29 maart 2015

The past, present and future of the trade in Bordeaux fine wine.

domaine chevalier,chevalier,pesa-leognan,engraisseur

 Tasting En Primeurs 2013  at Chateau Chevalier - Pessac-Léognan (©Vinama)

 

Written as Coursework Assigment for WSET Diploma Course level 4
Passed with Distinction

Introduction    

The Bordeaux wine trade has a long history that goes back for centuries. During these centuries gradually a trade system was formed that today is probably the most solid wine trade system one can find. Many other wine regions from all over the world envy the Bordeaux region for it’s wine trade system called Place de Bordeaux. A virtual trading place where multiple players in the wine industry have their well defined role that has not really changed since the existence of the trade. Therefor it is also regularly criticized as being old-fashioned and not adapted to current commercial models of selling products from producer to consumer.

Of the 7000 chateaux, around 260[1] make wine that are extremely demanded worldwide. Mainly those chateaux listed in the Grand Cru classifications of Médoc, Pessac-Léognan, Sauternes, Saint-Emilion and the top producers from Pomerol. The chateau owners of these prestigious chateaux sell their wine, often exclusively, via a specific system of courtiers (brokers) and négociants (merchants) in order to reach the end-consumer. If anyone else besides these parties will knock on the chateau door to buy wine directly from the producer, he will have to walk away empty-handed as nothing will be sold to him directly. Were do the origins of this trade system come from, how does it work exactly and will it be solid enough to resist the future?

Bordeaux history

Already in the 13th century Bordeaux wine was being exported by ship via the rivers Garonne and Gironde over to England as the Aquitaine region was integral part of the English empire and ruled by the Kings of England.[2] At the height of their prosperity in the early fourteenth century, the Bordelais exported the equivalent of 110 million bottles of wine a year of which half went to England.[3]

Foreign buyers had no time to travel into the Bordeaux countryside and look for wine so they needed honest middlemen to assure supplies and the growers needed protection against the less reputable English buyers.[4] Those middlemen were called courtiers, wine brokers. They travelled weeks by horse or boat to visit the chateaux.

The end of the English rule in the fifteenth century did not change this system. The courtiers continued to supply the merchants with wine samples. Foreign merchants settled themselves outside the walls of Bordeaux on the Quai des Chartrons but it took until the seventeenth century before the outlines of the modern wine trade in the Chartrons district became apparent.[5]

New merchants appeared from Holland, the Hanseatic League and Brittany and settled at the Chartrons district next to the docks. This community, thanks to their fleet of ships that dominated the seas, dealt with wine trade for export. Wines were exported in barrels, handled on the city’s docks and stored in the Chartron district where even today wine storehouses and export companies still remain.[6] The best wines were mainly sold to the English and the poor wine to the Dutch and Germans.

The negociants bought the wine from the chateaux via the broker. They were also called négociants-éléveurs because besides storing the barrels of wine in their cellars they also had an active role in blending and ageing the wine. At that time it was normal that wine from Spain or Hermitage from the Rhône valley was used to strengthen Bordeaux wines.[7] The ageing of the wine was the responsibility of the negociant and not of the château who was merely a grape grower who sold the barrels of wine right after the harvest. The wines could be sold for a higher price if a reputable merchant such as Barton and Guestier handled them.[8] The merchants sold the wine in barrels until they started bottling and labeling the wine themselves.

Often the negociants paid the chateau owners sur souche, which means that they paid while the grapes were still on the vine so before the harvest took place and with a price setting according to the demand for the chateau and according the 1855 classification.[9] They purchased sometimes several years in advance to lock the price and hoping that prices would be higher the moment the wines would be made and released.

In 1855 the Bordeaux Chamber of Commerce asked the courtiers, on request of Napoleon, to create a classification of Médoc wines for the world exhibition in Paris. The wines were classified by price into five categories of Great Classified Growths. The four best wines namely chateaux Lafite, Latour, Margaux and Haut-Brion (Pessac-Léognan) became First Great Growth or Premier Grand Cru. This historical classification is still today of great importance for the Bordeaux wine trade although it has never been changed since 1855 (except moving chateau Mouton-Rothschild from 2nd to 1st growth in 1973) to a more realistic classification based on quality.

