La Place de Bordeaux
„La Place de Bordeaux – the weirdest and the most clever way of selling wines”
Top Bordeaux wines get sold in a very particular way which is very unique to the rest of the world. Let’s have a closer look at how it all started, how is it doing and were is it going. Pour yourself a nice glass of Bordeaux and enjoy this rather long read.
The History of making wines in Bordeaux goes back as far as 60 BC. The Romans were the first people to cultivate grapes in the region. The key factors that enabled wine producers to make quality wines were a combination of the right soil, maritime climate and the ease of transport. The latter being possible due to the Gironde River which flows through the region and empties right into the Atlantic, making shipping easy.
A very important event for the Bordeaux region took place in 1152 when the Dutchess of Aquitaine known as Eleanor of Aquitaine married the future King of England Henry II. The Dutch introduced Bordeaux wines to British consumers. Richard the Lionheart the Son of Eleanor and Henry II made Bordeaux wine his everyday beverage. Wine consumers agreed that if Bordeaux is good enough for the King it must be good enough for any wine drinker. The British along with the Dutch were the main buyers and drinkers of Bordeaux wines. British consumers, including the Royal Family, were more interested in high quality wines as opposed to the Dutch who were looking for less expensive alternatives. The Dutch needed the wine to be delivered quickly before it spoiled. To allow quicker transportation of wines Dutch engineers came up with an idea to drain the marshes and swamps. The main works took place between 1575 – 1650 and the final result has changed the Bordeaux landscape forever. This allowed quicker transportation and created more land suitable for cultivation of grapes. Bordeaux wines at first were sold only with the name “Bordeaux” on the bottles. In late 1600 specific brands and sub regions started developing. Margaux, Lafite, Latour and Haut Brion were the most recognisable and reputable names. Bordeaux wine trade, even from its early days, has been export orientated and as early as in the late 1600’s the need for négociants and courtiers companies was born. The first négociant firm was the Dutch firm Beyerman followed by Schÿler, Schröder and Nathaniel Johnston which are still in business today. Services provided by those companies were very handy for the Chateau owners, from now on they would only need to look after their vineyards, make wines and place it in barrels. Négociant would take care of bottling, selling and distribution. Bearing in mind that most of the best château owners were wealthy and many of them were members of the Royal Family, involvement in selling could have been viewed as inappropriate at the time. This unique system created a situation in which the final consumer has no interaction with the wine producer and allowed royalty to sell their wines and avoid contact with ordinary people. Courtiers played a very important role in this very unique system of selling and buying wines. They would negotiate deals between châteaux and often foreign négociants earning a brokerage fee in the process which was usually around 2% of the transaction. They had a detailed knowledge of producers and matched châteaux supply and négociant demand.
1855 is the probably the most important year for the top Bordeaux châteaux. The Exposition Universelle de Paris was the perfect chance to showcase the best France had to offer. Napoléon III came up with an idea of putting together and presenting a list of the very best chateaus of Bordeaux. The Wine Brokers Union of Bordeaux centred around a group of négociants and brokers who developed a list that is now known as the official 1855 Classification. There was no blind tasting held in 1855 to see which wines tasted the best, it was simply about which wines sold for most money. The wines included in the Classification were all from Medoc except Château Haut-Brion from Graves which was already legendary. Four chateaux were listed as the 1st growth (Lafite, Latour, Margaux, Haut-Brion) followed by 15 as 2nd growth, 14 as 3rd growth, 10 as 4th growth and 18 as 5thgrowth. Classified wines especially the 1st growths still remained one of the most expensive and most sought after wines in the world. The Classification of Barsac and Sauternes had also been revealed in 1855 but it did not get too much publicity at the time and was overshadowed by the Medoc Classifications. It contained 12 First Growths led by Château d’Yquem awarded Superior First Growth followed by 14 Second Growths. D’Yquem has remained the most famous and some would say the greatest sweet wine in the world. Its price also reflects the status it gained over the years. Interestingly enough at the same time on the Right Bank of Bordeaux some wines like Petrus, Auson, Cheval Blanc were considered average or were not produced yet. Now some of these are sold at higher prices than some of the 1st Growths from left Bank. The Chateaux of St-Émilion were classified in 1955 exactly 100 years after Medoc Classification. Hypothetically it should be reassessed every 10 years,so far the classification has been updated on the 1969, 1985, 1996, 2006 and 2012. The original list contained 12 Premier Grand crus classes with Château Ausone and Château Cheval Blanc at the top followed by 63 Grand Crus Classés. The best red and white wines of Graves were classified in 1953 but this classification never caught the imagination like the classification of Medoc. The 1855 Classification was a huge marketing success for Bordeaux and shortly after revealing the list the wines had become the most collectable in the world. The first half of the 20th century proved how much the fortune of the region depends on Mother Nature, there was no great vintage for over 20 years, customers stopped buying, prices dropped radically and the future did not look optimistic. The result was the sudden growth of fixed-term. Contracts between the proprietors and groups of négociants. They were a form of speculation, with the merchants taking the risk on what the crops would be like in the next 5 or 10 years and the growers being assured of getting the money every year. Those contracts were known as abonnements (subscriptions) and began in 1902 when Schröder & Schÿller had secured a 10 year contract to buy the crop of Kirwan, even more important contract was made by between Mouton-Rothschild and Calvet. Before the 1970’s the wines were shipped from the château in barrels and bottled by the buyer in