The Place de Bordeaux
FIRST PUBLISHED IN WINE BUSINESS INTERNATIONAL, MAY 2007
There are two conversations that inevitably polarise opinion about Bordeaux; the unchanging nature of the 1855 classification and the négociant system that trades through the Place de Bordeaux.
Both are seen by critics as evidence of the lumbering colossus that has become the Bordeaux marketplace, where tradition reigns above market reality, and unnecessary layers between producer and consumer create inefficiency and mistrust.
For years, the system has allowed properties to release their wine at one fixed price to all the region’s merchants, and reach consumers without ever stepping out from behind their wrought-iron gates. In theory, producers distribute their wine in one day, to countries worldwide, to on- and off- trade; and if one buyer doesn’t want to pay, someone else will step in.
But increasingly, you have to ask whether the Place is an anachronism, out of step with the way the rest of the world sells its wine. Most international markets are centred around a small number of powerful brand owners, who deal with the exports for the entire country (the 20 largest wine companies in Australia, for example, account for 92% of all wine sales). In Bordeaux, 70% of wine is sold by the 400 négociants on the Place, and most labels are purchased by an average of 40. Antoine Gimbert, Commerical Attaché UK and Ireland for Millésima Bordeaux commented, ‘We are way behind Rioja and even the Languedoc in our sales strategies, in terms of clarity of access and clarity of information. We have a lot of work to do, even if many would deny it.’
The wide distribution of buyers can also prove problematic. Several high profile chateaux over the past few years have found that two competing end purchasers – namely supermarkets, with their financial muscle and consumer influence – end up clashing, selling wines at way below the original en primeurs exit price.
The Place also, inevitably, favours the strong and established over the new and exciting. A brand image has to be built up before most merchants take an interest in selling a wine. They are naturally risk-averse, and therefore often accused of creating the stagnancy that Bordeaux seems to have been guilty of in recent years. Even their own structure favours the establishment; In 2003, négociants’ total turnover was €3.3 billion (€1 billion for export, with sales in over 160 countries), but 15 Bordeaux shippers turned over more than €50 million per year, and just 44 firms had a combined turnover of €2.1 billion, accounting for 84% of the total figure. For all, margins vary from a few centimes to hundreds of euros per transactions, depending on whether they are chasing high volume-low value transactions or small volume cru classés that re-sell at enormous margins. The average is 10-15% of the price that the chateau receives.
Négociants have been part of the fabric of Bordeaux for as long as wine has been produced here; as far back as the 11th century, groups of French merchants were selling their wine abroad, but the growth really came with the arrival of the Dutch and English in the 17th century, and German and Irish in the 18th, all setting up business along the quays of the Garonne in the Chartrons district. At this time, they were buying in bulk, adding their own names, and certainly adding most of the wine’s value.
Bordeaux has over 12,000 producers working in 57 appellations, which explains in part why the system developed – essentially, it was a commercial imperative to make sense of the offer to the consumer. But the key to the whole market is the interplay between the courtiers (the brokers that form the buffer between chateaux and merchants), and the en primeurs system. This is the yearly ‘betting’ on wine futures that takes place every April, when journalists and buyers give their prognosis on the most recent vintage, and chateaux set their prices accordingly. The upper echelon of Bordeaux wines become worldwide commodities, with the courtiers playing the role of advisor, in theory letting the chateau owner know the consumer mood, and where prices should be set. The entire thing rests on relationship building – and at every stage, buyers are given an allocation of the allocations of the person higher up the chain.
Increasingly, the system is being questioned. Price fluctuations like 2005, when Chateau Ausone released at €300 per bottle and the average price rise was 95% on 2004, seem like a dangerous game. Max Lolondrolle at Berry Bros and Rudd explained that the system does very well for a few at the expense of the rest, ‘In 2005, a lot of the lesser known estate made the fatal mistake to come out in the middle of more well known ones and at a high price and were completely over-looked.’ Other US merchants reported buying large quantities that they then found hard to sell on to their end customers because of the steep price tags. This is perhaps the most serious long-term problem; the system reinforces the perception that Bordeaux has no interest in the end consumer, and no interest in rewarding loyalty. Parker put it most bluntly when he said, ‘the consumer is getting screwed by all this market manipulation.’
