Top Producers Worried Speculators, Gift-Givers Will Create Price Bubbles
Though imported wine demand in Greater China continues to rise — sales increased 19 percent by volume and 42 percent in value to Hong Kong and 65 percent in volume and 39 percent in value to mainland China in the first seven months of the year — not all winemakers are eager to jump on the China bandwagon. In the wake of the Bordeaux boom and (muted) bust of 2010-2011, which saw prices for the likes of Château Lafite hit new highs owing to skyrocketing Chinese demand, some producers in Burgundy worry that too great an emphasis on the China market could ultimately hurt their prospects in traditional markets. (And hurt them as well if Chinese interest wanes and prices drop.)
Notorious for their relative conservatism and traditionalism, Burgundian winemakers’ feathers have been ruffled in recent months by the growing presence of not only Chinese wine buyers in the region, but also Chinese property buyers — a never-before-seen group with eyes on distressed châteaux. This summer, outbidding a group of local vintners, Louis Ng, the 60-year-old Hong Kong COO of gambling tycoon Stanley Ho’s SJM Holdings, purchased Château de Gevrey-Chambertin from the Miteran family in Burgundy’s Côte de Nuits for a reported US$10 million. However, the acquisition, which includes a 12th century château and five acres of vines, stirred a vicious backlash against foreign investments by some residents in Burgundy as well as greater France.
While Ng sought to assuage concerns by promising to “respect local traditions and restore Chateau Gevrey-Chambertin to its former glory,” many Burgundians feared that the growing foreign ownership of châteaux could inevitably taint and dilute Burgundy’s “purebred” heritage.
Much of the local concern stems from the price fluctuations seen among top-tier Bordeaux, which proved unpredictable as Chinese buyers — often purchasing out of speculation or for high-priced gifting — in many cases spent lavishly, then cut back or left the wine market entirely in 2012. As Burgundy specialist Laurent Gotti recently told Le Parisien, ‘‘After having made the market price of certain Bordeaux explode in an irrational manner, [Chinese buyers are] now logically interested in Burgundy and its niche wines…They want everything that is the most expensive and are prepared to fork out incredible sums.’’
While the concerns of Burgundy observers, consumers, producers can, in many cases, be brushed off as xenophobia or a reluctance to adjust to the times, organizations such as the Burgundy Wine Council (BIVB) are taking the rising tide of Asian demand seriously. As BIVB president Pierre-Henry Gagey recently told journalists, the region plans to take a “prudent” approach to sales in Asia rather than following “the Bordeaux example.”
For many winemakers in Burgundy, caution is the name of the game anyway, and they’ve in many cases been loathe to run off to overseas markets to ply their wares. Unlike producers in the US, Australia and Chile, who are rushing to occupy the middle market in China’s young wine industry, well-known Burgundy producers think treading lightly will ultimately pay off both in China and at home. As Frederic Mugnier of Domaine Jacques Frederic Mugnier told Decanter.com this week, “We do not want to see yo-yos; we prefer to maintain even sales throughout various markets – and to know our buyers.” This plan of getting to know its buyers was echoed by Jacques Devauges of Domaine de l’Arlot, who said he has yet to sell to Chinese importers because “we would like to have a better picture of where the wine will end up.”
As part of the BIVB’s cautious approach to China, the organization set up a representative office in Shanghai to hold training seminars for potential buyers. As Decanter notes, at the office a single representative will “establish a network of key merchants who are committed to promoting Burgundy wines; he or she will also monitor the Chinese market for fraudulent use of Bourgogne appellations.”
But is this concern truly warranted? Or are Burgundy producers and organizations simply having trouble adjusting to the new kid on the block and/or skittish after seeing top Bordeaux labels like Château Lafite on a rollercoaster in China? In many cases, the concern is mostly overblown. Despite the media hype, the amount of Burgundy wine actually being purchased in China is considerably less than other key markets. Though China is now Burgundy’s fourth largest export market, following Japan, Britain and the US, sales there lag far behind. As Louis-Fabrice Latour, the chairman of the union of Burgundy winemakers, told The Age, ‘‘In simple terms, [annual sales to] China represents less than one month of sales to the US.’’
Concern about Chinese investors buying up Burgundy châteaux, which hit fever pitch this August, is also somewhat over-the-top, as the property acquired by Louis Ng is no Château du Clos de Vougeot. As Decanter noted of Ng’s acquisition,
[Château de Gevrey-Chambertin] is not a well-known property. ‘I can’t understand what all the fuss is about,’ one importer told Decanter.com. ‘No one has ever heard of Chateau de Gevrey-Chambertin, and suddenly they are saying it’s a national icon.’ He added, ‘It’s a storm in a tea-cup.’