Is the secondary market price for Port changing?

[Alex Bridgeman]

One of the topics of conversation which often comes up at a tasting is that of the cycle of the pricing of Vintage Port from release, through a dip around 8-18 years after release, recovery 19-25 years after, a very gentle increase with step changes 30, 40 and 50 years after the vintage until the price increases more rapidly with growing rarity 60+ years after the vintage.

We’ve speculated that this might change with the smaller declarations we’ve seen over the last 20 years although we have seen the dip and recovery cycle for 1994, 1997, 2000 and 2003.

Does anyone have a feel for how prices are doing for vintages such as 2007, 2009 and 2011? Are we seeing things change?

[winesecretary]

Over the last three years, I have bought a fair amount of 2007s at auction for what I consider to be small money (around 40 a bottle for big names). That's at or below release price once duty and VAT are factored. So, the traditional cycle theory is true of that vintage at least.

[uncle tom]

Does anyone have a feel for how prices are doing for vintages such as 2007, 2009 and 2011? Are we seeing things change?

Prices used to dip sharply when the vintages first came onto the secondary market, now they tend to dip a little and stall, but still fail to keep pace with inflation. 2007/09/11 are tending to trade at around 10% below release in cash terms (inc. BP) So bad news for the vendors.

It's a pity - I'm still convinced that if VP volumes were trebled and the release price halved, not only would we get a more 'normal' secondary market, but the producers would make significantly more money.

Of course, this won't happen overnight, and it's very hard for them to advertise release prices that are lower than the previous ones. A special deal on ten dozen 'investment' parcels might be one route to a more sensible market.

[MigSU]

I don't believe you could triple the VP production and maintain quality across the board.

On the matter at hand: you gentlemen clearly have more of an awareness of the secondary markets than I do, so maybe you could enlighten me as to what is the logic behind the price drop, relative to the release price. Is it due to uncertain provenance and storing conditions? Because if anything, prices should rise, as it's a product that, as time goes by, becomes increasingly difficult to get in wine shops and from wine merchants.

[uncle tom]

I don't believe you could triple the VP production and maintain quality across the board.

Given the volumes of past classic declarations compared to current ones, it's clear that a lot of top juice is getting consigned to lesser products.

In theory, I agree, in practice, I think it's a modest consideration.

so maybe you could enlighten me as to what is the logic behind the price drop, relative to the release price. Is it due to uncertain provenance and storing conditions?

Nothing to do with storage - just a massive dis-connect between those who buy at release, and those who actually drink the wine, years later.

[DRT]

I'm still convinced that if VP volumes were trebled and the release price halved, not only would we get a more 'normal' secondary market, but the producers would make significantly more money.

If volumes were trebled the producers would go back to having the majority of the vintage being stored in Gaia rather than sold, just as it was in the 80's and 90's. Cutting the price would make a difference to a small part of the market (i.e. the few dozen people here and in similar places), but wouldn't empty the cellars. It would also cheapen the product as a whole - back to the bad old days for the industry where a special wine stored in cask for 50 years commands a price of twenty quid.

Top class VP is released in a range of £30-£60 a bottle. Wines worthy of high 90's to 100 points in the trade's accepted scale. That might buy you a fifth growth Claret or a half decent Rioja. If Port is to ever reach the heights of recognition it deserves in the wine world the price needs to go up, not down.

This, however, is a major problem for the industry and an absolute goldmine for people like us...

Screenshot 2021-11-10 at 20.52.45.png (299.68 KiB) Viewed 3578 times

From BBR's website today.

[DRT]

One of the topics of conversation which often comes up at a tasting is that of the cycle of the pricing of Vintage Port from release, through a dip around 8-18 years after release, recovery 19-25 years after, a very gentle increase with step changes 30, 40 and 50 years after the vintage until the price increases more rapidly with growing rarity 60+ years after the vintage.

We’ve speculated that this might change with the smaller declarations we’ve seen over the last 20 years although we have seen the dip and recovery cycle for 1994, 1997, 2000 and 2003.