At the other end of the price scale, the Place works differently. The greater the chance of substituting a product, the less attachment there is to it, which means everybody has to work harder. So producers of the less prestigious names have to form more loyal relationships with the négociant – or, increasingly, bypass them entirely and start selling direct. And the question gets asked that if the Place isn’t needed by the big chateaux who could sell without it, and isn’t efficient for the little chateaux who get overlooked by it, then what is it good for?
But with all its inconsistencies, still the Place survives. Hamilton Narby, an American merchant who runs his own small firm, Vinex, points out, ‘The Rothschilds could sell their wine with their eyes closed, but they choose not to. Why? Because the system works. It’s not the role of the chateaux to have a multi-lingual, international sales arm.’
Allan Sichel, president of Maison Sichel, sees that the market has to evolve, but not just from the point of view of the merchants. ‘The grand crus would never be able to sell at the prices they can if they didn’t have 150 people out there every day trying to sell for them. They certainly wouldn’t enjoy the levels of visibility that they have. Négociants are criticised for a lack of transparency, but the chateaux themselves are going to have to build up an overall picture of the distribution of their wine, and work out where they are over represented and where under represented and try to balance that out.’
This has increasingly been the case in recent years. Nicolas de Baillencourt of Chateau Gazin in Pomerol, is part of an initiative known as Les Cinq – a small groups of property owners who have formed a marketing initiative to promote their wines. They travel together, organising tastings and promoting their names. ‘There’s no need for brokers to be nervous about giving us details of where they are selling to. It’s a full time job selling around the world, and we’re not about to do it.’
Anthony Barton, famous for not playing the prices game, still sells his wine through the Place, and wouldn’t consider doing otherwise, ‘On an average year, we make 75% of our turnover in 24 hours.’ Similarly Bernard Magrez, who owns 35 vineyards and has his own sales teams around the world, sells over 90% of his top wines (Chateau Pape Clement, Chateau Fombrauge and Chateau La Tour Carnet) through the Place because, as he says, ‘It’s essential for visibility and profile’.
Other property owners disagree. André Lurton, three years ago, took both of his cru classé wines, Chateau Couhins-Lurton and Chateau La Louvière, from the en primeur marketplace. Instead, he now manages the brands himself, either through selling directly or through one of three appointed négociant houses. James Ryland, marketing director, explained, ‘The final straw came earlier in 2004, when La Louvière 2001 ended up in a price war between two major supermarkets, Auchan and Carrefour. The price was soon driven down to below en primeur levels, meaning the public were buying the wine for significantly less than our traditional merchants had been doing several months before.’
‘Coupled with that, exclusive agents in export markets didn’t have exclusive access, and therefore were wary of stocking the wines for fear of being beaten on price. The négociants, meanwhile, assumed local agents would be taking on all the sales, and therefore also concentrated their efforts elsewhere.’ This meant, according to Ryland, that Lurton suffered from, ‘very inconsistent sales, from 200% of what we made one year, to 20% the next.’
Three years on, they are satisfied with the results. ‘The sales of all wines concerned have been re-established – we are now selling each year the equivalent of the average annual production, across several vintages rather than just the latest vintage sold as a future. We now have complete transparency with regard to the distribution and, if not control, at least the possibility to discuss and influence the positioning of our brands’.
Not many have followed suit, but the trend certainly seems to be chateaux taking more responsibility for their distribution; not just allocating 5 to 10 cases over 150 négociants and hoping for the best.