In the 1920s, in order to assure the quality and provenance of his wine, Baron Philippe de Rothschild began bottling at his Château Mouton-Rothschild. He also convinced the First Growths to follow suit although this took some quite some time as well as for the other classified growths.[10]

From that moment the role of the merchant changed gradually as the wine would not age anymore in barrels and be bottled at Quai des Chartrons but at the chateaux itself.

In order to generate cash to cover the large expenses of the chateaux they started to sell their unfinished wine the spring after the harvest, the so called en primeur system. Thanks to international consumer demand in the late 1970s beginning of 1980s, the en primeur system really took off as well as the speculative prices of the top wines. 


Bordeaux today 

Courtiers de campagne focus mainly on bulk wine and there are other brokers who mainly focus on bottled Grand Cru wine. Today there are around 100 courtiers of whom only a handful represents 80% of the Grand Cru trade like Balaresque, Blanchy & de Lestapis, Les Grands Crus and Tastet & Lawton.[11] The fine Bordeaux wine market is only 4% of the total production but represents 20% of the value.[12]

So how is Place de Bordeaux, this virtual trading floor working? The role of a broker is still an intermediate one between the chateaux and the negociants. He is matching the producer supply and the negociant demand. The chateaux sell their wine via multiple courtiers to multiple negociants in order to have broad distribution coverage worldwide. This is all going via allocations, so a specific amount of cases per negociant. If a negociant refuses its allocation for a vintage due to lower quality it will loose its allocation for the year after. Therefor negociants also buy in lesser quality vintages even if they know upfront it will be a tough sell. Some even sell these vintages with a loss and compensate financially with the better vintages. I visited negociant Maison Ginestet were they keep an important stock of top Grand Cru wine that they slowly release over the years at increasing prices in order to make more profit and to finance the future vintages. In their cellar I have seen pallets of older vintages of 1st Growhts that serve as a cash reserve.

A broker gets a commission of 2% from the negociant. The chateau does not pay the broker. The broker is not allowed to buy wine himself or have physical stock and does not take care of the delivery of the wine. 98% of all Grand Crus are sold via a broker.[13] A broker has a role of advisor and has an in-depth knowledge of the market with the goal to sell better.[14] A good broker is working as a catalyst on behalf of the negociant and  château. They have a trust relationship with the chateaux.[15] Chateaux owners prefer not to discuss financials directly with the negociant so brokers do it in their place.[16] Knowledge of negociants’ stockholding is a key asset of courtiers, as Sichel explained “I may be looking for a parcel, there’s none left at the château, only another negociant has some, and who may be happy to sell it to me. All that detailed information can only really be brought to me by a performing courtier.”[17]

French law regulates the broker profession and since 1997 there is a decree that obliges everyone to pass an exam to become broker.[18]

The negociant sells the wine worldwide to importers and wholesalers and has a margin between 10-20%. In good years 20%, in less good years like 2013 it is 3-5%.[19] The wine is then sold to importers/retailers who add a further 10-30% margin. All these parties in the business chain take their margin and thus increase the end consumer price.

Today there are 300 negociants who sell 70% of the Bordeaux production in 170 countries.[20]. Of these 300, less then 100 purchase and distribute Grand Crus. The big names here, representing 70 to 80% of the purchases, are Casteja, Ginestet and CVBG. CVBG for example is distributing to 66 different countries.[21]

A negociant has the commercial network, has a buyers network in local and international markets. According to Bernard Magrez, owner of four Grand Crus, the negociant system is extremely efficient which sell for him yearly 1mio bottles of wine.[22] However he does not know where those wines end up or at what price.[23]

Every year in April the en primeur tasting is taking place in Bordeaux organized by the Union des Grands Crus de Bordeaux. The press and buyers taste samples of the unfinished wines of the last vintage that are six months young. The price of the wine is than set by the chateau owner often influenced by the scores given to the wine by journalists such as R.Parker. Practically all the chateaux release in a period of a month their prices and sell their wine to negociants via the brokers. They offer their wine at the same price to all negociants. To test the market, the more important chateaux do not offer all their wine at once but they offer a first batch, a so called tranche. A limited quantity of wine to see how the market is reacting on their release price so they can adjust for the 2nd batch if needed. It is also done to create an unbalance between supply and demand in order to obtain higher prices.

