The conventional wisdom has been that middle-priced tiers of wine ($20 – $100) are taking a beating while the bottom thrives and the top holds steady. Yeah, well, apparently not. While sales may be up for wines below $15, even some of the previously recession-proof trophy wines are now going begging.
LVMH, the luxury brands company that owns Moet & Chandon, Dom Perignon, Krug, Veuve Clicquot, Domaine Chandon and Chateau d’Yquem reports that wine and spirits revenue is down 22% from last year. LVMH attributes this drop to “destocking,” a purposefully bureaucratic term that means everyone all the way down the value chain is unloading (or drinking) what they already have in inventory without buying any new wine.
As Napa Valley vineyard consultant Steve Matthiason told the New York Times:
People are drinking out of their cellars, the big distributors are throwing their weight around, and you add these things up, and from the winery perspective, the cash flow is brutal. Everybody figures this is kind of a temporary thing, that when restaurants burn through their inventory they’re going to have to start buying again, and distributors, too. But everybody is wondering when the levee is going to break, and you have harvest coming up.
It puts wineries, essentially, in a game of chicken. They can hold back and hope Matthiason’s “levee” breaks before they go bankrupt, or they can cut their losses by cutting their prices and live, as a friend of mine says, to die another day.
There is a relentless quality to the wine business. Harvest comes whether the market has bounced back or not. Grapes will ripen, be crushed and made into wine when nature says it’s time, not when the guys down in accounting give the go-ahead. Wine that’s been aging in the barrel for a year or two will reach a point where it must be bottled. That bottled wine has to go somewhere, which means that warehouses will have to make room.
The good news for wine consumers is, of course, that an overly full pipeline exerts a lot of downward pressure on prices. Smart retailers have already adjusted, increasing their stock of value wines and “destocking” the trophy bottles that were selling so well a year ago. As a friend who runs a small wine store put it, “I’m out of $75 Napa cabs and into $25 Chileans. My customers don’t admit it’s about money, but it’s interesting how their tastes have gotten so much more adventurous since last September.”
Now some of the really high end trophy wines may become suddenly more affordable as well. Well capitalized, old-line wineries will be able to cellar their overstock and wait-out the economic storm. Chateau d’Yquem, for example, is rumored to have millions of bottles dating back decades in its cellars, a market-limiting strategy designed to keep the wine’s price stratospherically high. But the story may be different for all those new-ish wineries with business plans based on $100 price points. Surely they’re going to have to start tossing ballast overboard soon.
So I’m watching for bargains all up and down the price spectrum, not just on wines over $20, but also on wines over $100. I’m paying particular attention to high end, small production wines without the kind of capital base it’ll take to stay off the market for a year or two. I’ve got a feeling some of those California Cabs and garagiste Bordeaux I normally can’t afford are going to be offering some nice specials real soon, especially with the harvest just around the corner.