux. The 2009 and 2010 campaigns were then historically successful, and they benefitted from having a wealthy Asian market to tap into.
The subsequent failure to adjust to the contraction of the Asian market post-2011 has been the main source of en primeur’s downfall in recent years, which now routinely counts for less than 2-4% of total fine wine sales.
The case for transparency in the fine wine market
This situation is further fuelled by the unparalleled levels of price transparency and comparison now available to buyer elsewhere in the market.
The report says: “One of the most significant changes in the fine wine market in the past decade has been improved price transparency, facilitated by the internet. Now, merchants and their customers can instantly access current and historic prices for fine wines to inform their purchasing decisions. The market has also become increasingly global and accessible, meaning that buyers have easy access to older vintages, and hence more choice.”
Liv-ex goes on to point out other products that have evolved from negotiated to market-led pricing arrangements. Negotiated benchmark prices for iron ore were superseded in 2010 by a more liquid ‘spot’ market, and similar changes took place in the oil market.
Wine of course is subject to important variables such as growing conditions, critic scores and age, which is what ultimately prevents it from becoming an infinitely tradeable commodity like gold, watches or metals.
Nonetheless – a listed company would not typically offer shares that were more expensive than ones already available in the market, says Liv-ex. People wouldn’t buy them. So why should fine wine be different?
Liv-ex concludes: “The En Primeur market has the opportunity to embrace a step-change in transparency and efficiency brought about by the internet. This would add considerable value to buyers and sellers, just as it has across other markets.
“High expectations for the vintage, a recovery in fine wine prices and the opportunity to increase transparency and efficiency bode particularly well for En Primeur in 2016. The opportunity for a successful campaign is there – for those ready to take it.”