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What is en primeur?
What are the benefits of en primeur?
How does ordering en primeur work?
Why do producers sell en primeur?
What return can I expect to make?
What is en primeur?
En primeur (literally ‘wine futures’) is the method of purchasing wines before they are bottled and released onto the open market. It is sometimes called Bordeaux Futures or Liquid Investment.
Originally it was only red Bordeaux (claret) that was sold this way, but over the years fine wines from Burgundy, California, Rhone, Italy, Portugal (Vintage Port) and even New Zealand have become available en primeur.
What are the benefits of en primeur?
There are two main perks to purchasing wine en primeur. The first consideration is availability. Some en primeur wines are highly sought after and produced only in limited quantities (some chateaux produce as little as 200 cases, though the big estates usually manage 15,000 to 30,000). In many instances these wines can only be purchased en primeur as the amount of demand simply dictates that they will never reach the open market.
The other main advantage is price. Savings can be variable, depending on the wine and chateau in question, though you can usually expect to pay forty to fifty per cent less than the wine would cost on the open market. Much also depends on the point ratings the wine receives from Wine Spectator, Robert Parker and Decanter.
When purchasing en primeur it is important to keep the fact that many of these wines will keep and improve with age at the forefront of your mind. You will be in a position to retain the wine until you either want to indulge yourself or, by keeping a keen eye on the fine wine market, trade your investment to take advantage of price increases and thus make a profit.
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How does ordering en primeur work?
The process begins when chateaux offer barrel samples of wines available for review and evaluation by wine experts and negociants, after which a wine merchant offers it to the public in the form of a promise to deliver the wine, at a fixed price now. This excludes VAT and UK Excise Duty. Should the customer choose the buy, he will pay the merchant and an invoice will be raised which states that the customer has a right to the wine at a future date.
Once the merchant comes into possession of the wine, the customer has several options: He can take personal delivery, pay the UK Excise Duty and VAT before storing, drinking or selling the wine as he deems fit. Many customers opt to have the wine stored by merchants or specialists as opposed to keeping it in their home. Often this is done “in bond”, meaning that payment of Duty and VAT is deferred to a later date.
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Why do producers sell en primeur?
The biggest incentive is liquidity: Merchants who make these early sales have more capital to finance their operations immediately available, without a delay of several years. Selling en primeur simply increases cash flow—a very attractive prospect, especially for a small, quality-orientated product while the wine is stored in a registered, temperature-controlled warehouse On occasion merchants ask their customers to pay the Duty and VAT as soon as the wine arrives in the UK regardless of how they intend to store it.
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What return can I expect to make?
The profit margins can be very high indeed. A case of Pétrus 2005, if bought from a UK merchant during the en primeur season in April 2007, cost £8,000-10,000. A mere few weeks later the wine was being traded at £18,000; today it fetches for £25,000. In another example, the 1982 vintage of Chateau Latour, was sold at £250 a case en primeur in 1983, while valued in 2007 at £9000.
The main attraction to wine investment is the commodity’s historical immunity to price volatility; time and time again it has proven to be a solid alternative to the endlessly mutable workings of the stock market - particularly in times of economic downturn. As an asset, it actively improves over time, and has consistently outperformed other forms of recognised investments.
Over the past seven years wine has produced an impressive average annual return of some sixteen per cent—far outstripping the performance of Western stock markets over the same period. Perhaps the most crucial consideration is that wine there is absolutely no capital gains tax on fine wine investment.
The culmination of both historical precedent and the security behind this form of investment has attracted those who seek to make a solid return without running the gauntlet of the increasingly unstable financial sector. A keen buyer can, and will, make a very impressive return by investing in fine wine.
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