Bordeaux: an historic region battles to regain market share
Roger C. Bohmrich MW
first published winebusiness.com, January 2014
Bordeaux is arguably the most famous of all French wine regions and has had an immeasurable impact on the world of wine. Bordeaux has been an active wine exporter since the early 14th century. No other region can match this French icon in terms of commercial longevity and influence. The wines of Bordeaux have had such allure for centuries that grape varieties of Bordeaux origin—led by Cabernet Sauvignon and Merlot—have been planted in countless places, and the “Bordeaux blend” is a universal concept.But leaders rarely remain unchallenged; at some point, they face new competitors and suffer internal stresses. General Motors was once unassailable but European, Japanese and, now, Korean, carmakers present strong competitive threats even in GM’s home market. Challengers may develop and perfect products consumers find more appealing or simply easier to understand. So it is with soft, well-endowed New World wines bearing the straightforward language of grape variety rather than one of 60 appellations of Bordeaux. Evolving consumption patterns can as well undermine a seemingly unshakeable franchise.
For Bordeaux, this includes a dramatic decline in wine drinking in France over several decades. Critics say Bordeaux tends to be insular and skeptical of criticism from the outside. Complacency and rigidity, they argue, present barriers to needed change. Fortunately, there is another side to Bordeaux: one that is dynamic, energetic and relatively open-minded. The region is more susceptible to change than most outsiders are inclined to believe. Even if the will exists, however, adjusting to new market conditions is liable to confront structural obstacles. Try as it may, Bordeaux cannot control larger market forces, and disruptive changes are being imposed on the region. Many small growers in modest appellations will have to adapt or perish; in fact, this process has already begun.Many people do not realize the scale of wine production in Bordeaux. Consider that its output of 5.5 million hectoliters or 61 million 9-liter cases on average in recent vintages (leaving aside the atypically small 2013 crop) equals roughly half the entire production of Chile or Australia.
Yet, this enormous region with an incredible history claims far less than one percent of the U.S. market. Moreover, that share is declining as total U.S. consumption grows and Bordeaux shipments remain within the same small volume range. How and why has this happened, and what is the future likely to hold for Bordeaux, particularly in the U.S. market?
A Changing Landscape
Bordeaux is being buffeted by serious challenges. In the U.S., sales have remained essentially unchanged for more than two decades while the overall market has become the world’s largest. Bordeaux is not alone in facing threats to its franchise. French wine generally has been under attack, and Bordeaux, as the leading trading region, is taking a good part of the beating. Global wine commerce has surged, and France has not kept pace. France’s export volume has hardly been dynamic over the last decade. The value of the country’s exports has held up better and has shown advances recently. Rising value partly reflects the mix of products (i.e., more high-end products) and, primarily, increasing prices. Total value of shipments increases when producers put up the cost of their wines to boost revenue.The lack of progress in overall volume may not be a serious worry if the available quantity is not increasing—unless, of course, domestic demand is also shrinking. Per capita consumption in France has declined from 160 liters per person (15+ years old) in 1965 to less than 57 liters in 2010 (or 47 liters per inhabitant) according to FranceAgrimer, a division of the Ministry of Agriculture.
The percentage of regular wine drinkers has fallen from 51 percent in 1980 to 17 percent in 2010, whereas non-drinkers have doubled from 19 percent to 38 percent. Exacerbating trends at home, France has been standing still while competitors capture a disproportionate share of an expanding world market. France’s wine exports have hoveredaround the 150-million case mark from 1998 to 2012 based on data from FEVS (Fédération des Exportateurs de Vins et Spiritueux, “Bilan 2012-Perspective 2013”). Consider that, since 1980, global commerce in wine has doubled from around 50 to 100 million hectoliters (Office International de la Vigne et du Vin). Being static means that someone else is reaping the benefit of that higher level of activity. If we go back to the period from the 1980s to 2000, France’s share of the world wine market averaged one-fourth. In the last dozen years, its portion has dropped to 14 percent. The proceeds of other traditional European producers such as Italy, Spain, Germany and Portugal have remained fairly consistent in terms of share: together they control about half of trading volume. The biggest winners in the global sweepstakes have been Southern Hemisphere countries, notably Australia, South Africa, Argentina, Chile and New Zealand, together with the U.S. This New World grouping now accounts for 25 percent of the world market, up from 15 percent in 1996 to 2000 and a mere 2 percent of a smaller market in the early 1980s (OIV). The tables have turned, and France is the loser.
