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Bordeaux futures: Merchants, retailers and consumers all want lower prices, but châteaus may not be listening

Bordeaux’s futures campaign is underway, and the wine world is looking to the region this week, waiting for châteaus to make their move. But it’s unclear if château owners know what move they want to make. After last year’s disorganized, slow campaign, consumers, négociants and retailers are calling for the top classified properties to release futures quickly and drop prices significantly.

The first demand may be easy to satisfy. Sales of futures for the 2012 vintage began April 15, when Pomerol’s Château Gazin announced it would release its wines at $43 per bottle ex-château (the price does not include négociants’, importers’ and retailers’ markups). If major producers, including the first-growths, follow Gazin’s example and release prices in the next week or two, it will ease a lot of worries.

But what about prices? American retailers are looking toward this campaign with attitudes ranging from cautious optimism to outright pessimism, but all share one sentiment: Prices must drop significantly for this campaign to be successful.

“Château representatives and owners have told me directly that they’re ready to focus again on the American market,” said Chris Adams, CEO of New York’s Sherry-Lehmann, who heads to Bordeaux this week to taste. “I’m going to go there and I’ll be optimistic. I’ll say, ‘Look guys, you have a huge opportunity here. Drop your pricing. Send a message. Get people thinking about this again, because 2009 and 2010 were outside the realm of what was purchasable for a lot of consumers.'”

“The ’11s didn’t sell that well and if the ’12s don’t, there will be a back up on the Place de Bordeaux,” said one major négociant. “A sensible campaign is needed. But, with little stock in America, if the châteaus see any sort of demand, some might gamble and price high. I think that would be a mistake. This is not a vintage where the quality merits that kind of thinking.”

While most top properties lowered prices for their 2011s, prices had risen so steeply for the 2009 and 2010 vintages that the 2011s still weren’t attractive. Few consumers were interested. If Gazin’s release is any indication, château owners may be walking a tightrope, trying to entice buyers, but not give up too much profit. Gazin’s price is 7 percent lower than its 2011 futures price, but 35 percent higher than its 2008.

Quality is not the overriding issue. Senior editor James Molesworth visited the region in recent weeks for lengthy blind tastings. Overall, he reports that the wines do not compare to 2009 or 2010. They are similar in quality to 2011, but more structured and less easy drinking.

In the past decade, more and more of Bordeaux’s best producers have learned to deliver good wine even in challenging conditions. But can Bordeaux deliver value?

Too much wine, too few buyers

Why buy futures? For consumers, the initial price offered by the château (plus subsequent markups) will likely represent the best price they’ll see if the vintage proves to be good. Additional releases, or tranches, of wine typically grow more expensive. But not all vintages go up in price.

The négociants, the merchants who buy Bordeaux from châteaus and sell to the world, are still furious about last year’s campaign. Château owners don’t see a problem—the top producers sold almost all their wines. But the négociants bought the wine largely because they wanted to maintain their allocations. Multiple sources report that the négociants are still sitting on large stocks of unsold 2011 futures, hoping they can move the finished wines once the global economy picks up steam.

Some négociants opted to discount the 2011s to clean out inventory. “Last year many négociants were offering the wines at cost right off the bat,” said one leading British merchant. “I can see why you need to do it, but this gives the châteaus the impression they have sold the wine to the end consumer when it hasn’t even made it to us.”

So the négociants’ main desire is that the 2012 vintage is priced to sell quickly. “The vintage needs to be liquid. No one can afford to stock it,” said Yann Schyler, CEO of négociant Schroder Schyler. “It needs to be a cash machine—not in terms of profit, but selling straight through to consumers.”

In a move widely applauded by négociants, the new president of the Union des Grand Crus, Olivier Bernard, who is also owner of Domaine de Chevalier, recently held a meeting with château owners, négociants and brokers and told them all that the goal of this year’s campaign should be to sell the vintage in 40 days. “The négociants can’t hold the 2012,” said Patrick Bernard, CEO of leading négoce firm Millesima (and Olivier’s cousin).

A major concern is where to sell the wines. Bordeaux focused on Asia for the 2010 and 2011 futures campaigns. But Chinese consumers have grown skittish over any bottle over $50 ex-cellar. Not only are the Chinese angry over losing money on the overheated 2010 vintage—they bought futures and then watched the wine prices decline—but flashy Bordeaux has become a political no-no. President Xi Jinping has told government officials and state-owned industry executives to stop overspending on wine and entertainment.