Negociants pay chateaux in periods, up to a year later but they immediately sell the wine worldwide en primeur to merchants who offer the wine en primeur to their customers, a cash flow generator. The quicker the negociant sells the wine, the smaller is his financial risk with regards to his en primeur allocations. So the final customers buy wine that is unfinished and still in barrel, so a future in wine that will only be delivered to them two years later. They buy in the hope that they save money and to make sure they get hold of the wine they desire. They also have a financial risk, as it can be that the wine will be offered later at a price that is lower than the en primeur price or that the wines will never be delivered if their merchant goes bankrupt in the mean time.

The en primeur tasting in April is the momentum for the chateaux to sell their wine. It is a mediatized period when worldwide buzz is created for a specific vintage. The 2009 vintage of Pontet Canet was sold in thirty minutes during the en primeur campaign in 2010.[24] The bigger the trade buzzes about a new vintage, the higher the price for a wine can get. Château Ausone released their 2005 at 300,00 Euro, 95% more expensive than their 2004. Such price fluctuations however are risky as the market may react negatively. One might wonder if the most expensive bottles are nowadays really for drinking or more for trading?

There are few exceptions of chateaux such as Couhins-Lurton and La Louvière from André Lurton who sell everything directly and don’t use the Place de Bordeaux. Reasoning behind it is that Lurton wants to avoid that his wine ends up in the supermarket cheaper then what traditional merchants had paid for it.[25] He wants to be in control of the distribution himself. Pétrus and Lafleur are not sold either on the Place de Bordeaux.[26]

 

The trade in fine Bordeaux wine - conclusion

We might think that the enormous price increase of fine Bordeaux wine is something of the last fifteen years but looking further back we see that it is existing ever since the trade in Bordeaux wine. Already during 1850’s and 1870’s, owners were making the most absurd demands’ and reduced quantities and a time of general prosperity led to double prices.[27]

For the negociant buying en primeur is a risky business with relative low profit margins. So low that that in 2008 the biggest (150.000 cases) Cru Classé buyer in the U.S.A., Diageo, stepped out. There is a lack of transparency from the chateaux on the size of the harvest, how much they are holding back, how much they use for their 1st wine and so creating an artificial market.

The top chateaux actually don’t need a pre-finance of their coming expenses via the en primeur system and they don’t need courtiers and negociants to sell their wine and still they make exclusively use of them. It is too complicated, too expensive for them to start selling directly and bypassing the Place de Bordeaux. The chateaux also have an enormous exposure with the Place de Bordeaux, more then if they would commercialize the wine themselves.

In 2012 château Latour decided to leave the en primeur market. Latour will still use negociants but they will only release the wine at the moment when the wine is ready to drink. Or in other words, they rather see the speculative income return to them instead of to the negociants. So Latour is taking over a function that was previously performed by the negociants, release top wine slowly to obtain a higher price. If this works out for Latour we might eventually see other chateaux follow their example.

Place de Bordeaux is there to smooth out price fluctuations in the market. The good vintages will make up for the less good vintages. It also works the best for those chateaux that are a real brand already and less good for the lesser known and often smaller chateaux. The system is solid but it is also vulnerable as the negociant margin of 10-20%, before reducing costs of shipping and promotion, is not enough for their business and to keep promoting the wines.[28] Therefor some started selling directly to foreign merchants bypassing the national importer although this is still marginal.[29] Millésima, a negociant, is one of the few who sells direct to the consumer via internet.

How hard many people would like to see it change, in the short term besides some small changes mentioned above, I do not expect any fundamental changes in the way how fine Bordeaux wine is being traded. And yes the wines are tasted too young en primeur, sometimes the final blend is not even known so delaying it would result in a more reliable judgment but en primeur is only a specific part of the Place de Bordeaux trade system.

The Bordeaux wine trade has such a long history and tradition that it will be difficult to change. Most consumers don’t know how many middlemen are involved in the distribution and what effect it has on the price of the wine they buy. We as insiders know it and talk about it but the ones who could eventually change the system, the consumers, don’t. We should ask ourselves as well what would be the interest for the consumer to change the current system as would the prices of fine Bordeaux wine really go down? I don’t think so.

