European Fine Wines Ltd: Pavie 2003

An enquiry received earlier this week:

I’ve just purchased some fine wines from this organisation. I put a 10% deposit down for 2 x cases of Pavie 2003 = £3556. Can you advise on where best I can assess fine wines prices to make sure that I’ve not overpaid?

‘This is the response over my concerns that I’ve received from one of the directors at EFW:-

"I appreciate your need to satisfy questions of due diligence, and trust that these answers will provide sufficient reassurance.

1. The Independent. The thrust of the Independent article is to say that the purchaser should ensure that they have full and clear title to their wine, and we wholeheartedly support this. As with all large value items, be they cars, houses or, in this instance, fine wine, there is the potential for the unwary investor to be caught out.

I would point you towards our web site - www.efwines.com <http://www.efwines.com> - and ask you to look at our 'Some Golden Rules for Fine Wine Investment' pamphlet. The body of the document describes the basic approach to the market, but the end section is a checklist of all the elements that an investor should take in to account.

2. We are an independent and active seller of fine wines, and our client profile is more inclined to the general public than perhaps some of the merchants that have served many generations of the same family. Over the last five years we have become recognised as a progressive and reputable company, and are frequently requested to be contributors to wine market features and articles, e.g. The Financial Times. The investment guide was in fact produced as part of our contribution to a debate on alternative investments that was aired on a number of radio programmes nationally and regionally, including the BBC, featuring my colleague David Evans who is our investment expert.

3. The wine we have proposed, Pavie 2003, is a very high scoring wine as is shown on the attached tasting notes, having been awarded 98+ by Robert Parker, and is undoubtedly an excellent investment grade wine that would form a good basis for a wine portfolio. It is possible to find this wine quoted at anything from £1,300 to more than £2,000 per case. At the low end I would be cautious on either provenance or genuine availability, and suggest that we are midway on price but offer a guaranteed quality together with a condition report - in other words I have no hesitation in saying that our product meets all investment criteria."

My response
European Fine Wines Ltd was incorporated on 15.8.2005 and its registered and trading office is at 68 Lombard Street, London EC3V 9LJ – a business centre run by Regus.

Their website (www.efwines.co.uk) is registered in the name of Scott Assemakis.

Looking at Wine-Searcher prices for a case of 2003 Château Pavie from UK merchants range from £1270 (en primeur ltd) to Friarwood Fine Wine at £3249. Taking account of the advice from EFW's director 'At the low end I would be cautious on either provenance or genuine availability', Wilkinson Vintners, one of the UK's leading wine brokers, has 2003 Pavie listed at £1280 a case. (These prices exclude duty and vat.) Two cases bought from Wilkinson would cost the investor £2560 against £3556 from European Fine Wines – a saving of £996.

My advice
I can see no good reason for the client to pay nearly £1000 more for the two cases from European Fine Wines. Unless EFW buys from France it is quite likely that they buy from large broking companies like Bordeaux Index, Farr Vintners and Wilkinson Vintners. Inevitably EFW's prices must be higher than Wilkinson's to cover their costs and to make a profit, so it would be wise for the investor to cut out an additional link in the supply chain and buy at the lower price.

As Wilkinson Vintners do not manage customer reserves, buying from them would involve the investors setting up their own account with the bonded warehouse, so may a little more complicated than buying from EFW. However, my advice is that it is best to have your own account, especially if you intend to store a considerable amount of wine, as this gives you full control over your wines. If they are stored in your name but under a merchant's umbrella account, the merchant's agreement is required if you want to move or sell your wine. This can be particularly problematic if for any reason it becomes difficult or impossible to contact the merchant or if they go bust.

Importantly having your own account also stops unprincipled wine merchants 'borrowing' your stock they receive tempting orders that they need to fulfil quickly. Of course this shouldn't happen but this may be more common practice than is generally realised.

2003 Château Pavie is a controversial wine and is famous for provoking a spat between Robert Parker and Jancis Robinson MW. See here. It is a brave and possibly not the best choice as an initial wine investment purchase. In June 2008 Wilkinson Vintners were selling 2003 Pavie for £1400 a case (data from wine-searcher). Not only has the wine dropped in value but an investor would have also been paying storage charges.

Looking at the wine's performance over the last few years I wouldn't share the EFW's view that Pavie is 'undoubtedly an excellent investment'. Wine-searcher shows that Farr Vinters, probably the UK's largest fine wine broker, were offering Pavie 2003 for £1050 (14.6.2006). The following year it had risen £1250 (offered by Nicholls & Perks 15.6.2007) and by June 2008 had reached £1400 a case (Wilkinson). Then it started to slip – L'Assemblage were offering it for £1300 (13.6.2009). A case of Pavie bought in June 2006 would be showing a gross profit of 21% over the nearly four year – 5.25% per annum. However, against this has to be set storage and insurance. If stored at Vinothèque, part of London City Bond, storage on a case costs £12.24 plus vat – £14.38 a year and £57.53 over four years. The gross gain on the case of Pavie is reduced from £230 to £172.47 – a rise of 16.43% over four years or 4.1% a year. Although this is better than most cash ISA's, the calculation doesn't take account of the commission due on the selling the wine, which will further reduced the profit.

At present looks like the market is more in sympathy with Jancis Robinson's negative view than that of Robert Parker.

Bought at the right price long term 2003 Pavie may show a profit but I'm not sure I would bet on it and I certainly wouldn't want to pay nearly £500 over the realistic market price. If I was the investor I would be asking for my 10% deposit back under the Distance Selling Regulations.

I have emailed Gregory Assemakis, director of European Fine Wines, to respond.