The Grey Market Creeps into Natural Wine
Supply and demand. It’s a common theme in wine, and - in part - it is how pricing is determined. If lots of people want the same wine and it is made in limited quantities, the excess demand coupled with limited supply causes the price to rise. The rising price reduces demand, up to the point that the market price is then settled on. If you are a producer, and you sell your wine for say £20, but the market price is actually £200, then someone else is making your margin if it is being re-sold on the secondary market. This can be seen in the way the market for top Burgundies has gone bonkers over the last decade: it’s testament to short supply, high demand, and wine collectors with deep pockets. Also, if wine is traded on the secondary market in any frequency, then it’s possible to work out what the wine ‘is worth’.
Many compare this to the world of art sales. However, when an artist's work begins to be sold on the secondary market, and the artist in question develops a reputation, they can suddenly sell their art direct to the consumer for much higher prices. By doing so, they can even cut out the secondary market altogether. In the wine world, however, it doesn't work like this. Boxes of wine can't be shipped all over the world directly from the producer in the same way that a painting can. It is not the winemaker nor the importer making huge profit: it's somebody further down the line.
The natural wine world is also facing issues of supply and demand. Many of the most sought-after natural wines are made in tiny quantities, and these unicorns rarely reach the retail market. The allocations are snapped up by loyal private customers, or they are consumed in natural wine bars, sometimes via under-the-counter secret lists. Until very recently, though, these wines didn’t have a high ‘market value.’ In fact, they didn’t have a market value at all, because they weren’t traded in the same way as fine wines are on the secondary market. And these wines, despite their scarcity, would quickly reach a point of price resistance on the part of their customers, who aren’t usually wealthy collectors.
But it looks like this is changing. The most sought-after natural wines – the likes of Domaine des Miroirs, Overnoy, Ganevat’s domaine wines and Richard Leroy to name a few – are suddenly appearing on the secondary market at vastly inflated prices, and in places where they’d never been seen before. I was recently alerted to the appearance of a reasonable quantity of Domaine des Miroirs on the website of Berry Bros & Rudd, an established London fine wine merchant who you’d not readily associate with the natural category. These bottles were listed at £600 each in bond. I was surprised and assumed it must be some collector who’d scored an allocation and was just doing a bit of a fishing trip to see if they could make a profit from the rarity of these wines. So, I asked some questions. A Berry Bros & Rudd spokesperson told me that these bottles were indeed their own stock, and that £600 was the correct price. They pointed out that they are priced in line with bottles recently sold on auction site iDealwine.
Then I spoke to Doug Wregg of Miroirs’ exclusive UK agent, Les Caves de Pyrene. What did he think of this offer? He confirmed that Les Caves didn’t supply Berry Bros & Rudd, and replied,
“I’m a bit shocked. Surely they must have been buying them on the grey market? But from where? We had all those wines/vintages and they cost between 15 and 20 euros from the domaine. We were selling them for £30-35 ex vat, the normal margin.”
Doug Wregg of Les Caves de Pyrene with a bottle of Overnoy-Houillon’s Arbois Pupillin
Kenjiro Kagami of Domaine des Miroirs
Another broking list, this time from Chelsea Vintners, has the latest release (2008) of Ganevat’s Les Vignes de Mon Père listed as a six pack for £1850 in bond, stating that these are the only cases available on the world market. Les Caves are also the agent for Ganevat in the UK, and Wregg says that they are holding back their stock of this wine, but when they release it the price will be £80 per bottle.
Someone, somewhere, is profiteering on these grey market wines.
So what is the grey market? It’s obtaining supplies of a wine outside the normal distribution framework. Normally, a winery will deal with an exclusive agent in each country and will allocate wines appropriately to their different markets. They might choose to sell more to one versus another, or offer special prices for some markets. In exchange for exclusivity, the agent works hard to sell the wines, and even position them in the right places.
Of course, for fine wines that are sold en primeur, such as the top Bordeaux sold through La Place (a system of courtiers and negociants), it’s different. I asked Gareth Birchley, a fine wine broker at Burns & German, for his views on the grey market, which is an active element of the fine wine scene. Birchley says it’s very difficult to control the wine market because it’s so global now. He gave the example of private customers in Hong Kong who buy their wine in London and store it there. He also explained that a lot of the top wines are consumed in just a few markets, even though they are sold in many.
“In the UK, USA and Asia, people are opening crazy bottles every day. In mainland Europe, with one or two exceptions, they simply aren’t doing this. You don’t walk into a wine bar in Berlin and everyone is drinking Richebourg. It just doesn’t happen. They don’t have that culture. Outside of Monaco or some places in Switzerland, there isn’t this density of wealth in the same way. A lot of companies who get allocations of things just look to the UK market as a standard route.”
Birchley points out that the French market is creating a lot of the issues with the grey market, because French wineries don’t tend to have agents in France. He explains,
“Taittinger is a good example. Hatch Mansfield are the exclusive agents in the UK. In France, they will have 2000 customers. Even a one-man band shop in Brittany can buy direct from Taittinger. If the guy owns a tiny shop like this and one year, he orders 24 bottles of Comtes de Champagne, and the next year he orders 20 000, you have to ask - what is happening to this stuff: where is it going?”
