Marketplace Discussion:

[Roy Hersh]

Here's a new twist to the question for the discussion. I hope we have lots of prognoticators willing to put in their points of view:

Where are wine prices headed in 2010? Will Port prices follow the rest of the marketplace in 2010?

[Luc Gauthier]

I can't say where wine prices are headed in Québec .
As for Port pricing , I see no significant change in Québec .
AS long as the SAQ maintains Its monopolistic tendencies , ( there are roughly 40 private importers of any significance in Montreal ) , why should It change ??
The SAQ has averaged 700 to 800 million dollars in profit every year for the past 5 years .
Why would the government kill a cash cow ?
In Ontario , ( our heighbour ) the government is thinking about privatizing the LCBO to help pay off some debt .
Again , I seriously doubt the LCBO will be completely sold .
It generates roughly over a billion dollars in revenu .
Maybe Fred has a different spin .

[Moses Botbol]

Where are wine prices headed in 2010? Will Port prices follow the rest of the marketplace in 2010?

Roy, I am not sure where the rest of the marketplace will go. What are your general views on this?

In general I find new vintage port too expensive and turning away the consumer. LBV's, tawny, and Colheita are good values. As for vintage port; $60-100 for something that is not even drinkable for 5+ years and optimally should be drunk in 25+ years seems like a stretch when misfortune, unemployment, and war are a reality for many.

I feel bad for the distributors. I’d be gun shy committing to purchases on vintage port at those retail prices. Distributors in NE are sitting on 1985 Dow and are asking too much still.

[Glenn E.]

I don't really follow wine prices, so I can't comment. I do follow Port prices, though, and it has been interesting.

Port prices seem to have lagged behind the economic crisis. I didn't really see any significant changes in prices during the first half of 2009, but as the summer wore on and in particular as the weather grew colder the prices started coming down.

My guess is that Port prices haven't quite bottomed out yet. I'm just guessing, but I'd say that will probably happen in the 1st or 2nd quarter of 2010. Recovery will then depend on the economy. If that turnaround is already beginning, as some newscasts have been saying, then Port prices could theoretically start to climb back up over the summer. That's not exactly prime Port purchasing season, though, so I would expect prices to stay down until fall when demand starts to pick back up.

That's part of the reason that I plan to keep buying as 2010 starts - prices are about as good as they're going to get. The other part is that I have no self control.

[Eric Menchen]

April.

[Roy Hersh]

As for vintage port; $60-100 for something that is not even drinkable for 5+ years and optimally should be drunk in 25+ years seems like a stretch when misfortune, unemployment, and war are a reality for many.

Moses,

Considering that you just about never drink young vintage Ports, I don't understand how you are saying that young VP is "not even drinkable for 5+ years" which is absolute hogwash. VP's may lack complexity that you enjoy in older bottles, but there's a lot to be said for the delicious and vibrant fruit of a young VP too.


Now back to the discussion on economics and pricing of Port heading into and through 2010.

[Derek T.]

At the risk of having my contrinbution declared "hogwash" - I agree with Moses that release prices of young VP are not attractive to those who want something to drink now. In the UK, and with the exception of really stellar VPs, you can quite easily buy ports from most shippers from all classic vintages from 1970 on for the same or less than 2003/2007. With the current economic uncertainty that must surely be having an effect of what people are likely to buy.

As for where this will all head, that very much depends on how long the shippers business models can cope with low sales of new VP. I would imagine that sales of other special category Port, such as LBV and Reserve, are on the up as they really do represent excellent value for money. But it must be difficult to shift huge volumes of new VP at this moment in time so cashflow must be taking a hit. Whilst balance sheets may show an upside in terms of the value of VP in the cellar, that doesn't pay wages and running costs so at some point that stock needs to be sold. To a lesser extent, the same must apply to merchants.

I wonder how long the industry can hold out before we see prices drop?

Just in case anyone thinks I am suggesting that VP is over-priced, I'm not. I think mature VP is hugely under-priced in the UK in terms of quality compared with other premium wines. However, that is more than likely a function of the limited audience that Port has compared with the giants from other regions.

Derek

[Al B.]

