The Rise and Rise of Carruades de Lafite
Jane Anson (first published Wine Business International May 2010)
Second wines in Bordeaux, traditionally, are seen as the easy way to access a part of the brand magic of the big guns. Also known as Second Labels, they are wines made from the young vines of a property, or from less qualitative plots of land, or from barrels that haven’t worked out quite as well during the fermentation process, and usually are given a name that makes reference to their heritage, such as Forts de Latour or Croix de Beaucaillou.
They are seen as a way of maintaining quality in the first wine – and to present a more accessible, early-drinking example for customers who may not have the money to fork out for the first wines, but will hopefully progress upwards as time (or promotion) allows. They have long roots in the region, but have increased enormously in popularity in the past few decades; Pavillon Rouge (the second wine of Chateau Margaux), dates back to 1904, while Duo de Conseillante (second wine of Chateau La Conseillante in Pomerol) saw its first vintage only in 2007.
Classically, they trade at a fraction of the price of the big ticket first wine. A look at the current market on UK merchants’ website that shows lives prices as of March 2010 offers Pavillon Rouge 1998 at €61, while the Chateau Margaux from the same vintage is €222. Petit Mouton 2005 is at €77 per bottle, while Chateau Mouton Rothschild 2005 is at €429. Over on the Right Bank, Petit Cheval 2005 is at €70 a bottle, while its big brother Cheval Blanc is at €490.
This usual pattern, however, has been turned on its head in recent years with one particular second wine: Carruades de Lafite. Unusual trading activity with the second wine of Chateau Lafite Rothschild began in late 2007 and early 2008, as its price on the secondary market began pulling away from the other second wines – most notably the other second wines of its first growth peers, Forts de Latour, Petit Mouton, Bahans de Haut Brion (now called Le Clarence de Haut Brion) and Pavillon Rouge.
‘When Carruades 2003 broke the €1000 per case mark,’ says Justin Gibbs, co-director of fine wine trading site Liv-ex, ‘I told my brother to sell up. He never stops reminding me of that fact now that it’s trading at over €2000 per case.’ (nb, since this, it has broken though the €3,000 per case in some vintages)
Carruades defied all market expectations by not only breaking free of the other key second wines, but bypassing first wines. Today the 1999 vintage of Carraudes is €208 per bottle, while Chateau Haut Brion in the same vintage is going for €194. Equally, the 2004 Carruades is trading at higher than the 2004 Mouton Rothschild. For almost all available vintages, buyers are now looking at a minimum of €2,200 per case, for a wine that should cost you around €360 per case at en primeur exit price – or €30 per bottle (prior to 2009...).
This rise has mirrored that of Chateau Lafite Rothschild, which has beaten all other first growths in terms of price in recent years. Both dropped along with the market in the crash of September 2008, but recovered more quickly and more strongly than any other Bordeaux blue chips. Back in August 2009, Liv-ex created a Lafite index of vintages from 2000 to 2006 for both the first and second label – it showed that Lafite had returned to just 4% off its market high in June 2008 (it has now fully regained all lost ground). Carruades was even more impressive – it had completely bucked the trend of price drops during the financial crisis, and vintages were on average 22% more expensive than they were at the peak of the market in June 2008. A separate Liv-ex survey, from April 2010, tracked Carruades average price rise over three years following harvest (measuring all vintages from 2000 to 2007), and put it at a staggering 133.3%, making it by far the best performing Bordeaux wine for investors.
So why the anomaly with a wine that most critics agree is a good but not particularly spectacular second wine? Gibbs points out what most observers have noted – that in Europe and the US, Carruades is no longer seen as a drinking wine, but an investment vehicle, and that the vast majority of Carruades de Lafite ends up in Asia, and more specifically China. ‘This really is an Asian phenomenon; I suspect it’s a brand that everyone is comfortable with, and the Lafite name is very powerful. The wine is not trading on fundamentals (ie quality), rather this is all about branding – and this particular brand has a high price point.’
His co-director Gary Boom agrees. ‘Asia has made up its mind on this brand, and completely ignores either vintage effect, or Parker scores. The other second wines are trading at a third to a quarter of the price of Carruades, and even the other firsts, apart from Lafite, are very much (Parker) score-led in terms of the price. And I’m not sure this will slow down, because before the wine is bottled, trading takes place in Europe, but once in bottle, it heads over to Asia, and then goes out of circulation by being opened and drunk, so pushing the price even higher.’
The presentation of the wine is a clear lesson in the power of branding. The label itself is so similar to the first wine as to be almost interchangeable to the unititiated, and the writing uses the same font, weight of lettering and colouring. A second wine called Carruades has been made at Lafite for decades, but was called Moulin des Carruades until 20 years ago. The origin of the name comes from the Carruades plateau, the name of a plot of land next to the chateau’s main vineyards, purchased in 1845 by Lafite. In the early 20th century, Carruades was marketed entirely separately from Lafite before being integrated into its production and becoming the source of its second wine. But it wasn’t until the two names were linked – becoming Carruades de Lafite in the late 1980s – that it really caught the imagination of drinkers.