The U.S., meanwhile, has become the largest consumer country with a total volume estimated at 360 million cases in 2012, of which an estimated 123 million cases—a sizeable 34 percent share—are imported (California Board of Equalization, DOC, TTB, GFA estimates). From 2000 to 2012, total U.S. consumption has increased by roughly 50 percent, and continued growth is forecasted by most observers. Logically, the U.S. has to be a priority market for Bordeaux, but the region is confronting aggressive competitors angling for their own piece of the action.
The Haves and the Have Nots
It is undeniable that New World producers have captured the spoils of a burgeoning world market. Bordeaux is front and center in this tectonic shift as it represents the largest single component of France’s exports of appellation wines with a 16 percent share in 2012. In value terms, Bordeaux delivers 29 percent of the total, just behind Champagne, which has a 31 percent share yet only 8 percent of shipments (FEVS). Bordeaux commands approximately 10 euros per liter exported in 2012 based on data from Agreste, a part of France’s Ministry of Agriculture.
There is a huge disparity, however, in prices of elite Bordeaux wines compared to the basics: 59.5 euros/liter for Médoc communes versus 4.4 euros/liter for regional Bordeaux red. One of the core issues bedeviling Bordeaux is that a handful of glamorous appellations dominates the region’s financials. These famous names—Margaux, Pauillac, Saint-Julien, Saint-Estèphe and Pomerol —represent around 10 percent of Bordeaux exports by volume and a whopping 50 percent by value. Moreover, these areas (five out of 60 Bordeaux appellations) cover only 5 percent of the vineyard surface yet account for 50 percent of land values according to an official study by Jacky Bonotaux at DRAAF (La Direction Régionale de l’Alimentation, L’Agriculture et de la Fôret d’Aquitaine). Pauillac fetches $888,000 per acre on average whereas simple Bordeaux-ranked vineyard is worth a humbling $8,000 (Wines & Vines, September 2013).
The valuations of prestigious vineyards have continued to increase, even during the financial crisis of 2008 to 2009. Rubbing salt into the wound, the broad base of the Bordeaux pyramid has actually declined in value over the past decade. Some observers like to say that the locomotive has pulled out of the station, leaving the cars at the platform. In other words, a sliver of the extensive portfolio of wines produced in Bordeaux not only dominates financially, but also fails to pull along the bottom appellations constituting well over half of the region’s output. Wine growers producing basic Bordeaux have already suffered. Low vineyard valuation simply reflects the meager price of regional Bordeaux AOP. Many estates have already become uneconomical, and their numbers are dwindling. According to the 2010 “Agricultural Census” by Agreste, there were more than 12,000 exploitations viticoles or wine-growing properties in 1998 and just over 7,000 by 2010. The very smallest are disappearing: the proprietors simply cannot make a living given market prices for their wine and their lack of scale. As a result, the average size of a holding has gone up (to about 15 hectares) as marginal enterprises are absorbed by new owners. Larger units of production might actually be a plus for the region, but the troubles do not end there. Younger generations are choosing other occupations, and there are serious problems ahead because a large number of operators are over 50 years of age – and one of two have no plans for succession.
Agreste estimates that, of 110,000 hectares (271,700 acres) of Bordeaux vineyard, the future of 30,000 hectares (74,100 acres) could be in doubt. The difficulties Bordeaux is experiencing would be more severe if the Chinese market had not exploded since the mid-2000s to become the region’s number one foreign client with purchases of nearly 6 million cases. Asia now takes around 40 percent of Bordeaux exports by value. This offsets the marked decline in exports to longstanding European customers. The U.S. ranks sixth in volume in 2012 at 1.9 million cases. In value, the U.S. is fourth with 215 million euros while China is second at 338 million euros, after the U.K. (Conseil Interprofessionnel du Vin de Bordeaux). Incredibly, France has an estimated 50 percent share of the Chinese market—compared to 4 percent of U.S. consumption. Early groundwork by French vintners has paid off, aided by the allure of French products—and specifically Bordeaux—in Asia. But China has leveled off, and future trends are difficult to predict, particularly as China initiated, in July 2013, an inquiry into unfair trading practices by France and Spain
A Weak Value Proposition
Despite the shrinking number of wine properties in Bordeaux, the region remains a world of small farmers. Their wines may carry the name of a château, but the edifice depicted on the label is typically more of a country house than a grand castle. As is true elsewhere, small viticulteurs can be resistant to change, or they simply lack the resources to modernize cellars or hire a famous consultant. This is not to say that modest properties have not been gradually updated with new presses and tanks, because in truth change has always characterized Bordeaux. If this were not true, the region would never have survived for centuries and attained iconic status. It is equally true that the image of Bordeaux is derived from the upper crust of its wines. The large, broad base is the part under serious threat.Regional red Bordeaux and Bordeaux Supérieur (by law, lower maximum yields at higher maturity) constitute the foundation of the region: half of total output. This amounts to a very substantial volume averaging 27 million hectoliters (30 million 9-L cases) in recent vintages.
