Remembering 2011 VPs and scarcity.

[Roy Hersh]

When the 2011 VPs were released in 2013, we were all kind of surprised that the quantities were down. Low yields were "blamed" ... let's call it "mentioned" for this. Some producers sold out very quickly, others who typically kept back stock said they had none, others made as much as they could which seemed far less than normal. Trying to find some of the harder to purchase blue chip VPs after their initial release (for some ... "pre-sale") was next to impossible. Scores for some of the big guns like the 2011 Dow's which had great scores, made them even harder to buy after the initial release.

However, I think many had forgotten one significant detail.

In 2010, the beneficio was 110,000 pipes. In 2011, it was cut insanely to 85,000 pipes. That 25,000 pipe reduction was so incredible that there were riots that broke out with rock throwing at the IVDP office in Regua. It led to then Pres. of the IVDP, Luciano Vilhena Pereira being fired a month before his term was over. Not pretty. Bad decision by him or was there pressure by the Minister of Agriculture? I am not sure we'll ever know beyond speculation. But a sacrifical lamb was taken to slaughter. IIRC, it was on Perreira's watch that the 8 million Euros from the sales of Selo da Garantia to the Port trade, disappeared (one MD called it, "stolen") and actually wound up back in the coffers of the government to pay down the 5.5% interest on the then €78 billion debt. That was in mid-2011 too, if I am not mistaken. Crazy times!

One other factor that may have played into the overall smaller bottling decisions in 2011: the gradual withdrawal of the EU subsidy on distillation, increased the cost of aguardente by over 25% from 2010 to 2011.

The perfect "storm" ?

[Ronald Wortel]

Although prices for 2011 have gone up and a number of shippers have sold out (or claim to have done), it remains to be seen what the value of these ports will be in a number of years on the secondary market. My guess is that a good number of buyers that went in for the investment will be sorely disappointed. As of date, the auction value of vintage port is still very low. As an example, a glance at an upcoming Christies auction in London shows a lot of Warre's 2003: 18 bottles with a high (!) estimate of £340, that's not even £19 per bottle. Even if you add the duty, GST and buyer's premium, that's in no relation to the inflated prices of the 2011s.

[Paul Fountain]

For most part, we pay an enormous premium for Port in Australia, but the scarcity hasn't really been a problem for the 2011s. The 2011 Vintage created enough demand for our local importers to chase it down, so as a result, we've probably never had a greater range of Vintage Ports available here than what we have had with the 2011s.
The 2011 Dow is pretty much non existent though and I think I heard that 4 cases made it in for the entire country. I suspect that none of them made it to retail.

[Andy Velebil]

Although prices for 2011 have gone up and a number of shippers have sold out (or claim to have done), it remains to be seen what the value of these ports will be in a number of years on the secondary market. My guess is that a good number of buyers that went in for the investment will be sorely disappointed. As of date, the auction value of vintage port is still very low. As an example, a glance at an upcoming Christies auction in London shows a lot of Warre's 2003: 18 bottles with a high (!) estimate of £340, that's not even £19 per bottle. Even if you add the duty, GST and buyer's premium, that's in no relation to the inflated prices of the 2011s.

+1 I haven't seen prices go up at auction for the majority of 2011's. If anything they are at the same price or less, on average. So in that respect I don't think the strategy worked out as was originally hoped by the trade (less to sell causing prices to go up faster than in the past). While a few blue chips will eventually go up some, Port still has an image issue to deal with. That being, most serious wine drinkers don't drink and thus don't buy much Port. If they do they don't want to sit on them for 30 years to mature. Which brings up another interesting issue. By and large, times are changing and more and more people aren't into cellaring large amounts of Vintage Port for decades while it matures. The cost of housing has gone way up, with more population, thus smaller houses without room for a proper cellar, VP isn't in vogue with most of the younger crowd, and it still has that old man cigar after dinner drink for the English upper class negative image. Until a serious and coordinated marketing campaign is done to counter those perceptions I don't see much changing anytime soon.

[Edward J]

When I was a serious wine drinker, Port might have claimed 4-5 bottles in my cellar, a very small fraction of the total. Being in wine country keeping up on the best Cabernets was not too expensive or difficult. Even so the big Cabs took a decade or more show their potential. Today I can buy the same 1983 VP I bought for my sons for the same price. That might tell more about the vintage than anything though.