‘We were keen to simplify things,’ explains Christophe Salin, director of Chateau Lafite Rothschild, denying that there was any marketing masterplan at work. ‘Lafite resonates well with the luxury world, as does the Rothschild name. It has a good story, it’s easy to pronounce, and the Chinese like the label because it reflects their idea about France. We keep both labels very simple, they are not designed by marketing consultants; they are just intended to be clear and easy to read.'
Salin also underlines the quality. 'At the same time as changing the name, we decided to work much more closely on its quality. At first, it had very much been seen as a second wine, whose only real function was to better the quality of Lafite, but since the early 1990s we introduced a third wine, Pauillac, which has meant we could further improve the quality of Carruades. In terms of quantity, we split in approximate thirds between Lafite, Carruades and Pauillac.’
But quality (or otherwise) aside, the question for markets is whether its exponential rise can continue? Colin Hay, Professor of Political Science at the Univeristy of Sheffield, and commentator on the fine wine market, thinks it unlikely. ‘The price has reached some kind of plateau - as it was always going to do - though I suspect that it will continue now to rise at something close to the average increase price of the first growths over the years ahead. This makes it less attractive as an investment wine than it was, though I suspect that those who hold stock of it will continue to see a decent return on that investment. Carruades is clearly being bought heavily in the new premium wine-drinking world (HK and China especially) and the good news for holders of stock of this wine is that it has been bought to drink - and that suggests to me that it will continue to rise in price (as scarcity effects become significant).’
There are also questions over whether Domaines Barons de Rothschild (DBR Lafite) itself will capitalise on its new-found status and raise prices accordingly. A rumour at the 2009 Bordeaux en primeurs week suggested that the 2009 Carruades will be released at €100 a bottle, but Salin (speaking a few months before the primeurs) suggested otherwise. 'Commercially, we have priced it very low, and plan to continue to do so. I am personally convinced that it is a second wine, and I want it to be a wine that I can afford to buy in a restaurant, to be an affordable good step towards Lafite. This means that we also technically look to make it affordable – putting in a higher proportion of Merlot, for example, and using second year barrels that have come from our first wine, but of course with exactly the same winemaking team as with Lafite.'
Most observers would suggest that huge price rises at source would be an effective way to end the phenomenon of Carruades, and see rather that a certain amount of taste (or brand) diversification is underway – and that the other First Growths and their second wines will now start to enjoy something of a 'Lafite' effect. Many merchants are now saying that they can not 'in all conscience' recommend the purchase of Carruades at current price levels, and Hay sees that wines like Pavillon Rouge and Petit Mouton (recent vintages of which are typically between 25-35% of the price of Carruades) may be next.
Liv-ex’s Gibbs agrees. ‘What China is currently doing is driving up the prices of off-vintages for Carruades. They buy the brand, not the vintage, and the market now needs to broaden, because it is going to run out. There are a number of fine wine merchants in Hong Kong who sell to mainland Chinese customers, and their deal flow over the past few years has been dominated by Lafite and Carruades. For those guys to sustain their business models, they need to educate their customers about other wines.’
Nick Pegna, director of Berry Bros Hong Kong, would seem to bear this out, pointing out that recent trading has seen a marked rise in prices and demand for Mouton Rothschild, and to a lesser extent for its second wine Petit Mouton. ‘In last 10 years, Carruades has gone up 10 times in price, and Legends de Lafite and other DBR wines are equally going for a premium. It seems to have reached as far as it can go - resistance is coming into the market, and a lot of information is coming out of collectors in China that Mouton is the next big thing. I always thought there was a potential for that – wine is fashionable and as with any fashion, things change. We believe that the appeal will widen – first to Mouton, and then Latour’. Mouton is certainly marketing aggressively in China – the world’s first Mouton Cadet wine bar has recently opened in Guangzhou, in southern China, around 100km from the Hong Kong border.
‘Everyone is watching what will happen with these second wines – and above all with Carruades – but in truth, what will happen next is guess work,’ says Gibbs, ‘because there is little that you can hang your hat on to say these are genuinely wonderful wines. It has gone beyond fine wine, and become branding.’
Key Figures, Carruades de Lafite
The blend is Cabernet Sauvignon 50 to 70%, Merlot 30 to 50%, Cabernet Franc and Petit Verdot 0 to 5%, depending on vintage.
It is barrel aged for 16 to 18 months - 90% in one year barrels and 10% in new ones.
Production is 20,000 to 25,000 cases (annually, compared to 15,000-20,000 cases for Lafite).
For the last four years, from 2005 to 2008 Carruades has been €30 ex-chateau, €36 ex-negociant in Bordeaux. It was €18 exit price in 2004 ex-chateau. Back in 1998 it was released at €14.48 ex-chateaux.
Chateau Lafite Rothschild, in contrast, was (ex-chateau, add 20% for ex-Bordeaux negociant price) €110 in 2008, €200 in 2007, €270 in 2006, €300 in 2005, €80 in 2004, €120 in 2000.