Bordeaux or in important export markets such as Great Britain. Persuaded by Baron Philippe de Rothschild all the First Growths started to bottle their own wines which since 1967 has become mandatory for the wines classified in 1855. The négociants continued to buy the wine in the spring following the harvest, but did not take delivery until the chateau had bottled it two years later. That has helped chateaux to improve the quality control. After the 1855 Classification it was very common for the top châteaux to sell their wines sur soucheor “on the vine” which meant selling before the wine was even made. Year 1961 was probably the last when growers sold sur souche, the price was the same as for the mediocre 1960 but the crop of 1961 was about 1/3 of an average sized vintage. This put an immediate end to the practice. In the 1960s sur souche was replaced by the system called “En Primeur” when the Cru Classé châteaux decided to sell their wines in the spring following the harvest while they were still maturing in barrels. The system was very beneficial for the producers as they could assess the quality of the wine before they reveal the price. The 1982 vintage was iconic and proved to be “game changing”, Robert Parker the single most influential wine critic of all times rated the wines very highly and that gave Bordeaux an enormous boost in the world market. From now the new trend of selling en primeur has become the norm.
Now the en primeur system is a powerful and well-oiled machine. Seventy percent of annual Bordeaux production is sold en primeur via the Place de Bordeaux. There are around 100 courtiers, their main role remained negotiating agreements between the producers and the roughly 400 négociant. The négociants distribute over €2bn worth of wine to importers, wholesalers and retailers in nearly 200 countries. Only a few larger négociants still produce their own blends but in most cases especially with Cru Classé wines today’s négociants focus exclusively on distribution. The role of the courtiers has been very well explained by Charles Sichel of negociants Maison Sichel who said “a good courtier is important to the whole system because they can act as a catalyst, on behalf of a négociant or of a chateau. They feed information to négociants on the general state of chateaux, and they report back to chateaux on what the marketplace is doing – who’s performing, who has a good niche markets”.
Every year en primeur starts in early spring after the vintage. This is known as “en primeurs week”when the Cru Classé properties of Bordeaux produce young barrel samples from the previous year’s harvest. These are then tasted by wine buyers and journalists from all over the world. There are two schools, some experts taste blind some do not. The Union des Grands Cru (UGC) organises many of the tastings for thousands of press and trade tasters. It represents about 120 properties, including most of the classed growths and many top estates in Pomerol, although none of the first growths participate in the UGC tastings and one must make an appointment and taste them at the châteaux. The feedback given by the most influential wine journalists and experts has an enormous impact on the price. No one wants to set the prices before Robert Parker and the Wine Spectator Magazine publish their scores out of 100 for the wine. The chateaux then release a tranche, a proportion of their production at an opening price, for sale. The first tranche is usually small, priced competitively and used to test the market. The first tranche has been distributed amongst the favoured négociants, the proprietor may release the second tranche, at a higher price. This process will continue until the chateau makes as much profit from the market as possible. For example in 1996 Lafite released its first tranche at 300 francs, its second at 430 its third at 550 and its fourth at 700. Of course négociants, once they get hold of their allocation, then play the same game with their clients. After the courtiers take a percentage, the futures are allocated to the local négociants. The châteaux are required to offer each tranche of their wines at the same price to all négociants, irrespective of the quantity purchased. If a négociant refuses to buy, usually loses its allocation for the next year. Some négociants sell their entire allocations immediately adding around 10-15% margin, whereas other strategically hold back a portion hoping to sell at higher price once the wines are officially released. Négociants pay châteaux in instalments up to a year later but can immediately sell their allocations to importers, wholesaler and retailers. Some importers offer futures for sale directly to individual consumers, others sell their futures allocations to wholesalers, retailers and restaurants.The consumers all over the world are the final part of the process. Even for some of the largest stockholders of fine wine in Britain it is difficult to get good allocations of the top wines. Chairman of the Farr Vintners Stephen Browett says „You can’t just place an order for Cheval Blanc; you’ll probably have to take quite a lot of a lesser wine such as Clos René to get the allocation of Cheval Blanc you want”. Thirty years ago châteaux would give large allocation to a small number of top négociants. That has changed, proprietor would split the allocation between fifty or even hundred négociants. Chateaux do it to increase the control over where the wines are sold. This makes it more complicated for importers as to build up required stock they have to go to twenty or thirty different négociants. The en primeur system sounds very complicated but in fact it is very efficient. Each château typically works with 40 to 80 négociants. On pricing day the château communicates the price of the wine to négociants via the courtiers. Within a few hours, each négociant will have confirmed his allocation and will immediately communicate with his partners around the world. If the price and the allocation is right the wine will be sold within a few hours. Individual buyers also have the opportunity to buy Cru Classé Bordeaux en primeur from various wine merchants. Vast majority of those transactions are done on-line via Merchant’s websites for example www.bbr.com or www.bordeauxindex.com. Consumers pay the opening price as soon as the offer is made by merchant. The wine remains in the châteaux until the spring or summer two years after the offer. The wine can be delivered once additional duty and shipping costs have been paid. An estimate of these costs is usually given when the wine is bought.