“My Chinese clients said they are interested in the $6 to $20 range, no higher, and they’ll buy a big quantity. Over that, it’ll be a small quantity,” said Bernard.

In America, retailers report that customers are showing a renewed interest in Bordeaux, particularly in well-priced wines. But they worry that the 2012 prices will not be low enough to sustain such curiosity.

Jean Reilly, director of wine buying for online retailer JJ Buckley Fine Wines, is optimistic. “The situation in Bordeaux is very different to last year. There is much more flexibility on prices,” she said. Buckley has 12 staffers in the region, a sign they are looking seriously at this year’s campaign.

But other merchants are doubtful that the price cuts will be enough. “In a vintage like 2012, you’ve got to look at drastic cuts—that just won’t be made,” said Daniel Posner, owner of Grapes, the Wine Co. in White Plains, N.Y. “You’ve got to be talking 75 percent and above [off 2011] to make it somewhat interesting. And these places will probably cut 25 percent. Whatever we did buy of 2011, I regret. And 2012, I think it’ll be lesser still.”

Photograph by Deepix Studio

Jean-Luc Thunevin and his wife Murielle are dropping prices for Château Valandraud

Wine investment funds in the United Kingdom are not expected to buy, either. This could leave Bordeaux pitching to the French, Germans, Swiss and Belgians, none of whom will bite if the prices aren’t right.


So how low will they go?

“This year will be a buyer’s vintage,” said Christian Moueix. “Returning to the 2008 [price] levels would be a dream, but if we cannot dream, we should fall between the 2008 and 2009 prices.”

Moueix tested demand with the early release of more than 20 châteaus in Belgium, a leading market for him, dropping prices 5 percent to 10 percent compared to 2011. His top wines were priced between their 2008 and 2009 prices. “Thus far we have only offered the wines in Belgium but the response has been good,” he said.

But how far prices go down may depend on how much the individual châteaus raised their prices in 2009 and 2010, and then decreased in 2011. “I dropped my prices by 40 percent in 2011,” said Olivier Bernard. “I won’t do that again in 2012.”

“On pricing you can’t say there is a percentage that châteaus need to drop by as many dropped a lot last year,” said Simon Staples, sales director for Berry, Bros. & Rudd in Asia. “The biggest issues will be the super second growths who didn’t reduce much last year and overconfident Right Bank property owners who believe their own hype.”

And certain producers may decide they can stand pat. On the Left Bank, stellar brands like Château Pontet Canet, owned by Alfred Tesseron, won’t feel pressure to reduce prices. On the Right Bank, Châteaus Pavie and Angélus may actually raise their prices. Both were recently promoted to Premier Grand Cru Classé A in St.-Emilion’s classification. “Angélus will probably release its price between $180 and $260 but nothing is certain yet,” said Stéphanie de Boüard-Rivoal. “One cannot ignore this promotion—Angélus officially belongs to the Bordeaux first-growths.”

But the big question is the Left Bank first-growths, because they set the tone for the campaign and send a signal to lower-ranked properties. Mouton is expected to take a leadership position by coming out early. While executives at the properties have expressed sensitivity to the need for good pricing, they are not hinting at what they’ll do.

“If the big names don’t drop prices, the market is finished,” said Bernard. Négociants and other producers speculate that the first-growths will release at $260 to $325 per bottle. That might not be enough. “The first-growths must open at $220 to $235,” said Bernard. That would mean consumers would pay $450 a bottle.

A few have been more bold. Jean-Luc Thunevin, whose Château Valandraud was recently promoted in St.-Emilion’s classification to Premier Grand Cru Classé B and earned 93 to 96 points in a preliminary tasting by Molesworth, told Wine Spectator he would drop his suggested retail price by 40 percent from last year to $105 and release the futures no later than April 22. “It’s not about the vintage,” said Thunevin. “I think the vintage is very good, sexy, charming. It’s the economy.”

“If we get the bargain everyone is hoping for, we will all fall back in love with my lovely old pal Bordeaux,” said Staples. “Come on amigos—do what needs to be done. We know it. You know it. The châteaus know it and, above all, the forgotten consumer knows it all too well.”

Source: Wine Spectator