Inner Workings; Who contols the Bordeaux market
You have to look at the Bordeaux area over a 10-year cycle,’ a Bordeaux négociant expounds with a sigh. ‘It’s often boom or bust, but the main thing is to come out ahead in the end.’
After the heady days of the late 1990s, when prices and demand increased steadily, culminating with the messianic 2000 vintage, the opening years of the 21st century have been anything but exultant. The home market is saturated, exports are finding stiffer competition, and the dollar/euro exchange rate is not particularly kind. The Bordeaux area is navigating its way through one of those troughs again.
That being said, the region as a whole has an extremely segmented market and, whereas there may be penury in certain sectors, with even the call to pull up vines, in others, particularly at the highest level, the sailing has been smoother.
There are something in the region of 8,000 wine farms or estates in the Bordeaux area. Of these, only around 200 are concerned with en primeur sales on the place de Bordeaux or Bordeaux market, although this figure may increase in a hugely successful vintage such as 2000, or decline to 60 or 70 in a so-called petit millésime such as 2002. The latter group of grands crus, which of course includes the first growths and super seconds, will not be suffering the same angst as others in Bordeaux. Demand remains strong and the wines sell.
Likewise, among the négociant fraternity, there are those in sectors such as the brand business that have been hard hit and others that haven’t found the conditions in the Bordeaux area to their liking. Rumour has it Calvet is having a difficult time, while Mediterranean-based growers’ association Val d’Orbieu, which owns négociant Cordier Mestrezat, has made it known that it wants to withdraw from the scene. Others with good grands crus allocations, who run a tight, often family-controlled ship, have fared better.
There are some 400 négociants in the Bordeaux area, of which around 100 are concerned with the purchase and distribution of the grands crus. The big names here, representing 70 to 80% of purchases, are Ballande et Meneret, Cordier Mestrezat, CVBG Dourthe-Kressmann, Duclot, Ginestet, Joanne, Nathaniel Johnston and mail order specialist Millésima.
As to stocks, the négociants have, in the main, been destocking over the past 18 months to generate cash flow. The 1997s have been cleared out and discounted, as customers will have witnessed from the range of promotions offered by wine merchants. Last year, Patrick Bernard, CEO of Millésima, offered a free case for every two 12-bottle cases purchased. He moved 15,000 cases, while still managing to maintain a margin of 9.8%. He, like others, has also had promotions on certain wines from the 1998, 1999 and 2001 vintages.
Nonetheless, there’s still a plentiful supply of 1999s and 2001s in négociants’ warehouses, as these en primeur campaigns were not a big success. As for the 2002s, négociants only bought wines with a guaranteed market, leaving the excess to the châteaux, although the 2000 vintage still sells readily when it appears.
Supply & Demand
‘The true formula for Bordeaux is to sell en primeur but to keep vintages alive by having stocks to sell,’ says John Kolasa, managing director of Margaux second growth Château Rauzan-Ségla, and négociant Ulysse Cazabonne. Like family-owned Mähler-Besse, Cazabonne does hold older vintages of grand cru wines. The current problem, though, is the large stocks of recent vintages, for which there has been little consumer demand. Discounting is one way of getting the market going, but the slim margins have left some businesses in a fragile state.
Relations between négociants and producers seem to remain courteous, though. ‘There’s a culture that surrounds the grands crus which has generated a particular relationship between people, leading to the creation of a chain of business and sometimes even bonds of friendship,’ explains Jean-Marie Chadronnier, CEO of CVBG Dourthe-Kressmann. Both sides realise the value of the other, the grand cru château with a high-profile product to sell and the négociant representing worldwide distribution. There’s also the courtier, who can interface between the two and prevent a head-on clash. But if one thing strains the relationship, it’s the question of price and allocation.
So who really sets the price for the grands crus in the Bordeaux area? The short answer, at least in recent years, is the château owner. ‘In the past few years it’s been a sellers’ market, so it’s the producer that’s set the rules. But today there’s a slight change, opening the door to a little more negotiation,’ says Franck Mähler-Besse, managing director of the eponymous négociant. Demand was there for the 1996s and, curiously, the 1997s (boosted by the Asian market). This led to dramatic price increases. Thereafter, négociants were obliged to carry on buying in 1998 (actually a very good vintage) and 1999 to secure their allocations of the mythical 2000. Now the market is flatter, there’s more room to manoeuvre.
As to the mechanics of price setting, the producer will first feel around before coming to a decision on his prix de sortie (release price) for the futures campaign. Factors that are taken into consideration are the quality of the vintage, the media’s, especially Robert Parker’s, verdict, the quality of the individual wine in the vintage, the general economic environment and finally the price of similar drinking wines available to the consumer, compared to the new wine which will be delivered in two years’ time. The négociants and courtiers will, of course, be sounded out, particularly the big buyers, and a close eye kept on neighbours of equal standing. Then a fax will be sent to the courtier, who then informs the négociants of the opening price.