The current Bordeaux trade structure is well organized and efficient. It is a very unique way of selling wines, which can draw customers interest Négociants role is crucial as those companies sell and market wines on international markets. Most châteaux simply have no manpower or resources to do it for themselves. Major négociants commit to buy the wine every year whether the vintage is good or bad which helps châteaux to maintain the cash flow. The weakness is the lack of real interaction between the wine producer and the end customer due to long and complicated supply chain. The price that the final customers pays is extremely high as there are too many middlemen. It is very difficult to accept paying the full price for an unfinished product which will not be available for the buyer for at least another 2 years or so. The samples that are shown to the trade at spring following the harvest are open to manipulation to make them taste softer and more approachable. The system of releasing wines in tranches gives opportunities for speculation and market manipulation. It is very difficult to assess the real quality of the wine and its potential by only tasting barrel samples in spring following the harvest. It is hard to disagree with Michel Rolland who is the one of the most famous wine consultants that “You only get to the truth of a wine when it’s in the bottle, before that it’s a sort of game where the consumer can win or lose” Opportunities more reasonable and fair pricing would help the top châteaux to reengage with traditional markets for the high end Bordeaux like UK and USA. Revealing prices after the wine is bottled would be more fair to the buyers as they could assess the final product before they commit to buy. Mostly due to increasing demand from Chinese markets the prices of the Cru Classé wines have risen to the point that some traditional Bordeaux markets like UK and USA are not willing to pay this much and have started to look for alternatives in other Regions/Countries. China represents 23% of all Bordeaux sales and remains the largest importer by volume but the Chines wine market is relatively young and appears to be fashion driven. According to the CIVB in 2013 wine exports to China dropped by 16% in volume and 18% in value, a drop of €60m versus 2012 seems to be confirming volatility of this market.
Most of the Merchants sell majority of their en primeur wines on-line and because of the Internet the Cru Classé wines have become more accessible and easier to buy for the customers. It is not always safe to buy wines en primeur on-line though. The system creates opportunities for fake on-line companies that accept payments for the wines they do not have. There have been numerous incidents that put off some of the potential buyers from spending any money on-line on the high end Bordeaux. Just to mention one of the latest scandals involved a fake wine company, Le Bordeux Wines Limited, which accepted more than £1 million in sham investments in Bordeaux. The company was registered in London with Companies House in December 2012 and its website offered investment opportunities in the trading of fine wines.
The future of Bordeaux
La Place de Bordeaux has always been a conservative marketplace, but from time to time a few individuals try to do something new. The system is slowly evolving and adapting to the modern market place. A few of the Cru Classé producers have launched their own négociant firms for example Sichel, Moueix, Maitre d’Estrounel to sell their own and often other chateaux wines. A few négociants for example Millesima have established internet divisions to sell directly to consumers rather than via distributors. It seems like the en primeur system is not going away anytime soon though, the majority of producers will not accept the concept of selling after bottling as it would eliminate their cash flow for two years. With that said, in 2012 Château Latour 1er Grand Cru Classé has announced some “big news” that its wine will not be sold en primeur anymore, preferring to release its wines “when they are ready to drink”. Not too many Chateaux has followed Latour but directors of Château d’Yquem have decided not to sell vintage 2011 en primeur explaining “it is simply that we feel it is not the right moment”. In March 2014 just before the “en primeur week”something unexpected happened. One of the Cru Classé Château Pontet-Canet made a brave decision and released its 2013 wine ahead of this year’s en primeur campaign and at the same price as 2012. On the top of that the most influential wine critic announced in 2014 that he will be tasting barrel samples after the en primeur and did not publish his report on Bordeaux 2013 until the end of June 2014, which is 2 months later than usual. The release of Parker’s scores at the end of April is always a focal point of the en primeur campaign and have a massive influence on the price.
Those significant precedents showcase that the system is slowly evolving but like a fine bottle of Bordeaux requires time to develop, we will need time to see if any new trends are being set. In my view some serious reforms need to be made to regain the confidence of not only wine critics but trade and most importantly wine buyers and investors. There is no doubt though that these are very interesting times to be a châteaux owner, négociant, wine merchant, buyer or Bordeaux drinker.
Adam Pawłowski MS