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May 28, 2013

Investing in Burgundy

Vosnee Romanee

Burgundy vs. Bordeaux

Investing in Bordeaux wine was once a well kept secret practised by small group of people who made money, drank great wine and often combined the two. Today the words Bordeaux and investment are synonymous, however this year the top wines from the Côte d’Or, the heartland of Burgundy have outperformed Bordeaux in auction houses and throughout the global market. In the same way that the last 20 years have seen incredible growth for those who have stockpiled great Bordeaux, Burgundy fanatics are now seeing the beginning of a similar trend. The Côte d’Or’s greatest wines are notoriously difficult to understand, have tiny productions and are hard to source. En Primeur allocations are eagerly sought after and feverishly protected and once acquired it is hard to prize these wines from the hands of their owners. One thing is not in question, these wines make a great investment so the intention of this report is to explain why and how to do this.

The wines and vintages

Bordeaux reds are rich, full bodied, powerful and masculine while Burgundy is the antithesis of this. Where Bordeaux is full of dark fruit and gripping tannins, Burgundy has finesse and perfume, with a more delicate texture, although arguably no less powerful: both can age for decades.

Burgundy sits on the same latitude as Seattle (Washington), it is far inland and therefore has continental climate, meaning it experiences cold winters and very hot, sunny summers. Frost, hail and rain are common, as is variable weather, as a result this region sees significant vintage variation. Therefore, like Bordeaux vintage matters with some great vintages like 2005 saw warm days and cool evenings throughout the growing season while off-vintages like 2007 experienced heavy rainfall.

Understanding the wines

Burgundy does not classify wine by producers, as is the case in Bordeaux (Lafite Rothschild), but instead by individual vineyards such as the Grand Cru vineyards Le Montrachet or Chambertin, or their villages Puligny-Montrachet and Gevrey-Chambertin. Like Bordeaux the vineyards were classified in 1855 and formalised in 1861, however, unlike Bordeaux straight forward Grand Cru pyramid, Burgundy is extremely complicated and divided into four classes. Grand Crus of which there are 32 in operation today, making up only 2% of production. The Grand Cru vineyards are found on marl and limestone outcrops which run through the middle of each vineyard on the best soil. These are labelled simply only displaying the name of the vineyard, for example Romanée-Conti and make up the majority of investment grade wine in Burgundy.

Below this, there are 622 Premier Cru vineyards. In villages such as Meursault where there are no Grand Cru vineyards, one finds producers such as Coche Dury who’s wines are considered Grand Cru quality and often command similar prices, these are certainly investment grade. The third classification is village (commune) and represents a third of production. Communal wine can use the communes name on the label and while they can appreciate in value over years, we do not consider them strictly as investments in and of themselves. It is important to remember the name of the vineyard from that of the commune as most villages fixed their name to that of the best vineyard, leading to confusion such as Romanée-Conti (Grand Cru) and Vosne- Romanée (commune).

The producers

There is a large fragmentation of vineyard plots throughout burgundy due to the Napoleonic law of succession, which required land owners to divide their holdings equally amongst their sons. For example, the vineyard Montrachet – reputably the greatest white wine vineyard in the world – shares 18 owners and 26 producers. The world famous producer Domaine Leflaive occupies 0.203 an acre producing 300 bottles a year, so one can understand why they are rarely re-sold. The most famous wine producer of the Côte d’Or Domaine Romanée-Conti occupies 1.7 acres) of Le Montrachet producing 3,000 bottles per year, that’s only 250 cases for the world to share, we’ll take 20 please.

The Cote d’Or is split into two halves those to the South of Nuit-St-George known as the Côte de Beaune – of which Montrachet is part – which predominate in Chardonnay. This area ends at the valley of the River Saone. To the North is the Cote de Nuit, which is mostly Pinot Noir and this is where we find the extraordinary villages of Gevrey-Chambertin and Vosnee Romanée. Gevrey-Cambertin has 9 Grand Cru vineyards including the great producers Armand Rousseau, Leroy, Louis Jadot and Dujac.

Vosne Romanée

This is the greatest Pinot Noir village in world and the wines here form the backbone of Burgundian wine investment. It is a small village which stands below a long line of reddish earth. The vineyards are found on the mid-slope planted in soil that is extremely rich in clay and lime. Here, Domaine Romanée-Conti (DRC) rules as brand supreme and owns two vineyards in their entirety (monopoles), arguably the best of the Côte de Nuit. The average age of vines here is 53 years, and cover only 4.44 acres producing 450 cases of the most sort after wine in the world and with meagre supplies left it is no wonder the average bottle price over 20 vintages is £7,000 and climbing fast, up over 36% year-to-date.

La Tâche, Romanée-Conti’s peer and sometimes its superior runs up the left flank after the narrow strip of La Grande Rue. This produces 1,850 cases a year from 14.97 acres, less than Petrus and in greater demand, however, rivalling Romanée-Conti in many vintages this wine looks extremely cheap with an average price over 20 years of £1,300. The concentrated and powerful Richebourg is found to the right of Romanée-Conti curving around to face the north-east and DRC’s plot of this delicate vineyard produces 1,000 cases a year with an average price of £850 while DRC St-Vivant is found directly below, producing a meagre 1,500 cases average price of £620. Domaine Romanée-Conti also has substantial holdings of (in?) Echezeaux (1,340 cases) and Grand Echezeaux (1,150) and have an average price of £560 and £470 a bottle respectively, offering a more affordable way to approach the great stable of DRC.

Romanée-Conti is now at the price where only the super rich can afford to consume it. La Tâche is trading at a large discount in price which is not comparable with reputation and production differences; this up to 25% average gap (year-to-date) is widening. DRC Richebourg and DRC St Vivant are again a fraction of the price and can be found under £1,000 a bottle, a benchmark we expect to correct itself in the next 12 months. We also predict the same move to relative value we have seen from the first growth to super seconds this year to occur in Grand Echezeaux and Echezeaux who at around £600 a bottle and below have returned 33% and 25% this year respectively. These are due a price correction as those who once drunk DRC’s two most prized monopoles will likely move to value and – slightly – better availability.

All of Domaine Romanée Conti’s wines show a wonderful balance of velvety texture combined with spice. They are masculine, incredibly concentrated yet balanced and generally improve in the bottle for two decades. All DRCs result from the best plots, use small crops, old vines, late picking and incredible care. The entire production of all Grand Cru DRC comes to 7,560 which, when put in perspective is only 1/3 rd of that of Lafite Rothschild’s Grand Cru.

Mentioned at the beginning of the report with such minuscule production allocations of DRC and indeed the other great Burgundy producers from the top vineyard plots are ardently protected with most laid down away for consumption. The small amount that is released back to market is in huge demand. DRC is quickly becoming the new darling of China with the Russia, India and Brazil soon to follow. This will strain the global reserves further and with few willing to sell the market expects DRC and the great producers of Burgundy to see several years of accelerated growth.

Here is a list of producers to watch out for investment:

 Domaine Romanée Conti’s

 Domaine Leflaive

 Armand Rousseau

  de Vogüé

 Domaine Leroy

 Georges Roumier

 JF Mugnier

 Ramonet

 Marquis D’Angerville

 Coche-Dury

 Comtes Lafon

 Domaine Dujac

 Louis Jadot

 Domaine faiveley

Below a list of the Grand Crus vineyards of the Cote d’Or