The stuffy old traditions of the British Empire are embraced by our younger generations here in the U.S.. Recently a 20 something friend of my daughter was thrilled to learn that we could get Cuban cigars in Cozumel. Surprised, I took her to get some and we enjoyed smoking them. The only thing that I could think of that would have made it better is a glass of Port. As for having space, the average size of housing here has exploded, I believe it's now around 2000 square feet.

[Eric Menchen]

I think house size is very much market dependent. In some areas prices skyrocketed, so houses stayed the same, and more townhouses and smaller houses came up. Where I live, prices were pretty stable for 10-12 years, so a lot of bigger houses were built to satisfy rising incomes. Only in the last two years have the prices really increased, and now there is a shortage of smaller homes in the mid-price range.

As for cellars, I think there are multiple factors at work here. For one, the US at least has grown much more in the south and west. You could put in a passive cellar in the NE and be in pretty good shape. In much of Texas (Austin, San Antonio at least), they don't build basements because of the bedrock. So if you want a cellar, it is going to be above grade, and that means you need an active cooling system. Arizona, Nevada, Florida ... way too warm for a passive cellar. So building a wine cellar is much more of a dedicated effort. And then there is the whole issue of needing to age wine. VP, yes. Great Bordeaux, well I like that aged too. But there is so much more wine ready to be consumed shortly after purchase that most people don't see the need for a cellar at all. So trying to fit VP into these current conditions is a tough sell. I think Sandeman Vau is a neat experiment to try to break this barrier, but who in the general public knows about that?

[Tom Archer]

The detachment of release prices from those achieved on the secondary market goes back to the 1980 vintage, and is a really awkward one for those of us who would much prefer to buy at release, but can all too easily see the economic folly of doing so.

Secondary market prices have advanced over the last few years, but so have release prices, with the top producers showing barely disguised envy at the prices achieved in Bordeaux.

However, port and claret are not the same. The Bordelais know and accept that a good year can be followed by one that attracts lower prices, but with vintage port, the release price (in cash terms) never falls - only inflation has been allowed to flatten the curve, at least for the past 60 years.

Until the online community broke down the barriers between the consumer and the producer a decade ago, the port producers seemed content to profess ignorance of the less agreeable aspects of the market place, and since then have reacted by reducing vintage production volumes, rather than prices.

This though, is a destructive path. Whilst I cannot claim to be an expert on the wines of Jerez, the marginalisation of the top end Sherries seems to be at the root of that wine's chronic malaise.

I have previously made the case that a tripling of the volume of VP coupled to a halving of the release price would actually yield a greater profit for the port producers. Whilst I stand by that calculation, I also recognise that it also a bridge too far, at least as a single leap.

If the 2015 proves to be an excellent vintage, as we all hope, I would urge the producers to do four things:

1) Keep 'official' release prices at 2011 levels.

2) Increase VP production by at least 50%.

3) Start dealing directly with consumers as a serious alternative to trades via wine merchants.

4) Afford significant discounts (30% plus) to groups or individuals seeking parcels of ten or more cases.

Essentially, this means dropping prices to volume buyers without evident loss of face, thereby enabling serious purchasers to buy at release without fear of seeing the same wine sold for much less when it subsequently appears at auction.

It doesn't take much imagination to see how online groups such as ours could then share out discounted parcels..

[Andy Velebil]

Tom,
I would say that is why more producers are releasing "special" Ports, such as Single Harvest Tawny's, limited edition Ruby Reserves, Colheita's, etc. They are ready to drink now and they can sell them for top dollar.

[Al B.]

There was certainly a shortage of availability when the 2011 ports were released. Some of the merchants I normally buy from were struggling to get allocations large enough to cope with demand. However, two years on there is plenty of 2011 VP on offer by retailers with prices starting at around £25 + VAT - which I think is around the same as the release price.

I suspect I will continue to buy a case or two of port on release, but likely not much more than this.

[Roy Hersh]

Tom, you brought up some interesting points, here are some comments and in some cases, counterpoints:

1) Keep 'official' release prices at 2011 levels.

RH: This is all about market conditions for Port, how much older stock is still on shelves from recent vintages and the overall world economic scene. Let's hope for a good 2015 VP declaration two years hence, but first ... no rain during harvest.

