Thousands of journalists and buyers will soon be descending on Bordeaux for En Primeur week. There's a very real feel though, that this year will be make or break for this system of selling wine. The last four campaigns, selling the 2011 to 2014 vintages, have been nothing short of disastrous. And while 2010 was a great success in terms of sales, many people lost a lot of money on their 2010 futures. A lot of people have warehouses full of expensive wine. There's been a stand-off: the châteaux won't lower their prices, and the trade are telling them they are too expensive. Some merchants are losing interest in putting their weight behind this low-margin activity. Négociants are teetering on the edge of bankruptcy and are in desperate need of a good En Primeur campaign, and there’s no guarantee they’re going to get it with 2015. Some of the top châteaux are pulling back stock from En Primeur with a view to selling more wine direct. Does En Primeur have a future, and if so, what?
Selling in Bordeaux
Until recently, selling wine en primeur through the Place de Bordeaux was one of the strengths of this, the world's largest fine wine region. In March following the vintage, barrel samples of the wines are shown to the trade and press. These wines are then distributed through a network of courtiers, who broker deals with négociants, who then sell on to the trade.
But of late, the en primeur system has come under fire, with some even predicting its demise. “It’s not a system that’s been working well recently,” says Stephen Browett of Farr Vintners, “because the château owners have been too greedy on pricing. The fundamental point of en primeur is that the consumer should be able to buy a vintage from barrel at a considerably cheaper price that the same wine sells for in a comparable mature vintage.” He gives some examples: “[The ] 2013 and 2011 should have been sold at 20% less than the market price of 2007; 2012 should have been 20% less than 2008; and 2009 and 2010 should have been 20% less than 2005.”
Mathieu Chadronnier, managing director at major négociant CVBG (part of the Thiénot group), describes the current troubles with en primeur as a sort of perfect storm. “Take a system in balance, add a new market (China) that within the space of just a few years rises to become number-one export market for Bordeaux. Add to that a pair of two extraordinary vintages, 2009 and 2010, and things go crazy.”
He continues, “Then, change of government in China, we discover that there is massive inventory sitting all over, gift giving comes to an end, and we have no more truly great vintages for a few years. Things go wildly south. And everyone starts crying the system is broken.”
Max Lalondrelle, fine wine buying director for Berry Bros & Rudd, a leading player in en primeur sales, says the last four campaigns have been failures, because the prices set haven't considered the end buyer. “The châteaux are trying to get a bigger share of the cake,” he says. “Bordeaux has moved over the last 20 years from predominantly family businesses to ownership by corporations and wealthy individuals who want to increase the value of their assets.” This is an important point, because if a château is sitting on stock, the en primeur price they set will impact the value of their assets. “They have been setting a price at which the négociants would take the wine: still attractive enough for the négociants to carry, cheaper than the cheapest available vintage that they can buy. But after this, when it has gone to the merchant and the consumer, the price didn't work, because there were wines available cheaper to customers. With the negociant margin of 10% and the merchant margin of 10%, the final price was too much to work in the market.”
He gives details of the turnover for each of the last six en primeur campaigns at Berry Bros & Rudd, who are one of the largest players:
2009 £100m ($143m)
2010 £60m
2011 £18m
2012 £16m
2013 £7m
2014 £12m
The 2011, which is regarded as a weak vintage, enjoyed a bit of a halo effect from coming after 2010. The 2012 was a better vintage, but customers began to realise that en primeur was no longer such a cheap way to buy wine. Not surprisingly, 2013 and 2014 were very poor campaigns.
One other factor counting against en primeur is that these sales represent very low margin for merchants, and if the campaigns keep falling flat, they will lose their enthusiasm. “If we work on a 10% margin we run a 3% net profit,” says Lalondrelle. “We finance the wine, transport it, pay back guarantees, and pay 40 people for eight weeks to sell it.” He adds that Berry Bros & Rudd also sent 27 people to Bordeaux to try the wines last year. “And if people pay with credit cards, there are fees,” adds Lalondrelle. “Last year we paid £800,000.00 in credit card fees. And then there is the cost of delivering to customers. This leaves about 3% margin.”
For the 2014 campaign, he explains that Berry Bros. & Rudd had a £12m turnover. Once the costs are removed from the thin 10% profit margin, the profit from the whole campaign is about £400k. “Can I make more money in 8 weeks doing something else?” he asks. “Everyone is asking this question.”