Does anyone have a feel for how prices are doing for vintages such as 2007, 2009 and 2011? Are we seeing things change?

Taylor VP as an example (prices are from Wine Searcher lowest price excluding Duty and VAT (without "Pro" access)...

2018 - £54
2017 - £52
2016 - £47
2011 - £43
2009 - £40
2007 - £38
2003 - £41
2000 - £48
1997 - £45
1994 - £85
1992 - £148
1985 - £52
1983 - £60
1980 - £50
1977 - £120
1975 - £65
1970 - £125

So, apart from two exceptions, you can buy Taylor VP from three years old to forty one years old at roughly the same price. Until the glut of VP from the 80's and 90's is drunk the industry has a major problem with pricing. I love Taylor 1985 and I love Taylor 2017. Both are £52. I know which one I will buy in my lifetime.

[uncle tom]

If volumes were trebled the producers would go back to having the majority of the vintage being stored in Gaia rather than sold

I disagree. In all classes of wine, increasing price has a huge depressant effect on sales volume. Conversely there is good reason to expect a tripled volume at half price to result in a much easier sales campaign. The person who might have bought one six pack would be easily motivated to double their investment and buy two dozens instead, and others who would otherwise have felt priced out would enter the market.

[DRT]

If volumes were trebled the producers would go back to having the majority of the vintage being stored in Gaia rather than sold

I disagree. In all classes of wine, increasing price has a huge depressant effect on sales volume. Conversely there is good reason to expect a tripled volume at half price to result in a much easier sales campaign. The person who might have bought one six pack would be easily motivated to double their investment and buy two dozens instead, and others who would otherwise have felt priced out would enter the market.

Port producers do not pay the mortgage with the proceeds of their top wines. They pay it with the proceeds from huge volumes or lower tier wines. Tripling the quantity of their premium wine only serves to maintain the perception of VP as being a cheap wine rather than being special, rare and worthy of comparison with the top tier wines from other regions.

[Andy Velebil]

If volumes were trebled the producers would go back to having the majority of the vintage being stored in Gaia rather than sold

I disagree. In all classes of wine, increasing price has a huge depressant effect on sales volume. Conversely there is good reason to expect a tripled volume at half price to result in a much easier sales campaign. The person who might have bought one six pack would be easily motivated to double their investment and buy two dozens instead, and others who would otherwise have felt priced out would enter the market.

Tom,
For top end wines, you are completely incorrect in modern retail markets.

-What DRT said here...

Port producers do not pay the mortgage with the proceeds of their top wines. They pay it with the proceeds from huge volumes or lower tier wines. Tripling the quantity of their premium wine only serves to maintain the perception of VP as being a cheap wine rather than being special, rare and worthy of comparison with the top tier wines from other regions.

[JacobH]

Tripling the quantity of their premium wine only serves to maintain the perception of VP as being a cheap wine rather than being special, rare and worthy of comparison with the top tier wines from other regions.

I don’t doubt this is true but I do sometimes think that some shippers are a bit unrealistic in their comparisons. Port is a special category wine. along with other fortifieds and sweet wines, & will never be as popular as a table wine. Whilst I am sure they would love it to be priced as a first growth claret or similar, it is just never going to happen, and I wonder just how much they are going to be able to push the prices of some releases before saleability drops off. It must already be the most prestigious special category wine globally. Or, if not, I think it is only second to Sauternes.

[Glenn E.]

It must already be the most prestigious special category wine globally. Or, if not, I think it is only second to Sauternes.

d'Yquem was €275 on release in 2017 and they released 80,000 bottles of it. So Port is realistically no better than second, globally.

It will also depend on how you want to define both "prestigious" and "special category wine"... Port is very well known in England, but much less so globally. Other wines such as Sauternes are far better known elsewhere in the world. Does Chianti count as a "special category wine" also?

[DRT]

Tripling the quantity of their premium wine only serves to maintain the perception of VP as being a cheap wine rather than being special, rare and worthy of comparison with the top tier wines from other regions.