2) Increase VP production by at least 50%.

Tom, how is that realistic when the beneficio has only gone up by 6,000 pipes? The answer: it is not.

3) Start dealing directly with consumers as a serious alternative to trades via wine merchants.

Sticky wicket there! When you have agents / importers in place, they don't take kindly to private deals being made with consumers by producers. That's why they are the key players in specific countries. They don't want to see "end around" the middle plays in effect.

4) Afford significant discounts (30% plus) to groups or individuals seeking parcels of ten or more cases.

That should be the job of importers and agents, not producers. Sure, on rare occasions they can make deals like that, especially in significantly large quantities or large formats. But otherwise, that is not the business the Port shippers are in. While I am sure you and some friends would love to buy @ 30% off, why do you think you deserve that large of an allocation, no less price? How often do you give 30% discounts on your products, directly to consumers?

[Tom Archer]

Tom, how is that realistic when the beneficio has only gone up by 6,000 pipes? The answer: it is not.

The top blends are bottling vastly less VP than they did forty years ago, so entirely achievable, irrespective of beneficio.

Sticky wicket there! When you have agents / importers in place, they don't take kindly to private deals being made with consumers by producers. That's why they are the key players in specific countries. They don't want to see "end around" the middle plays in effect.

The fine wine market has evolved enormously over the last couple of decades and will continue to do so. In the UK at least, most of the shippers agents are lazy expensive dinosaurs - it's high time to cut out the dead wood.

That should be the job of importers and agents, not producers. Sure, on rare occasions they can make deals like that, especially in significantly large quantities or large formats. But otherwise, that is not the business the Port shippers are in. While I am sure you and some friends would love to buy @ 30% off, why do you think you deserve that large of an allocation, no less price? How often do you give 30% discounts on your products, directly to consumers?

Cut out the middle men and the saving is made. With parcels of ten cases plus, it is practical to bundle up orders into pallet loads and ship directly to bond.

[Andy Velebil]

Tom,
So what about the other (insert whatever number) countries in the world that don't have bond and have other laws in place that prevent or restrict direct sales?

While that may be feasible in your country, one that is smaller in size than some individual states in the USA, it is not feasible for a producer to distribute to other places around the globe on their own. Add in the problems for a small company to even think about doing so and you can see how that just isn't feasible in the real world. Yes, a few, very few, very large companies like the Sym's or TFP, or a few others who have huge capitol and their own importers/distributors in some countries it is somewhat feasible on a limited basis. But again, 98% of wine producers out there would never be able to handle the logistics.

As for the discount. I think it's wonderful to reward a customer who makes a large purchase. But that is their choice to make on an individual basis. The question becomes...Should a group, where members aren't getting a large amount per person, be rewarded for making and splitting said large purchase? I would argue no under most cases. Why? Simply, each person isn't ordering a large amount each. I should add the disclaimer that I am not talking about a special closeout but a new release.

[Tom Archer]

So what about the other (insert whatever number) countries in the world that don't have bond and have other laws in place that prevent or restrict direct sales?

Within the UK it is perfectly feasible for the producers to ship directly to customer's bonded stores without the need for import agents or retailers. In the US you would probably still need an importer to act as a handling and forwarding agent. However if the sale transaction was done directly with the producers, this could probably take the form of a fee per case rather than a percentage cut, so the handling of high value items would not see them unduly rewarded.

[Andy Velebil]

So what about the other (insert whatever number) countries in the world that don't have bond and have other laws in place that prevent or restrict direct sales?

Within the UK it is perfectly feasible for the producers to ship directly to customer's bonded stores without the need for import agents or retailers. In the US you would probably still need an importer to act as a handling and forwarding agent. However if the sale transaction was done directly with the producers, this could probably take the form of a fee per case rather than a percentage cut, so the handling of high value items would not see them unduly rewarded.

So there really isn't a price benefit then, as in effect, needing an import agent is basically the same as simply buying it from him to begin with and not having to hassle with the logistics of buying it from a producer in a different country, getting it to the docks, to the import company, then shipped over, picked up from the dock/clearing customs, delivered to the importer, then sent to me.

I agree it would be nice, but generally not practical in most of the world.

