Liv-ex has released its annual En Primeur report, this year entitled “Bordeaux 2016: A new dawn for En Primeur”. The executive summary can be found below. The full report has been sent to Liv-ex members via email, and Cellar Watch subscribers will be sent an abridged version in April’s market report.
En Primeur is worth keeping
En Primeur in its current form is a relatively new system, but Bordeaux wines have been traded prior to delivery for centuries. This continues to represent a significant opportunity for producers, merchants and buyers. En Primeur can help producers to improve their cash flow and reduce their risk profile, while offering buyers the opportunity to acquire stock at favourable prices. It is the one time each year that all eyes in the trade are on Bordeaux and remains a highly effective global marketing and distribution mechanism.
Transparency presents an opportunity
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.
The problem with opacity
While the rest of the market has become increasingly transparent, En Primeur prices continue to be determined – or ‘discovered’ – via private negotiations between chateaux, courtiers and negociants. It is often unclear how prices are set. This has two key disadvantages.
First, buyers have little or no insight into how prices are agreed. This has resulted in criticism of the En Primeur system amongst buyers and, as this report shows, falling sales. Second, the system runs the risk of mispricing releases. This report uses the term ‘mispriced’ to mean pricing that was inconsistent with prices in the secondary market at that time. In the last decade, releases have been as much as 30% over or under priced, potentially costing the industry hundreds of millions of Euros.
A new consensus on pricing is needed
This report introduces Liv-ex’s ‘fair value’ methodology, which harnesses the transparency of the secondary market, to allow for a more scientific evaluation of En Primeur prices. The trade and their customers can use ‘fair value’ during En Primeur to help identify wines which offer the greatest value and avoid those which offer the least. It may also contribute to a new consensus around pricing En Primeur and help Bordeaux reinvent itself in the internet age.
A new dawn for En Primeur
The 2016 vintage is being released at an interesting time for the Bordeaux market. After several difficult years, the Bordeaux 500 index has gained 22% in the past 12 months. Official figures suggest that 2016 was the largest harvest in over a decade, and expectations for the quality of the wines are high. Put simply, if the price is right, 2016 represents a significant opportunity for the whole market.
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