I don’t doubt this is true but I do sometimes think that some shippers are a bit unrealistic in their comparisons. Port is a special category wine. along with other fortifieds and sweet wines, & will never be as popular as a table wine. Whilst I am sure they would love it to be priced as a first growth claret or similar, it is just never going to happen, and I wonder just how much they are going to be able to push the prices of some releases before saleability drops off. It must already be the most prestigious special category wine globally. Or, if not, I think it is only second to Sauternes.

I think this is all fair, and I am not suggesting for one minute that VP should be released at £2000 a bottle like some first growth clarets are. What I am arguing is that, given the comparative quality and exceptional rarity of top-tier VP compared with wines from other regions, the notion of halving the price from around £50 to £25 is just ridiculous.

[JacobH]

I think this is all fair, and I am not suggesting for one minute that VP should be released at £2000 a bottle like some first growth clarets are. What I am arguing is that, given the comparative quality and exceptional rarity of top-tier VP compared with wines from other regions, the notion of halving the price from around £50 to £25 is just ridiculous.

There’s a joke about Aldi’s £35 40-year-old tawny here but I won’t make it!

d'Yquem was €275 on release in 2017 and they released 80,000 bottles of it. So Port is realistically no better than second, globally.

It will also depend on how you want to define both "prestigious" and "special category wine"... Port is very well known in England, but much less so globally. Other wines such as Sauternes are far better known elsewhere in the world. Does Chianti count as a "special category wine" also?

By special category, I mean fortified, sweet or aromatised wine since they are not regularly consumed by most consumers of wine, unlike table & sparkling wines. I’d probably also include a fully oxidised unfortified wine in that category but I don’t think anyone makes those. Clearly there are some edge cases such as Vin Jaune or retsina.

In terms of prestige, I was thinking about higher-priced wines where the wine’s price is primarily determined by quality rather than scarcity. So, for example, I’m pretty sure a 10-year-old Carcavelos costs more than a 10-year-old tawny but that’s because you can’t readily find the former. Most fortified wines are significantly cheaper than Port, even though many of them have incredibly elaborate production processes. Sherry is perhaps the most obvious example of this. Or on the pudding wine front, something like Tokaji.

I don’t really drink much Sauternes but I will readily accept it is the global leader if Yquem is flogging that volume at that cost!

[uncle tom]

the notion of halving the price from around £50 to £25 is just ridiculous

It's only ridiculous if you try to benchmark from totally different products with different market dynamics, and fail to consider whether the current marketing strategy for vintage port is working or not.

The producers were aware of a stock overhang about twenty years ago. When the 2000 vintage was launched there was quite a big push to get people drinking VP young. This worked, but only to a degree. Then there were informal agreements to limit the volume of VP production. VP may only be only a modest percentage of the port producers turnover, but as the production of standard ports is virtually profit-less; the profits yielded by the special categories, and vintage in particular, are very important.

The strategy, aimed at creating an ever hungrier market for VP, came at great cost. The collective profit loss from the reduced size of the declarations runs to several millions.

So is it working? Has the market been drinking up the excess supply and driving prices higher? Yes, but again, only to a degree.

Take the 1970 vintage. A huge declaration and a superb vintage. Of the vintage port made from that year however, it is likely that perhaps 98% has now either been drunk or is with its final owner. Very little of the production is likely to be offered to market going forward, so there is no significant glut of supply left.

The retail pricing however, is currently averaging little more than double the release price of VP half a century younger.

If the theory of an ever hungrier market paying ever increasing sums as the supply side rarefied held good, then the ratio of release to 50 years hence should surely be much greater now.

Rather than propel prices forward to dizzy new heights, the primary effect of the decade long supply squeeze appears to have been to reduce consumption.

Less consumption and less market presence on the back of reduced profits - it's hard to argue the strategy has been a huge success, or worth the profit sacrifice.

I don't blame the producers for giving the strategy a try, but going forward I think there's a need to restore production volumes and cut deals with those willing to buy in quantity to lay down.