[Tom Archer]

So there really isn't a price benefit then, as in effect, needing an import agent is basically the same as simply buying it from him to begin with

I think you're missing my point here - that import agent can be anyone who knows how to clear wine through US customs and ship it off to the customer - not some suited salesman, nor someone who's putting his own money on the line to buy the stock. From a financial point of view, that's going to make a big difference.

[Al B.]

I'm with Tom on a lot of the points he's making here. Regardless of the beneficio, there could be a lot more vintage port made and sold if the industry felt that was the right way to go simply by making less port that was not special category port - substitute VP for LBV, LBV for ruby reserve and ruby reserve for ordinary ruby. You stay within the beneficio limits but make more VP. And if anyone doubts whether this is an option, just consider the monumental improvements in the quality of LBV ports that has been achieved over the last 10-15 years. Many, many of today's LBVs are of better quality than quite a few VPs from the 1980s (Cruz 1989, for example). If more of these blends were bottled after 2 years in barrel they might well be approved by the IVDP as VP.

Most countries in Europe will allow free movement of alcohol within the EU provided you pay the required taxes. Many countries outside the EU including, from my very limited knowledge of the U.S. System, some U.S. states will do the same. There are plenty of examples of small, boutique wine producers who sell direct to the consumer via a mailing list. Clients wait years to get an allocation and cherish one when they do. It tends to be the bigger producers who need to move a larger volume who have to keep distributors and agents sweet by pushing all their production (star wines and low end wines) through the multiple hands model. If a producer is able to sell direct to the consumer they break their reliance on agents and sometimes have agents or retailers approaching them direct to be awarded an allocation. While I accept that is the holy grail for a wine producer and is rare, it must surely be the aspirational model and I can think of a couple of producers in the Douro who could probably adopt this model if they chose to do so because of the cult status of their wines. The extra costs for the producer are small - they would need one or two people to administer the cellar list, collect payments and pack the wines. All wines are sold ex cellars so the transport costs and local taxes are all for the account of the buyer.

[Andy Velebil]

Alex,
I'll speak in reference just for the USA, as it highlights the problem of such a model for most wineries. Keep in mind most wineries are very small operations, with very limited cash flows and few full time employees as a result. I know from speaking to a number of California wine makers it's a huge nightmare to sell direct to consumers. The laws in every state are different, and the laws within each state can vary also. There are permits in each state and or city/county to apply for and pay for each year. Then you have to sort out which states/cities/counties you can and can't ship to. Then you have weather issues and storage issues for months on end when you can't ship to half the states 6-8 months out of the year and you have to sort out that it's ok to ship to Los Angeles today but you can't ship to New York because the truck goes through Nevada which is going to be 115 degrees this week. Then some states/counties require that the producer send them taxes on the shipped products. That is just some of the logistical issues that the UK doesn't face. Imagine if you were a small winery (which makes up most in the world) where it's basically you (the winemaker) and your spouse (customer service) and maybe one or two other workers running the day to day field operations. How are you going to sort all that out?

While I agree in theory it would be nice, it just wouldn't work for most wine producers out there.

[Ronald Wortel]

I agree it would be nice, but generally not practical in most of the world.

The US isn't "most of the world" Andy...

But in all seriousness, it may well be possible for shippers to sell directly to customers, but I can fully understand why they don't. VP may build reputation, it doesn't pay the bills. Large quantities of lower tier "special category" ports do, be it LBV, Special Reserve or whatever. The shippers need their importers / distributors to feed these wines into the distribution channels. And these importers will want their reward by also having the exclusive right to the Vintage Ports. We, as consumers, may not like this, but apart from small scale, high end producers I do not see this system changing.

[Andy Velebil]

Ronald
True but most of the world isn't part of the UK or the EU. Lol


Sent from my iPhone using Tapatalk

[Tom Archer]

VP may build reputation, it doesn't pay the bills.

True - I suspect that over 80% of port sold in the UK now goes through the supermarkets.

But do the producers need UK agents to handle supermarket sales? Absolutely not, and when you compare supermarket shelf prices with the agents 'trade' offerings, the margins are tiny and even negative sometimes.

For products other than supermarket fodder, the old distribution system is fundamentally broken and redundant, and needs to be replaced by more efficient sales methods.

To that end the producers need to stop running websites that are fancy showcases (and all too often way out of date..) and start running websites that are serious sales outlets..