Place de Bordeaux remains a powerful mechanic for the distribution of fine Bordeaux wine and it allows the chateaux to focus on what they are good at, making wine.

 

Footnotes:

[1] Lecture: Denis Dubourdieu, Winemaker & Professor/Director of Institut des Sciences de la vigne et du vin, Villenave d'Ornon, 10 April 2014
[2] Book: The winemasters of Bordeaux, 2005, p10
[3] Book: The winemasters of Bordeaux, 2005, p11
[4] Book: The winemasters of Bordeaux, 2005, p13
[5] Book: The winemasters of Bordeaux, 2005, p13
[6]Web: Unions des Maisons de Bordeaux, http://www.vins-bordeaux-negoce.com/le-negoce-2/histoire/?lang=en
[7]Book: The winemasters of Bordeaux, 2005, p60
[8]Book: The winemasters of Bordeaux, 2005, p67
[9]Web:Thierry Desseauve, 6 September 2013, http://www.mybettanedesseauve.fr/bordeaux-la-distribution-des-vins-en-question
[10]Web: The Drinks business, The estate-bottled wine anomaly, 9 February 2012,  http://www.thedrinksbusiness.com/2012/02/the-estate-bottled-wine-anomaly/
[11]Personal interview: Xavier Coumau, Président du Syndicat Régional des Courtiers de Bordeaux and also broker himself, 12 April 2014 
[12]Lecture: CIVB-Conseil interprofessionel du Vin de Bordeaux, November 2010
[13]Web: Jane Anson (Bordeaux correspondent for Decanter), The Place de Bordeaux, May 2007 http://www.newbordeaux.com/#!the-negociant-system/cc0y
[14]Web: Syndicat régional des courtiers
en vins et spiritueux de Bordeauxhttp://www.vins-bordeaux-courtiers.com/index.php?page=page05
[15]Interview: 21 March 2014, Claire Villars Lurton owner of Château Haut Bages Liberal ( Paulliac),Château  Ferrière (Margaux),Château la Gurgue (Margaux) & Château Domeyne (Saint Estephe)
[16]Personal interview: Xavier Coumau, Président du Syndicat Régional des Courtiers de Bordeaux and also broker himself, 12 April 2014 
[17]Web: Sally Easton MW, French brokerage or courtier system, 16 August 2012, http://www.winewisdom.com/articles/regional-profiles/french-brokerage-or-courtier-system/
[18]Web: Syndicat régional des courtiers
en vins et spiritueux de Bordeaux http://www.vins-bordeaux-courtiers.com/index.php?page=page08
[19]Personal interview: Xavier Coumau, Président du Syndicat Régional des Courtiers de Bordeaux and also broker himself, 12 April 2014 
[20]Web:Unions des Maisons de Bordeaux  http://www.vins-bordeaux-negoce.com/le-negoce-2/la-passion-de-tous-les-vins/?lang=en
[21]Web: CVGB, http://www.cvbg.com/distribution.html  

[22]Web: Bernard Burtschy, writer for Le Figaro, 17 June 2013, http://avis-vin.lefigaro.fr/magazine-vin/o40057-le-negoce-est-il-l-allie-de-l-amateur-de-vin#ixzz2wnZdmh2d
[23]Magazine/Web: Meininger’s Wine Business International, 31 May 2012, http://wine-business-international.com/156YnRuX1NlYXJjaD10cnVlJmtleXdvcmRzZWFyY2g9cGxhY2UrZGUrYm9yZGVhdXgmbWVtb2lyX2lkPTQzMiZzdGFydD0wJnN1Y2hlPTE--en-magazine-magazine_detail.html
[24]Web: Jancis Robinson,How the most expensive vintage ever was sold, 3 July 2010, http://www.jancisrobinson.com/articles/a201007022.html
[25] Web: Jane Anson (Bordeaux correspondent for Decanter), The Place de Bordeaux, May 2007  http://www.newbordeaux.com/#!the-negociant-system/cc0y
[26]Web: Jancis Robinson,How the most expensive vintage ever was sold, 3 July 2010, http://www.jancisrobinson.com/articles/a201007022.html 