There are many examples of well-crafted regional reds—and dry whites—made to a style which can stand up to New World competition at lower price points. Equally, critics contend there are too many which lack the fruit and flesh to appeal to contemporary wine drinkers. There is no mystery as to why Bordeaux is losing, or is unable to grow, volume on some key foreign markets. Meaningful increases in shipments must be based on wines retailing in the U.S. below $15, or certainly less than $20. Nielsen research shows that approximately 80 percent of wine volume falls at less than $11.99. Focusing a U.S. marketing campaign on products with consumer prices up to $55 a bottle, as the Bordeaux Wine Council (CIVB) has chosen to do, assures that growth can only come in small increments. This strategy seems to be dictated by the needs of producers, not the behavior of consumers. The Wine Market Council has shown that the most influential factor determining the purchasing decisions of American consumers is an exceptional price-value relationship. This is precisely the Achilles heel of Bordeaux.
A 2011 survey by Wine Opinions reveals that U.S. consumers have a largely unfavorable view of Bordeaux wines in terms ofvalue for money. Only 4 percent say they rate as “excellent”value and 17 percent as “good”—in all 21 percent strongly positive—while 32 percent say they are “fair” and 12 percent“poor.” Compare this to Rhône Valley wines, which 51 percentindicate are “excellent” and “good” values and only 14 percent Recent trends of the two regions on theAmerican market reinforce the relationship of perceived valueand growth. Bordeaux exports to the U.S. continue to seesaw in keeping with the appeal of specific vintages. Peaks inshipments have been driven by notable vintages: 1990, 1995,2000, 2005 and 2009. Exports have fallen in intervening years. While the volume climbed in 2012 on the strength ofvintage 2010 and remaining 2009s, Bordeaux has yet tomatch its record shipments of 2.8 million cases in 1985.
The Rhone, on the other hand, is smaller but far more dynamic: The region’s exports to the U.S. in 1985 were around 358,000 cases and have grown to 1.5 million cases in 2012. The U.S. is now the Rhone Valley’s second largest export destination after the U.K. and has become the region’s number one client in euro terms, according to Inter-Rhone.Focusing on the consumer has not been a strength of the French wine industry, which has relied ontradition and terroir to market its products. Martin Sinkoff, director of marketing of Frederick Wildman & Sons, importers of Compagnie Médocaine selections, states that “Bordeaux is very dependent on the press for scores and on the reputation of the vintage.” A chateau name on the label has been apersuasive marketing device for Bordeaux, but also a barrier to brand building. Any single estate produces a limited volume of wine averaging perhaps 20,000 to 40,000 cases with larger exceptions. As long as Bordeaux relies on château-bottled positioning, it is unlikely to establish brands of scale and grow volume to 4 or 5 million cases in the U.S. With over 7,000 estates, 300 négociants and 39 cooperatives in Bordeaux, the region’s offer is highly fragmented, posing handicaps for coherent marketing.
The wines of Bordeaux are distinctly segmented. The uppermost tier of classified growths and equivalent top-end wines comprise perhaps 5 percent of output. They are blue chips traded on a controlled market and sold almost always via non-exclusive trading arrangements. An allocation system and privileged relationships determine which shippers and importers have access to this elite group, and in what quantities. Sales of these luxury bottlings are likely to continue riding a roller coaster propelled by vintage perceptions and pricing. Access to this tier for most consumers may be limited to so-called “second” or even “third” wines. In the middle, there are thousands of properties from dozens of appellations. For the consumer attracted by the image of chateau-bottled Bordeaux and willing to take a chance on an unknown bottle, these selections combine romantic appeal with a relatively affordable price. In 2010, sommelier-importer Daniel Johnnes launched a range of selections with suggested retail prices below $30 per bottle. He says there are “many small, artisanal properties which make wines which I and many other people love.”