Derek's talking sow-wash

But seriously, I disagree with Derek's thoughts. The way I see the port market in the UK over the last couple of years is that prices for very old (say, pre WW2) bottles of port have increased substantially over the last 3 years. 3 years ago, I bought a dozen bottles from 4 different retailers of wine which varied from Dow 1908 through to Sandeman 1927 and paid under £150 per bottle. If I could find the same bottles today, I would expect to be paying around £400 per bottle. Auction prices are not yet as high as retail, but they have also increased substantially.

Older, mature port - say 1945 through to 1960 has also increased in price. 1950, 1960 and 1970 are currently experiencing the 2010 anniversary explosion in price but ignoring these years as atypical, I would suggest that prices for these wines have doubled at retail and auction in the last 3 years.

Younger, mature port is readily available, but has also increased in price and - I believe - has roughly doubled. Where I used to be happy to pay £20-22 a bottle for my Warre 1983 / 1985 I am now resentfully paying £40-45. When I compare this to the pricing of Warre 2007 (around £40, duty paid), I think consumers are being given a straightforward choice - for the same price do you wish to drink a mature 35 year-old port or a young and fruity 3 year-old port. I enjoy both and buy both. I also suspect that in the next few years, less mature port will come to the secondary market and prices will continue to rise as a consequence.

The supply of Port from the '80s held in the original shippers' cellars is also running low. I believe that the last Fonseca 1985 to be released by TPF recently hit the UK and sold out, despite being offered at roughly a 20% premium to the then current market price. Since that tranche was sold, prices for Fonseca 1985 have stayed firm.

2007 vintage port has sold well in the UK, although I do not know what sort of volumes were offered to the UK market. I know that several shippers have sold out their entire UK first and second allocations (Noval and Graham being the largest two names I know of). Most of the sales were in small parcels - people like us buying a case or a half-case of our favourite couple of producers.

But there will be some bargains around. Port always goes through a difficult phase when it doesn't taste very good and has quite a few years to wait before it regains its attractiveness. During this taste-trough, prices are often depressed as the market size reduces - retailers don't want to sell port to customers who won't enjoy it and neither do they want to tie capital up in maturing port. If you can be in the right place, at the right time, there are bargains to be had. During 2009, the 1997s from some producers sold for bargain prices - Eira Velha for £11 a bottle, for example. My cloudy crystal ball says that during 2010, prices for mature vintage port will continue to increase slowly, that the 2007 prices will be managed through the volume released, and that prices for port in its closed down period will continue to offer opportunities in all but the top names. We may also see some opportunities towards the end of the year if any of the birth-year retailers find that they have over-stocked with 1950, 1960 or 1970.

Outside vintage port, I have to tip my hat to Taylor Fladgate. I suspect that they have dominated the UK retail market this Christmas with the volume of half bottles of unfiltered Croft 2004 LBV (bottled 2009) that has been available through Tesco at prices around £3-4 per half bottle. At these prices, I have not been able to resist whenever I see them on the shelf. This is a delightful port, which offers plenty at the moment and will offer plenty more over the next 10 years. Perhaps we will see an increased volume of quality LBV and Crusted Ports over the next few years and the volume of newly released vintage port be held back a little to manage the balance between cash flow and ultimate margin.

And I'll also add my personal plea - I would love to see some of the Port producers selling at least within Europe off a cellar list. That should mean lower prices for us consumers and better margin for the producers, instead of the system where I have to pay for the importer and retailer's costs as well as the efforts of the people who are making the wines in the first place and who I would like to see make the most profit from their efforts.

[Luc Gauthier]

The only factor that would yield results in the Canadian marketplace would be a partial liberalization of the SAQ .
Under the present system , either a drop or rise in the Euro would have a minimal impact on Port prices .
The government would never accept a total privatisation .They would loose too much .
Under the present system , for example , their are some excellent Bordeaux wines that fall under neath the SAQ's radar ,simply because the producer cannot meet the SAQs " ridiculous " production quotas . . .
I think Dirk has echoed these same thoughts for Niepoort .
Maybe the SAQ should try to operate the Belgium system .

[Roy Hersh]

OK Moses,

Keep your eyes peeled. Here comes a great one!