The balance of power is provided by the négociants’ decision on whether or not to buy the wine. ‘When the producer launches a price it’s a bit like flicking a coin without knowing whether it will come down heads or tails,’ says Millésima’s Patrick Bernard. The present state of the market means that négociants will not want to hold excessive stocks and they will be wary of immoderate price rises (without justification), so their prerogative can be used with a little more clout. Margins have been clipped and people are being cautious. It’s the notion of ‘the market’ having the final say in price.
The market also takes a dim view of châteaux that seek a higher price than their perceived station. ‘Some producers that have tried to exceed the market price have ended up with the entire harvest on their back,’ warns Franck Mähler-Besse. Hence it takes a long time to reposition a cru in terms of price. It took 50 years for Baron Philippe at Château Mouton-Rothschild; Château Léoville Las Cases is still engaged in a long-term campaign; and Gérard Perse was rapidly reprimanded when he tried to accelerate the price of St-Emilion premier grand cru classé Château Pavie from 1999.
The allocation of grand cru wines among the négociants is another weapon that lies in the hands of the producer. A top flight château may work with anywhere between 90 and 130 negociants, spreading the distribution to cover a wide range of markets both at home and overseas. Some rely simply on the courtiers to administer allocations, whereas others, although still dealing through the courtiers, are more interventionist.
‘I have a direct say in the distribution of allocations, am happy to bring in new, dynamic enterprises at the expense of others, and dislike the old Bordeaux area culture of allocations to négociants simply because they have bought for the last 20 years,’ states Jean-Guillaume Prats of St-Estèphe second growth Château Cos d’Estournel. ‘The politics of allocation have to be looked at anew every year.’
Cos has always been fairly direct in its relationship with négociants, but this type of approach has been gaining ground with other châteaux since 2000. The present difficulties of the market, the heightened competition between négociants and the fact that due to a drop in yields and the severity of selection there is less grand vin to go around, mean that producers are moving from the laissez-faire attitude of the past to a more hands-on approach when overseeing allocations. With the first growths, the wheel grinds a little slower. The difficulties of entering this gilded sphere and acquiring an allocation in the first place mean it’s not easy to be ousted.
The place de Bordeaux can also be tough to crack when it comes to presenting new wines. Before the market will take an interest, a ‘brand’ image has to be built. ‘Négociants will not be interested in a new wine which is to be offered for distribution without exclusivity if the château has not created some kind of groundswell to make it attractive,’ explains Bill Blatch of Vintex.
Nicolas Thienpont, who manages three St-Emilion grand cru classé properties – Châteaux Bellevue, Larcis-Ducasse and Pavie-Macquin – illustrates the point. ‘Pavie-Macquin was an exclusivity with CVBG Dourthe-Kressmann until 1999. The price had risen steadily to a good level, quality improved, the press was positive, and there was plenty of interest in Right Bank wines. So we could construct a history for the wine and place it on the open market where it has been accepted at the top level of the St-Emilion grands crus classés. On the other hand, Château Bellevue, which also used to be an exclusivity, was accepted for the 2000 vintage because of the year, but the 2001 and 2002, despite improvements in quality and a drop in price, did not sell well, as Bellevue is still a fairly unknown wine without a strong image or identity.’
The main markets for en primeur are France, Belgium, Switzerland, the UK, Germany and the US, which in a big year like 2000 could purchase 50% of the harvest. Overall, the US wine market is flourishing, with consumption expected to rise from 10 to 18 litres per head per year by 2007. But the recent euro/dollar exchange rate has made the Bordeaux area less attractive and, in terms of en primeur, the US only buys in the top years. 2001 and 2002 have been no-go.
Flurry for 2003
American merchants have sold their 1997s, 1998s and 1999s and, as little was bought in 2001 and 2002, stocks of these are limited. As a result, the sense that 2003 was special spread early. At the April tastings of 2003s in Bordeaux, US professionals were the largest group among the 1,219 foreign buyers. The main stumbling block is still the exchange rate. ‘The dollar will be a big factor for the 2003 vintage unless there’s unconditional support, and then away we go again, despite the wines being 25% dearer than last year at the current exchange rate,’ says Blatch.
The style of wines in 2003, given the summer heat, will also cap what has been a gradual change in the style of Bordeaux. This is more fruit forward and fuller bodied than in the past. ‘It’s nothing to do with marketing or personalities, but simply the search for riper grapes which has emphasised the fruit, added an extra degree of alcohol in the bottle and lowered acidity,’ explains Blatch.
As to prices, as we went to press there were early indicators that there will be some sort of rise above those set for the 2002s. Market forces – some possibly great wines, a small harvest and interest from buyers – are in action again, but négociants are sounding a note of caution to the producers, which could be passed on to consumers. ‘The message is that you need friends and distribution, and everyone needs to take a margin on the wine,’ says John Kolasa.