A Close Look at Burgundy

Burgundy has dominated the fine wine market for many years and its success is largely a result of the minuscule production quantities of the region’s elite wines.  The supply and demand nature of the wine market has helped to elevate the region’s premium wines to legendary status among connoisseurs and collectors alike.

The two leading producers, Domaine de la Romanee-Conti (DRC) and Leroy, have seen prices driven skyward as buyers compete to add to their collections.  DRC, for example, was responsible for over $19M of the 2020 auction total (Acker, worlds No 1 wine auction house), despite accounting for only 28% of bottles sold.  Leroy claimed the top spot in the latest revision of the Liv-ex Power 100, a list of the market’s most tradable brands (Liv-ex is the UK benchmark for the fine wine trade), and is a clear indicator of Leroy’s standing with both the on and off-trade and collector, consumer markets.

 

 

Demand has remained strong in recent years with countless world records being broken both at auction and within the secondary market.  Judged by average trade price premium Burgundy labels lead the secondary market by a huge margin but the long-term price performance is also unbeatable elsewhere in the wine market by other regions.  Although Burgundy on a whole represents the highest entry point for the market, a carefully selected representation can comfortably outperform its closest peers.  The chart below tracks the price performance of the wine market’s leading regions and reinforces the view that Burgundy operates in a different sphere to its closest competitors.

 

 

Most markets work in cycles and it’s important to bear this in mind when looking at today’s opportunity with Burgundy.  The region is currently taking a well-deserved pause from the aggressive growth seen previously and this represents an ideal entry point to the market, the extremely limited production quantities should ensure the future growth of Burgundy.

Over the past decade, Burgundy’s market share by value has risen from 1% in 2010 to 18% by the close of 2020 with the Burgundy 150 index generating 140% of growth over the same period.  This compares very favourably to the 20% growth seen from the Bordeaux 500 index.

 

 

The luxury status and minuscule production levels of Burgundy has helped to attract the attention of new investors which has helped it to outperform equities including the FTSE100 and Hang Seng indices throughout 2020.  Offering an alluring combination of stability and growth that is hard to find elsewhere.

In 2020 the market for premium Burgundy continued to grow.  The volume of Burgundy traded showed a year-on-year increase of 31%, trading activity grew by 34% year-on-year and the number of active buyers increased by 11%.  All indicators of a healthy and sustainable secondary market.

Appetite for Burgundy remains strong despite current circumstances as recently explained by world-renowned wine critic Neal Martin who stated “Despite economies stagnating, people have money and those with disposable income have fewer outlets to spend it on, restaurants for one. Like 2020’s Bordeaux primeur [2019] campaign, wine-lovers exhibit an undiminished desire to purchase wine, partly because of quality and to retain allocations, partly to feel a sense of continuity until our lives return to normal”.