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Jun. 22, 2009
Collectibles: The Wine Investment Column

Why You Should Not Buy En Primeur

En primeur is a method of purchasing wines early, even before they are bottled and are still in their oak barrels. In this system, practiced for example within Bordeaux but also in Burgundy and in other premium wine regions, buyers pay in advance. Once the wines are mature, one has the choice of either paying duty and taxes/VAT and having it delivered or have the wines stored in a bonded warehouse, where duty and any local taxes are not applicable. Generally, wine is also regarded as a wasting asset and as such does not attract capital gains tax too.

So should you also participate in the en primeur speculation? There are some obvious reasons:

  • Obtain great wines. You can obtain wines of a great vintage or a winery, which are normally difficult or near impossible to find in the market. A strong argument for collectors.

  • Save money. By paying upfront, you should be able to get great wines much cheaper, with a potential of high return on investment as compared to the prices you would have to pay later in the retail market.

But the downside outweighs these advantages:

  • Cash upfront. You have to pay cash upfront at least two years before the wines are ready for consumption.

  • Uncertain wine quality. Only after about ten years can the final quality of a wine be precisely classified.

  • Unfair en primeur pricing. Nowadays, many châteaux have priced their en primeur wines unjustifiable high due to greater global demand from affluent collectors.

  • Buying en primeur is risky. If your dealer goes broke before the delivery of your wine, you may never see your precious grape juice again since it is still in the barrel and the winery cannot hope to separate and identify the wine you ordered. And, there have also been many cases of merchant fraud.

Right now, we are in the middle of the 2008 Bordeaux en primeur campaign. Expectations were not that high: some wines should turn out excellent but the vintage as a whole was not rated as legendary or outstanding by the experts.

After the initial en primeur prices were released, down more than 30% as compared year-on-year, Robert Parker, one of the leading global wine pundits, announced his scores or rating. He handed out far higher score than anyone else and subsequently the price of some wines like Château Lafite`s 2008 skyrocketed from an opening price of GBP 1600 per case to GBP 3500 overnight.

And now – should one go and buy en primeur quickly? We are still sceptical: The 2007 bottled vintage is yet to arrive and testable quality will be sold at less than its opening en primeur price. Mr. Parker too is not infallible. On at least two of the last six vintages he was too positive with his ratings, which was corrected by the market afterwards. Despite Parker's influence most of the 2008s wines will likely become cheaper simply because consumers will not trust bubbly promises of guaranteed 50% return per annum and 100 + AAA ratings on sub prime subscriptions. 

Wine is made to be drunk, so prices need to return to the level where people who like to drink good wines can afford them, global financial crisis or not. Do not forget that costs in making a bottle of the wine in a château are on average around USD 13. It is hardly justified to sell them at market prices beyond USD 50 or 100.

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Collectibles: The Wine Investment Column

Why You Should Not Buy En Primeur

  Jun. 22, 2009

En primeur is a method of purchasing wines early, even before they are bottled and are still in their oak barrels. In this system, practiced for example within Bordeaux but also in Burgundy and in other premium wine regions, buyers pay in advance. Once the wines are mature, one has the choice of either paying duty and taxes/VAT and having it delivered or have the wines stored in a bonded warehouse, where duty and any local taxes are not applicable. Generally, wine is also regarded as a wasting asset and as such does not attract capital gains tax too.

So should you also participate in the en primeur speculation? There are some obvious reasons:

  • Obtain great wines. You can obtain wines of a great vintage or a winery, which are normally difficult or near impossible to find in the market. A strong argument for collectors.

  • Save money. By paying upfront, you should be able to get great wines much cheaper, with a potential of high return on investment as compared to the prices you would have to pay later in the retail market.

But the downside outweighs these advantages:

  • Cash upfront. You have to pay cash upfront at least two years before the wines are ready for consumption.

  • Uncertain wine quality. Only after about ten years can the final quality of a wine be precisely classified.

  • Unfair en primeur pricing. Nowadays, many châteaux have priced their en primeur wines unjustifiable high due to greater global demand from affluent collectors.

  • Buying en primeur is risky. If your dealer goes broke before the delivery of your wine, you may never see your precious grape juice again since it is still in the barrel and the winery cannot hope to separate and identify the wine you ordered. And, there have also been many cases of merchant fraud.

Right now, we are in the middle of the 2008 Bordeaux en primeur campaign. Expectations were not that high: some wines should turn out excellent but the vintage as a whole was not rated as legendary or outstanding by the experts.

After the initial en primeur prices were released, down more than 30% as compared year-on-year, Robert Parker, one of the leading global wine pundits, announced his scores or rating. He handed out far higher score than anyone else and subsequently the price of some wines like Château Lafite`s 2008 skyrocketed from an opening price of GBP 1600 per case to GBP 3500 overnight.

And now – should one go and buy en primeur quickly? We are still sceptical: The 2007 bottled vintage is yet to arrive and testable quality will be sold at less than its opening en primeur price. Mr. Parker too is not infallible. On at least two of the last six vintages he was too positive with his ratings, which was corrected by the market afterwards. Despite Parker's influence most of the 2008s wines will likely become cheaper simply because consumers will not trust bubbly promises of guaranteed 50% return per annum and 100 + AAA ratings on sub prime subscriptions. 

Wine is made to be drunk, so prices need to return to the level where people who like to drink good wines can afford them, global financial crisis or not. Do not forget that costs in making a bottle of the wine in a château are on average around USD 13. It is hardly justified to sell them at market prices beyond USD 50 or 100.

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