He is bullish on Bordeaux despite what he describes as a “reverse elitist attitude” toward the region “among younger sommeliers and consumers.” Nonetheless, chateau bottlings tend to be imported by regional companies in very small amounts, often hundreds or a few thousand cases. These wines invariably suffer from fractured and limited distribution. For a retailer or restaurant, they tend to represent an opportunity buy, not a product with continuity. An interested consumer may find it challenging to locate a point of sale offering any given château bottling in their state. The vagariesof distribution are illustrated by one of the CIVB’s featured 2013 “Today’s Bordeaux,” Chateau Mayne-Guyon 2011 (Blaye- Cotes de Bordeaux), subsequently picked by Wine Enthusiast as one of their top 100 values. One retail listing appears in the U.S. on Wine-searcher.com in Upstate New York, and it turns out that the wine is a quasi-exclusivity of Trader Joe’s. Confirming which units stock the wine, and its price, demands time and effort a consumer is unlikely to invest given all the easy alternatives.
At the bottom of the Bordeaux pyramid, the enormous volume of basic wine should by all rights deliver the requisite raw material to build brands. This segment is populated by a host of so-called petits châteaux. Terroir imagery, vintage and ratings are less relevant to this lower-priced segment. To exploit this critical mass, a strategy focusing on regional Bordeaux, blended by négociants across multiple origins to achieve a consistent style, would appear to offer promise. The Rhone and Burgundy, like Bordeaux, have large numbers of individual landholders—roughly 5,000 and 4,300, respectively (per Inter-Rhone and BIVB). Even so, shippers play a significant role in the commercial identities of these regions on the U.S. and other markets. Domaine-bottled selections are balanced by recognized brand names such as the Rhône’s Chapoutier, Guigal, Jaboulet and Delas or Burgundy’s Louis Jadot, Joseph Drouhin and Louis Latour.
The Bordeaux offer in the U.S., in contrast, largely misses the branded dimension. Of numerous Bordeaux brands sold by various merchant companies, only Mouton-Cadet has carved out—and retained—a modest hold at a current U.S. retail averaging $8/bottle. Their agent, Constellation Brands, claims Mouton-Cadet is the largest-selling Bordeaux in the U.S. with an unconfirmed one million cases sold worldwide. Others have tried and failed, or have preferred not to take up the challenge. The obstacles seem insurmountable given both the bias in favor of a château name and the costs of brand building. “I’ve seen many other branded Bordeaux not do very well,” says Daniel Johnnes. Some shippers say that obtaining sufficient raw material from cooperatives and small growers to create large-volume blends is a further limitation. On the other hand, should it be inherently more difficult to craft a regional Bordeaux than an equivalent Côtes du Rhône?
The reluctance of Bordeaux merchants to bring their branded products to the U.S. is evident: There are many such vins de marque sold in France, but nearly all are unavailable on the American market. Castel is a substantial beverage company with sales of 630 million bottles in 2012, according to French newspaper Le Monde (June 2013). They are a serious player in France with Malesan, a leader in supermarkets, as well as other proprietary products such as Batiste de Vignac and Blaissac. Their Bordeaux brands have no presence in the U.S. In October 2013, Castel was chosen the “most popular” wine and spirits brand in China (groupe-castel.com). Other shippers, among them Kressmann, Dourthe, Ginestet and Yvon Mau, market branded Bordeaux not sold in the U.S. Cordier, once well- known to the American market, does not offer any of their branded products such as Collection Privée. All of these brands tend to offer a generic red, dry white and rosé. Michel Lynch, developed by Jean- Michel Cazes of Château Lynch-Bages fame, has just a handful of listings on Wine Searcher in the U.S. This label extends to a Réserve Graves (white) and Médoc. More visible if still limited in distribution are the Réserve Spéciale offerings of Domaines Baron de Rothschild (Lafite), which include a Médoc and Pauillac in addition to the standard white and red. The wines present a modern profile yet also convey the region’s identity.