In recent years, a number of different business models have been established, essentially either merging to build strength, or specialising to exploit a niche. Some négociants have been taking on brands exclusively in order to improve their margin (such as Maison Sichel and E-motif, a ‘youth’ brand aimed at the under 30 market) and acting somewhere between a brand owner and an importer. Others are taking on wines from elsewhere in France, or internationally, to act like a wholesaler (such as Yvon Mau and their range of Spanish, Australian and South African wines, imported through Freixenet but sold in France through Yvon Mau).
More successful has been Millésima, a wine merchant that works on the internet and by mail order, effectively acting like a shipper, importer, wholesaler and retailer. Patrick Bernard, the director of Millésima explained, ‘We buy en primeurs like other merchants, but there our similarity ends. We sell direct to private customers in 12 countries, 20% via the internet (last year 12%). We reach the customer directly, whether by masterclasses, internet, brochures or telephone calls and offer levels of service that no other merchant can approach.’ They have also opened a physical shop in New York to allow them to tap into the lucrative direct sales in the US market.
And as Narby points out, ‘If Lafite decides tomorrow to take all its sales in house, then négociants would die a death. But until that happens, they will be alive and well.’
Four Big Players
Created in 1949, Castel’s wine sector (it also produces beer, soft drinks and bottled water) is the leader in Europe in terms of value, and the third biggest in the world, including brands such as Bordeaux Baron de Lestac and Malesan. Recent acquisitions include Domaines Virginie in Languedoc-Roussillon, and Nicolas and Oddbins international wine merchants. The creation of Castel Frères, with the largest cask cellars in Bordeaux, enable Castel to control all aspects from growing to dealing and distributing.
2) Grands Chai de France
Headquarters in Petersbach, Alsace, with a large warehouse and bottling plant near Bordeaux, Grands Chai is the second biggest wine player in France after Castel, but the leader in exports (70%). The company employs over 1000 people over seven sites. In the past few years, Le Grand Chais has bought Eschenauer, Dulong, Calvet, and Cru et Domaines de France (Alexis Lichine et Cruse). It owns the JP Chenet brand that sells 91 million cases in 140 countries worldwide (seven times more than Mouton Cadet).
3) Baron Philippe de Rothschild
One of the few remaining purely family-owned companies in Bordeaux, of which Baroness Philippine de Rothschild is the majority shareholder. The major brand is Bordeaux’s oldest and largest; Mouton Cadet, which sells 14 million bottles annually.
4) CVBG-Dourthe Kressman
A more traditional Bordeaux merchant, splitting its activities between own brands such as Dourthe No 1 and grand cru classé sales, with six of its own vineyards and over 70 chateaux sold on an exclusive basis.
Courtiers are brokers dating back to the 14th century, when they tasted the wine to establish quality and authenticity before going to market. In 1855, it was the brokers who set the ranking for the classification. Today they establish contacts between buyers and sellers, earning 2% of each completed transaction, funded by the négociants. The best courtiers seek out the unknown and dynamic producers, with a new breed of young brokers such as Antoine Moga at Les Grands Crus and Yann Jestin at Oenomedia. The worst are known as ‘sample carriers’, and simply draw up the paperwork for already established transactions.
Bordeaux has around 120 courtiers, but only 10 to 15 of them deal with the cru classés during en primeurs. It’s a secretive and entrenched business – very difficult to break in to because the big chateaux have been selling the same amount of wine to the same brokers for decades; just 20% of courtiers account for 80% of transactions. Of all the deals done on the Place, 85% are through a broker, and when it comes to Grand Crus, that figure rises to 98%. American négociant Jeffrey Davies has gone on record saying that when he first started trading in Bordeaux, he tried to do it direct without using courtiers, but that chateau owners would refuse to do business with him until he ‘went through the correct channels’.
Figures are notoriously hard to come by in this closed world (almost all of their websites are password protected), but extrapolating from the négociants 2003 figures, the courtiers market was worth approximately €57 million.
The big houses
Les Grands Crus - key player Valentin Lillet
Balaresque - key player Richard Kressman
Tastet et Lawton – A family business going back eight generations, a key player is Eric Samazeuilh
Haramboure – key player Hubert Lagrue