[jdaw1]

Rather than propel prices forward to dizzy new heights, the primary effect of the decade long supply squeeze appears to have been to reduce consumption.

This is plausible. Plenty should be made, and sold at full price. Quantity to maintain consumption. Full price because it is the senior category, and seniority merits respect. Rather than sell cheaply, prefer to hold and late-release.

Indeed, the Port companies could consider a collective purchase of Scottish storage facility, to hold that which is not sold quickly at full price.

[JacobH]

This is an interesting discussion.

I noticed that Sarah Ahmed’s review of the 2019 releases included this comment:

In the latest press release accompanying the declarations, Noval indicated that “even in the more generous years, volumes of our Vintage Ports are always extremely small: at the very most, up to 15% of the production of our great vineyard terroir.”

In the case of 2019, the selection of 2780 cases represents 14% of our production.

This tempts me into some back-of-the-envelope calculations. I assume that these production volumes are referring to Quinta do Noval itself rather than all the vineyards which make up the Noval business. However, if Quinta do Noval were an independent quinta and the average profit margin on a bottle of VP is, say, 3 times that of the average bottle of Port, wouldn’t this suggest that VP is actually a very substantial contributor to the profitability of the smaller shippers? I appreciate it may be different for the bigger players.

[uncle tom]

the average profit margin on a bottle of VP is, say, 3 times that of the average bottle of Port

If you set aside the sunk costs of each declaration in terms of time spent blending, gaining IVDP approval, artwork, presentations to the media etc. etc. - the profitability of VP compared to other classes of port is massive, sometimes as much as eight fold greater per bottle than the profit on the LBV from the same house.

That said, there is clear evidence of an excess supply of LBV on the market at the moment, leading to some discounting.

Reducing LBV production by a third whilst increasing the net profit target by a half would be profit neutral. The effect on the consumer retail price, bearing in mind the dead weight of production costs and duty, would only be an increase of around 12-20%, unlikely to cause a massive consumer revolt.

It would however liberate a third of the juice currently allocated to LBV to be released as VP.

[Doggett]

the average profit margin on a bottle of VP is, say, 3 times that of the average bottle of Port

It would however liberate a third of the juice currently allocated to LBV to be released as VP.

That is a lot of juice diverted back to VP and surely not all of it is of top class VP quality, so would that not be risking diluting the overall quality of a VP declaration. I am all for more volume and even more general declared years, but not if it were to sacrifice the quality of VP. I guess the LBV option gives them guaranteed volume every year. However if we have years like 2010 more often, then the VP volumes and the narrative to the market would mean a business model that was more ‘feast or famine’, which is not a sensible way forward. Thus the Reserve Ruby, LBV and Tawny sales and volumes provide financial stability.

[PhilW]

In the latest press release accompanying the declarations, Noval indicated that “even in the more generous years, volumes of our Vintage Ports are always extremely small: at the very most, up to 15% of the production of our great vineyard terroir.”
.

This tempts me into some back-of-the-envelope calculations. I assume that these production volumes are referring to Quinta do Noval itself rather than all the vineyards which make up the Noval business. However, if Quinta do Noval were an independent quinta and the average profit margin on a bottle of VP is, say, 3 times that of the average bottle of Port, wouldn’t this suggest that VP is actually a very substantial contributor to the profitability of the smaller shippers? I appreciate it may be different for the bigger players.

Using your figures/assumptions, plus a few more assumptions:
- volume of VP as mean of 9% of production in declared years (estimate based on "at most, up to 15%")
- VP declared on average of 1 year in 3 (rough estimate)
- profit margin on bottle of VP as 3x, where x is mean profit for all other non-VP
- for simplicity, am assuming a fixed number of bottles made every year, N
If so, then
- in non-declared years, profit = Nx
- in declared years, profit = (9*3x + 91*x)*N/100 == 1.18 * Nx
- with only 1/3 of years as declared, that makes the mean per year profit = 1.06 * Nx which is only a 6% increase; which is a modest, but I would suggest not substantial contributor for including VP within the profile; albeit that I would suggest it has additional indirect potential benefit e.g. in helping to sell the lesser wines.