Many producers turn a blind eye to these sorts of sales, just because they are keen to sell the wine:
“There are people who really want to control the market. There are people who say that they want to control the market. And there are people who don’t.”
Some producers try to track down who’s leaking their wines onto the grey market. Birchley says,
“People come to us and say, it would be great if we could find out who is selling you all this grey market Champagne. Could you help us out with a name?”
Birchley says that he’s not going to give up a name when he spends £10 million on Bordeaux wines with the same operator. But he does give an interesting example of where he has cooperated with a concerned producer. When he was dealing closely with Champagne Philipponnat in a previous job, he approached them looking for a bigger allocation. He explains,
I said, "Here’s the deal. I’m buying most of your production of Clos des Goisses."
He said, "You are not, because this amount goes here, and this amount goes there."
I said: "This is how much I bought from this country, this country, this country."
He said, that’s nearly everything. "This is the way that we fix it: I am going to saturate you: I will give you more Clos de Goisses than you want, from me, and we’ll see which markets dry up."
Suddenly the agent in X who was taking 6,000 bottles now orders 24 bottles.
Birchley continues,
“The cheapest place to buy wine should be direct from the UK agent. If you want to have a direct relationship with the winery, then you play the game. We have started dealing with Harlan, which comes from Thorman Hunt. I can buy Harlan all day long in the grey market. But for the relationship we have with Harlan it is just not worth it. We get an amount from Thorman Hunt which we can sell. It doesn’t make or break our month, but it is a nice thing to have. What’s more important is being in a situation where we can put Don Weaver in front of private customers and go, we as a 2.5-man band, can put Don Weaver in front of you.”
Some producers refuse to let the market set the price for their wine because they want customers to drink it.
“Coche-Dury is a good example. He [Raphaël] actively manages the maximum price that restaurants can sell it. The best place to drink Coche Dury is 3 Michelin star restaurants in France. He wants the wines to be at a fair price. Take 300% margin, but not 3000% margin.”
While the grey market might be a fixture in the fine wine scene, it jars a bit in the natural wine scene, especially when wines are traded like commodities and prices are vastly escalated because of scarcity. I asked Wregg for his views on the grey market. He said,
“It really spoils the idea of wine for me. Natural wines are crafted with care, made with love, and are certainly small-scale in production, but were never intended to be traded as commodities, to be broked and rebroked. I buy Miroirs to drink it with friends as soon as possible; it is a beautiful thing to share a beautiful thing with those you know get the same kick out of the wine as you do.”
Pascaline Lepeltier MS MOF, the well-known New York sommelier and restaurateur is a natural wine specialist, and she has also run into the grey market in her work. She says she has even been interviewed about the return on investment in the natural wine category by Penta/Barron’s. She explains,
“The grey market has been a firm reality in New York since I arrived, and I would say that for the last four or five years we have started to see some natural wines popping up on listings. Now there are way more, yet it is a small group of names. But when you have a new "exclusive" producer, it rises right away to $$$, like Emilien Feneuil or Aurélien Lurquin, for example.”
Like Wregg, she is also not happy about the situation, saying,
“It is indeed a sad moment, because a lot of these bottles aren’t really being enjoyed for what they are, but for their cult status.”
Wregg thinks that natural wines are an ill fit for the fine wine market, with its speculation, investment and trading of wines as assets. He muses,
“These [natural] wines are often referred to as iconic, which means that they are rare and desirable to possess. And yet they are not fixed products. They are, by definition, wild, nervous, volatile, quirky, marmite wines. Is the collector who pays £600 for a bottle of Miroirs paying that because they know the wine and appreciate its wabi-sabiness and its flaws, or are they buying something to sell on again, thereby further falsely inflating the price of the wine?"
Another issue that has come to light in the UK is the case of retailers who avoid UK duty by setting up English language websites in EU countries, and selling direct to customers in the UK. Because they are produced by IT-savvy companies, they come up high on Google searches, and the pricing looks too good to be true. As an example, I searched for Envinate’s Albahra. On the first page of results, I have a UK wine merchant offering it for £19.75 (with a standard margin for importer and merchant). I also have a result from online shop Decantálo, who are selling it at €10.90 on their English language website. That’s because duty in most European countries is very low, whereas in the UK it is high. If you are based in the UK, legally you have to pay Excise duty plus VAT on all wines sent to you from the EU, unless they are personal imports (that is, you carry the wine with you across the border and it is for your own personal consumption). Many of these sites are based in Spain. They muddy the water for producers and especially for agents and retailers in the UK: their prices are being made to look high by these unfairly cheap imports. If you are buying wine from one of these sites, you also risk it being impounded by customs, and once you have paid Excise duty and an administration fee, it will be an expensive purchase.
We should be doing the right thing and buying wine through the correct channels. I’ll close with the words of Doug Wregg.
“To adapt Gertrude Stein: Wine is a wine is a wine is a wine. Natural wines should not be included in the "Bordeaux-style" numbers game. The grey market cheapens all the work that goes into the wine, precisely because it gives it a specific market valuation. It also ruins it for the vast majority of people who will never have the opportunity to drink such wines, because they won't be able to afford them.”
Originally published in 2020.
