What's Wrong with Wine?

Just as the housing and stock bubbles burst, it appears that wine’s bubble may be figuratively bursting as well. In Bordeaux, France, numerous wine tasters and connoisseurs gathered this week to sample and possibly purchase many of the vintage versions of 2008’s premiere wines. However, amidst a global recession, many of the big spenders who splurged on such delights have sobered up a bit. The result is an uncertain future for the wine market, as well as other aspects of the food and beverage industry.

The characteristic of wine to rise in value after it has been purchased has created a rather complicated situation. The traditional system of the wine market future, or en primeur, involves wine producers being paid for their creations while it is still in the barrel, which allows for investors and consumers alike to purchase or drink wine at relatively low prices which generally rise as the wine ages. As this process is repeated, prices rise due to the speculation of the value of the wine rising. 2005 was a very strong year for vintage wines, and thus drove the prices up. Big spenders kept the prices up in 2006 and 2007, despite the production of ordinary vintage brands.

In these times, those who used to whip out their pocketbooks to buy a bottle of wine are now more reluctant to do so, and those who purchased the wine two-three years ago are now desperately trying to sell. On top of that, wine producers are, on the whole, not willing to drop prices because to do so could possibly bankrupt them. Coupled with the fact that one-third of the wine market is comprised of British buyers who have had to deal with a falling pound against the Euro, as well as sellers that wouldn’t receive as much as the speculation projected, and you have a market where buyers aren’t willing to pay the prices, and the sellers aren’t willing to part with a product that theoretically can only go up in value.

The problem is less severe in France, says Jean-Guillaume Prats, because the French view wine as a commodity that must be enjoyed, rather than as a financial product, and because of this, many producers have dropped their prices significantly. If British buyers set their sights on French products, it appears that the British producers will have no choice but to lower their prices. The nature of the product promises that it will only continue to go up in value, but how long can producers afford to hold onto something nobody is willing to buy? Only time will tell.