[uncle tom]

That is a lot of juice diverted back to VP and surely not all of it is of top class VP quality

And the producers know what will make the grade, and what won't. I personally think too much good juice is being sold too cheaply as LBV, and worse, a lot of fine juice that deserves to be bottle aged, is being filtered to feed that market.

There is currently little price distinction between reserves and LBVs and then a big leap to vintage. A more even spread of both prices and production volumes, would, I think, prove more profitable.

would mean a business model that was more ‘feast or famine'

In the early days of modern LBV, the dominant LBV production years were the better undeclared ones. There's no imperative to make an LBV every year, and making the best use of each year's harvest in response to it's quality is logical.

[JacobH]

Using your figures/assumptions, plus a few more assumptions:
- volume of VP as mean of 9% of production in declared years (estimate based on "at most, up to 15%")
- VP declared on average of 1 year in 3 (rough estimate)
- profit margin on bottle of VP as 3x, where x is mean profit for all other non-VP
- for simplicity, am assuming a fixed number of bottles made every year, N
If so, then
- in non-declared years, profit = Nx
- in declared years, profit = (9*3x + 91*x)*N/100 == 1.18 * Nx
- with only 1/3 of years as declared, that makes the mean per year profit = 1.06 * Nx which is only a 6% increase; which is a modest, but I would suggest not substantial contributor for including VP within the profile; albeit that I would suggest it has additional indirect potential benefit e.g. in helping to sell the lesser wines.

We’re speculating wildly, but a few points:

1. Most smaller producers are declaring almost every year these days. I think it’s eight-in-a-row for Noval. If we upped the declaration rate to 50% that would give, on your figures, a 12% overall profit to the company which would be pretty substantial for any business.
2. I am not sure if production volumes fluctuate down significantly in weaker years when VP is not made.
3. I take Tom’s point that the profit margin could be much higher than 3 times average but I have no idea if that is correct or not.

Be that all as it may, what really strikes me from your calculations is the fluctuations. If I knew that a year with a declaration could produce 18% more profit than a year without it, I think I’d consider it really, really important.

[winesecretary]

As Jacob, in particular, identifies the strategy for vintage declaration is more heterogenous now than (we perceive it to have been) 75 years ago. There are a variety of reasons for that one of which is that the port market has many more players. The reality though is that many quintas in most years will have at least some grapes of vintage quality. To take a hypothetical example of a quinta with the potential to produce 25000 cases of port a year - in 'vintage' years it VP may be 30% of the crop thus 7500 cases. In poor years it may be 3% of the crop thus 750 cases. If it is worth their while to commercialise both as VP then good luck to them. I won't buy both vintages, though (unless, possibly, it's Niepoort) because I like variety.

[Glenn E.]

Remember that - according to the IVDP - the volume of VP sold is something like 2-3% of total production. Not 15%. Not even 9%. This is where taking numbers from a small house causes problems, because in years that they declare they probably use a significant portion of their juice to make VP. But that's still barely a drop in the bucket overall.

Admittedly that 2-3% number is a rolling average, but it's the appropriate number to use for this calculation because it incorporates both declared and undeclared years.

[Glenn E.]

And the producers know what will make the grade, and what won't. I personally think too much good juice is being sold too cheaply as LBV, and worse, a lot of fine juice that deserves to be bottle aged, is being filtered to feed that market.

There is currently little price distinction between reserves and LBVs and then a big leap to vintage. A more even spread of both prices and production volumes, would, I think, prove more profitable.

I agree with this sentiment, but not with your conclusion (which, from the top, is that VP production should be increased and its price lowered). My conclusion is that producers should be charging more for their LBV. If it contains as much VP-quality juice as you seem to be implying, then its price should be higher to make that point.

That would also provide room for the quality and price of Ruby Reserve to each be increased.