Alright, alright, alright…it is the exciting conclusion to our Bordeaux series, looking at the business side of things. If you haven’t read through the France Overview, Bordeaux Overview, the Left Bank, and Right Bank articles, please do-so, as there are a lot of key terms and facts that will help this section make a bit more sense. Also, check out the Bordeaux tastings, as it puts a lot of that knowledge into palate-perspective.
On y va!
- Currently there are over 7,000 chateaux/estates in Bordeaux, but that number is shrinking, as smaller properties are being bought by larger ones with the goal of producing higher volumes of commercially viable wines.
- Cooperatives are an important part of the wine production business in Bordeaux—especially for those smaller producers—and are responsible for about a quarter of the region’s wine production, producing wine from about 40% of Bordeaux‘s grape growers.
- Production costs for Bordeaux AOC, a Medoc estate, and a classed growth are significantly different. (For a great breakdown chart on the specific differences, I highly recommend the sidebar on page 87 of The World Atlas of Wine (8th Edition).) The main additional production costs for a classed growth include: increased vine density, harvest costs (as many are hand-harvested, require skilled harvest hands, require multiple passes that will include sorting in the field and in the cellar, and in many cases include a long [September through November] harvest season), viticultural costs (in terms of equipment and labor), lower yields, rigorous grape selection, plot-by-plot winemaking, and barrel aging (both in terms of higher proportion of new barrels [which add cost] and extended maturation time [meaning storage space is necessary and a delayed ROI]).
- INTERESTING FACTOID: the 100 point rating system associated with Robert Parker and adopted by many top critics has become a vital tool for selling wine for the Bordeaux wine industry.
- Bordeaux‘s markets are 50/50 in terms of domestic versus export sales—both in volume and in value. The top export markets include Hong Kong, China, US, and UK.
La Place de Bordeaux
La Place de Bordeaux is a commercial system unique to Bordeaux (in case you couldn’t tell by the name). Wine is sold to a merchant/negociant (the category is responsible for 70% of total Bordeaux wine sales by the way) who, in turn, sell to wholesalers or retailers. Very few Bordeaux producers sell their wines directly.
Further separating the producer from sales is the fact that the relationship between the producer (be-it small private estates, co-ops, large chateaux/estates/wine producers, etc) is handled by a broker or courtier. ADVANTAGE: The producer can leave the sales and marketing of wines in the hands of the professionals who can use their expertise to get the wines into the right market space. DISADVANTAGE: Each party will charge a percentage or margin for their services, which will reduce the overall profit for the producer.
My text clarifies that latter point, explaining that negociants take an average of 15% of sales price; courtiers, as brokers between chateaux and negociants earn just 2%.
Adding to that cost—DID YOU KNOW: Bordeaux wines are distributed to more than 170 countries across the globe. So, in order for a chateau to ensure wines are in key markets, they will sell to a number of negociants—often as many as 40. Negociants purchase wines via an allocation system in which each is allotted a certain percentage of the producer’s production each vintage.
INSIDER MARKET INFO: The majority of wine produced (Bordeaux AOC and Bordeaux Superieur) are inexpensive and have struggled to raise its price much above one euro per liter in the bulk market. This is due to the lower demand in France and huge competition from international wines (like Chile and Australia) in the export markets. This “cheaper” wine is made in co-ops and by small producers or growers who sell their grapes directly to larger wine companies/producers. Most of this stuff is sold in French supermarkets.
Know it, understand it, be prepared to write about the pros and cons. Seriously. If you’re in the WSET Diploma course, you know what I’m talking about—the chart on page 30. If I ever saw a set up for a short answer question, that’s it. But since we’re here, I’ll break it down simply, as I’ve eluded to, and in some ways explained, the en primeur system in previous articles.
En Primeur aka “futures” is when purchasers buy wine while it’s still in barrel. The wine remains in the producer’s cellar until bottled, so the purchaser does not receive the wines until at least a year later, after the wine has been matured and bottled.
In Bordeaux, this custom began after WWII, which devastated the local wine industry. It was set up as a way to help winemakers get paid while their wines were still in barrel and, thus, get more immediate compensation for the vineyard and cellar production costs.
In terms of how it works today, the process typically begins the April after harvest. Barrel samples are tasted, judged (by professional critics, media outlets, etc.), and the price for the wine in barrel is then released based on the reputation of the estate and critics’ scores/comments from that initial tasting. This first go-around at pricing is called the first tranche. Subsequent tranche pricing is then adjusted accordingly to what wines are fetching during that first tranche—typically the price will increase (like at any good auction). The process is said to last several months.
For the trade, buyers can decide what wines they want and how much based on those scores and media outlets. The “final customer” —average Joe’s like you and me— can place en primeur orders through fine wine merchants.
The wines are bought via en primeur price include the final, bottled wine being delivered to the storage of the retailer the following year. The price is “ex cellar,” excluding taxes that would be due in the buyer’s home market.
It’s noted that the rarest and most popular wines are purchased on allocation. Which means that negociants/merchants/trade buyers who receive an annual percentage allotment each vintage will have to purchase wines even in bad vintages in order to maintain their allotment for the good vintages. I.E. NO FAIR-WEATHER FRIENDS ALLOWED.
Advantages for producers:
- Test the market early
- Early payment/ROI
Disadvantages for producers:
- Wine sells at a lower price than a finished wine
- Any mismanagement by the negociant can affect pricing and reputation of estate
Advantages for consumer
- Able to secure hard to find/highly coveted wines at a lower price
- Option to keep wine as an investment or to enjoy or to sell in a secondary market. FUN FACT: Bordeaux (particularly First Growths and other top wines) account for the largest proportion of wine that is traded on the secondary market, according to my text.
Disadvantages for consumer:
- Purchase is based on opinion/scores of critics—not your own tasting
- Price/value of the wine can sometimes decrease by the time it’s bottled
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