The U.S. trade itself seems to have had serious doubts about a branded approach by Bordeaux for a while. Quoted in Wine Business International (February 2008), Bill Deutsch of W J Deutsch & Co., who guided Yellow Tail to the top position among U.S. imports and built Georges Duboeuf into the leading French label, said bluntly: “A Bordeaux brand will never happen...You could never sell 100,000 cases in the U.S. for the simple reason that Bordeaux doesn’t make the kind of wine that large numbers of people want to drink.” He continued, saying that Bordeaux is “too acidic, too tannic, too lean for majority tastes.”
While this depiction may still be true of many generic reds, there are others which are softer and fuller—more in tune with the American palate than in the past. The red wines of Bordeaux have shown a distinct evolution in the direction of higher alcohol together with riper fruit and tannins. The changes are due largely to benign effects of climate change, a better understanding of polyphenolic maturity, and sorting to remove under-ripe or rotten grapes. Cold- fermented dry whites based mainly on Sauvignon Blanc and Semillon consistently deliver clean, expressive fruit qualities. Nature and technology have helped Bordeaux at all levels.
The 2008/09 European Union legislation allowing grape names to appear on front labels of wines of controlled appellations could serve to enhance trial of branded products by American drinkers. Printing “60 percent Merlot/30 percent Cabernet Sauvignon/10 percent Cabernet Franc” in direct conjunction with the product name and appellation could deliver tangible sales results. In 2013, Mouton-Cadet launched a Bordeaux AOP with “Sauvignon Blanc” prominently displayed on a strip below the front label. Maison Sichel’s Sirius wines now bear grape names in large letters below “Bordeaux.”
Varietal identification is the single most important trigger for U.S. consumers; conversely, French appellations can be mystifying and unpronounceable. It is also significant that tastes are evolving: The American consumer seems receptive to inventive new wines with proprietary names. The labels driving today’s trends sometimes seem implausible, even risky. Of particular relevance, blended dry reds show growth of nearly 15% in 2013, matching Moscato (Nielsen, 52 weeks ending 11/9/13). This plays into the core competence of Bordeaux.
“There is an opportunity,” observes Martin Sinkoff of Frederick Wildman & Sons, “for Bordeaux brands with alternative packaging and innovative non-traditional design.” One such project by sommelier Richard Betts, Saint Glinglin, uses the image of a flying pig. With an artisanal twist on branded thinking, the three-wine range includes a basic Bordeaux Sauvignon, Côtes de Bordeaux, and a Saint- Emilion around $35 retail. “Bordeaux,” Betts remarks, “has always had a seldom spoken tension between terroir and brand.” Importer Johnnes markets a regional red and white under his Petit Chapeau label, saying the strength stems from “the wines’ value and low cost.” However, neither Betts nor Johnnes indicate they have plans at this time to extend their branded ranges. These inventive examples, while modest in scale compared to mainstream brands, could show the way for shippers who wish to balance a highly fragmented offer with proprietary wines offering a larger, more stable franchise. To that end, the process must start with products which are in tune with consumer preferences.
Consumer, Not Producer Focus
A work by Emmanuelle Rouzet and Gérard Séguin entitled Le marketing du vin (Dunod, Paris, 2012) argues forcefully for a new approach by the French wine industry. It is no longer viable to pursue a production-driven model relying on the notion of “one wine for all.” Rather, French producers must ask themselves, “which consumers, for which wines?” This is a credo powerful New World marketers—the ones who have gained at the expense of Bordeaux—have put in practice for some time. General Motors was forced to reinvent their product line to connect with consumers who had turned to foreign carmakers—not an easy undertaking, and quite costly, but survival was at issue. If Bordeaux is to grow its share and volume, the region will have to study and heed drinkers in markets of opportunity such as the U.S. Until Bordeaux addresses structural issues, substantial investments in generic promotional activities are unlikely to yield commensurate returns. Whatever the region’s response to new realities at home and abroad, every course of action including the status quo involves risks and costs. Which strategies, however, promise the greatest potential benefits for this iconic wine region?
Roger C. Bohmrich MW :Roger C. Bohmrich has enjoyed a long career in the wine trade, and he is currently an educator, speaker and consultant. Most recently, he set up and managed a retail entity affiliated with a Bordeaux-based merchant. Previously, he was a senior executive of a well-known importer. Bohmrich is one of the first Americans to earn the Master of Wine qualification. His website is www.vintrinsic.com.