Everyone seems to agree, that when it works, it is an excellent way of distributing wine. “The system is brilliant. I am a big supporter of it,” says Lalondrelle. “It is the best distribution system in the world.
The châteaux need the system: they have a free sales force. It's totally free to use the system. The négociants pay the courtiers and we pay the négociants. The customer pays us.” This can be a remarkably efficient process. “The châteaux can sell the whole of their crop round the world in just three hours,” says Lalondrelle. “They couldn't distribute their wine without it.”
The critics
One major négociant who didn't want to be named described some of the critical things written about the en primeur system as ‘adolescent’. His view was that there are some châteaux setting prices sensibly, and they are selling wine. To suggest that everyone should reduce their prices is silly, because for them, the system is working. “They must think everyone in Bordeaux is stupid,” he says of the journalists, adding that if a property prices too highly, and the négociants can't sell their wine, they'll be forgiven once. But if they do it repeatedly, then people won't buy from them. The négociant also criticised some of the new money coming into Bordeaux, suggesting that wealthy people buy a château, spend millions on a winery, and then want a return on their investment, operating without an understanding of the marketplace.
He also suggested that there is a future for the Place apart from en primeur, and that it’s largely the small négociants, of which there are many, that would suffer if there was a move away from or cutting back of en primeur sales. These operations spring up and because of the system they don't need working capital to begin with: they can buy the wine and sell it on. Without en primeur, they wouldn't be able to operate.
Already some châteaux are moving away from a total dependence on en primeur for their sales, in addition to Latour, who have left the system altogether. One – again, anonymous – has gradually made the transition from selling 80% of their grand vin at en primuer to 50%. This requires quite a commitment because of the loss of turnover in the transition period impacting on cashflow.
One thing that critics of the en primeur system sometimes forget is that eliminating it and moving to direct sales of bottled wines from châteaux would probably not make wines cheaper. There would be an increased expense of holding stock, and also the need to create suitable space to store stock for several years before it is sold. The wines would be more expensive, but the advantage would be that consumers would get a chance to taste the final wine, and journalists would have had a few opportunities to taste the wine before it is sold.
Overall, though, en primeur is on a knife-edge, and whether it survives all comes down to pricing. “It has a future,” says Browett of Farr Vintners, “but only if they [the châteaux] get the pricing right.
Consumers have had their fingers burnt too many times to keep buying at the wrong prices. The only change they need to do is listen to the wine trade and consumers instead of ignoring us and thinking that they know best!”
“If the Bordelais price sensibly so that all parties at all levels make a decent cut, from Château to distributor to consumer, then it can work brilliantly,” says Neal Martin, the Bordeaux reviewer for The Wine Advocate. “If not, you have problems.”
And will 2015 save En Primeur? Lalondrelle is hopeful but not overly-confident. “There was some good fruit but it won't be a 2009 or 2010 in terms of quality,” he says. “But we have a good vintage on our hands.” How will he budget for the new campaign? “It is like putting a finger in the air,” he says. “We know the wine will be good, but we don't know what price it will be sold at.” If the price is 10% up from 2014, he predicts a £20m to £25m campaign. But if the price rises by 25%, he reckons it will be just a £15m campaign.
Foreign buyers
So what of the Chinese, who were recently the leading buyers of Bordeaux? Suzanne Mustacich, author of Thirsty Dragon, says, “If the pricing is cautious, then this could be a very lively campaign, with a small number of Chinese investors returning to the table along with the Americans and Europeans,” she says, adding that in greater China, there is “a lingering bitterness over the 2010 vintage, released in 2011. Chinese investors got burned. They haven’t forgotten.” Nor have their lives become any easier, what with the anti-graft campaign, disappearing tycoons, stock market volatility, and slower growth. “I think the established importer-distributors will buy some quantities en primeur to stay in the game, but the wine won’t sell through to investors or collectors,” she says.
So it's a worrying outlook for En Primeur Bordeaux. There's still life in it, but it looks like there will be a gradual shift for the top properties away from this as their only sales mechanism. How much this will take away from the glamour of the whole show remains to be seen. But most people in the wine trade would like to see sensible pricing of the 2015s and some bustling trading going on. It's such a good mechanism of selling wine, but the figures need to work for all the parties – the châteaux, the courtiers, the négociants, the merchants and the end consumers.