[27]Book: The winemasters of Bordeaux, 2005, p79
[28]Interview: 21 March 2014, Claire Villars Lurton owner of Château Haut Bages Liberal ( Paulliac),Château  Ferrière (Margaux),Château la Gurgue (Margaux) & Château Domeyne (Saint Estephe)
[29]Interview: 21 March 2014 Brussels, with Claire Villars Lurton owner of Château Haut Bages Liberal ( Paulliac),Château  Ferrière (Margaux),Château la Gurgue (Margaux) & Château Domeyne (Saint Estephe)


ANNEX 1  -  Sources / Works consulted

Book:
- The winemasters of Bordeaux by Nicolas Faith, 2005

- The emperor of wine by Elin McCoy, 2006
- Bordeaux and its Wines, Féret, 2004
- Bordeaux et ses vins, Féret, reproduction of 1898 edition, 2009
- The Oxford companionship to wine, Jancis Robinson. Subjects: Bartons, Bordeaux, Bordeaux trade, British influence on the wine tradebroker, château bottling, classification, Dutch wine trade, merchant, negociant, Sichel

Lecture:
- Denis Dubourdieu, Director of Institut des Sciences de la vigne et du vin, Villenave d'Ornon, 10 April 2014

- CIVB-Conseil interprofessionel du Vin de Bordeaux, November 2010

Magazine:
- Anthony Hanson, Bordeaux en primeur at a fork in the river, The world of fine wine issue 24, 2009, p93

Personal interview:
- Xavier Coumau, Président du Syndicat Régional des Courtiers de Bordeaux and also broker himself, 12 April 2014  
- Pedro Ballesteros, Master of Wine, 11 April 2014
- Simonne Wellekens, wine journalist for ‘De Standaard’, national Belgian newspaper, 17 march 2014
- Claire Villars Lurton owner of Château Haut Bages Liberal ( Paulliac),Château  Ferrière (Margaux),Château la Gurgue (Margaux) & Château Domeyne (Saint Estephe),21 March 2014

Visit:
- Maison Ginestet (negociant) in Carignan de Bordeaux, 21 june 2013

Web:
- CVGB Bordeaux Maison de Grand Crus, www.cvgb.com
Bernard Burtschy, writer for Le Figaro, Le négoce est-il l'allié de l'amateur de vin ?, 17 June 2013,
http://avis-vin.lefigaro.fr/magazine-vin/o40057-le-negoce...
- CIVB, L'histoire du vin de Bordeaux, no date,
http://academie.vins-bordeaux.fr/fr/histoire/index.html
- Decanter by James Lawther, Inner Workings; Who contols the Bordeaux market, 21 June 2004,
http://www.decanter.com/people-and-places/wine-articles/4...
- François Mauss, Le système bordelais, propriété-négoce : quel avenir?, 16 Septembre 2010
http://gje.mabulle.com/index.php/2010/09/16/198898-le-sys...
- JancisRobinson.com, How the most expensive vintage ever was sold, 3 July 2010
http://www.jancisrobinson.com/articles/a201007022.html
- JancisRobinson.com, Bordeaux - a crisis ahead?, 21 Nov 2013 by Y.Castaing. http://www.jancisrobinson.com/articles/a201311132.html
- JancisRobinson.com, Bordeaux 2013 - the levelling vintage, 8 Apr 2014 by R.Hemming. http://www.jancisrobinson.com/articles/a201404071.html
- Jancis Robinson, How the most expensive vintage ever was sold, 3 July 2010,  http://www.jancisrobinson.com/articles/a201007022.html
- Jane Anson (Bordeaux correspondent for Decanter), The Place de Bordeaux, May 2007 http://www.newbordeaux.com/#!the-negociant-system/cc0y
- Jane Anson (Bordeaux correspondent for Decanter), En primeur prices, no date, http://www.newbordeaux.com/#!en-primeur-prices/cde7
- Jan Anson (Bordeaux correspondent for Decanter), Millesima boycotts Latour for 'undermining' en primeur, 21 March 2013, http://www.decanter.com/news/wine-news/583733/millesima-b...

 

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