If you follow Bordeaux wines, it will not have escaped your attention that the 2009 Bordeaux en primeur campaign is currently in full swing. You probably will have, like me, received offers, and mostly glowing reviews, from a series of local Australian wine merchants. In this post, I look at en primeur and its limits, en primeur prices v Australian retail shelf prices, Australian wine taxes on imported wine and high Australian retailer mark-ups on imported wine.
En primeur and its limits
En primeur is in effect a futures contract, where the consumer agrees to pay money now for the delivery of a finished wine when bottled in a couple of years time. In my humble opinion, while en primeur can be good value, it involves a number of risks. These include:
1. Paying money 2 years in advance prior to the arrival of the wine (and so not earning interest on that money).
2. Entering into a legally complicated relationship. For example, the customer’s contract is with the wine merchant, but does the retailer itself own the wine? No, they too have a contract with an intermediary, who may have further contracts back to the source of the wine, which sits unidentifiably in a barrel for a good period of time. This may make it hard to work out who is liable for what, and who owns what, if something goes wrong, or a link in the chain goes broke. The one thing that is certain is that the customer has handed over his or her money well before receiving anything for it.
3. The product itself is hyped as “certain to increase in price”. If the same claims were made about a share or investment scheme, you might expect to read about the risks in a prospectus or other disclosure document. As we all know or should know, there is no such thing as risk free returns.
Despite these risks, en primeur offers seem surprisingly almost impossible to resist due to the hype generated and the fear of missing out …
2009 Bordeaux vintage reports
By all reports, the 2009 Bordeaux vintage is a fantastic vintage, but the cynic in me notes that 2000, 2003 and 2005 are also fantastic Bordeaux vintages, and the French appear to consider 2001 the equal of 2000. And 2002, 2004, 2006 and 2008 (according to Robert Parker) are hardly bad. So that’s 5/10 vintages that are “great”, and most of the remainder being noted as very good!
If global warming or better vineyard management and technology (or all three) are assisting Bordeaux to produce great wines more regularly, one might legitimately ask the following question: will all vintages from now be this good, so that exhorbitant year-on-year price increases are not really justifiable from a consumer’s perspective, since consumers won’t actually be missing out on the higher quality wines by simply waiting for next year’s vintage?
En primeur prices v Australian retail shelf prices
With the benefit of the pricing transparency that the internet brings, I tested some of the en primeur pricing offers that I saw against their source prices in France. My starting point was the Liv-Ex website (an English merchant fine wine exchange) which helpfully shows the en primeur release prices in France (see http://liv-ex.typepad.com/livex_fine_wine_market_bl/2010/04/bordeaux-2009-release-recap.html) This site also appears useful: http://bordoverview.blogspot.com/.
To add some test subjects, Liv-Ex showed the price of Chateau Filhot Sauternes at €14.80 per bottle ex-negociant, and Chateau Beaumont Haut Medoc at €7.20 per bottle ex-negociant. In Australian dollars, at the moment that’s about $21.76 (Filhot) and $10.59 (Beaumont).
The en primeur offers that I have seen offered in Australia though so far include $48 (Filhot) and $22-$25 (Beamont). Hmm, more than double the price! What has caused this exhorbitant mark-up?
Australian wine taxes on imported wine
Doing some detective work on current Australian wine taxes, we seem to have:
- Customs duty of 5% which applies to 5% of the “customs value” which appears generally to be the “list price” excluding transport and insurance;
- WET of 29% which applies to the “taxable value” of imported wine, which appears to equal the “customs value” plus the costs of transport, insurance and customs duty; and
- GST of 10% which is payable on the sum of the customs value, the cost of insurance and shipping, any customs duty and any WET tax payable.
So, on some rough calculations that exclude shipping costs, about 48.99% of the price differential between the sale price and the Liv-Ex price is due to Australian wine taxes. A further amount then should be allowed for shipping costs.
High Australian retailer mark-ups on imported wine
Some simple maths then shows that the remainder of the price differental is due to Australia’s wine retailer mark-ups. With the wines above, they are in the order of 40% to 50%. Not bad.
Wine: Chateau Filhot/Chateau Beaumont
Base price: $21.76/$10.59
Customs tax: $1.09/$0.53
WET tax: $6.63/$3.22
Total Australian tax: $10.66/$5.19
Post tax price: $32.42/$15.78
Aus price: $48.00/$22.00
In fairness, these figures should be a bit lower after shipping costs are factored into account, but nonetheless, are high, and are consistent with my anecdotal experience of comparing non en-primeur Bordeaux wine prices in France with those in Australia. I suspect the same type of numbers would be borne out (or even exceeded) by examining prices of fashionable Burgundy as well.
As a consumer, I would dearly love to see more competition in this market to drive down prices, and wonder how this type of profit margin can be somehow sustainable from a consumer’s perspective. While economic good times remain in Australia, though, I won’t be holding my breath for discounted Bordeaux just yet.
Note: I have updated the figures in this article since the original post, to include a better and more accurate calculation of applicable wine taxes.