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En Primeur 2008 – What a Catastrophe!

After a good week in Bordeaux its now back to the real nub of the issue surrounding the success or failure of the 2008 vintage – the price!

The Chateaux Owners must be firstly congratulated on achieving a remarkable success with this vintage bearing in mind the inclement weather they had to contend with during the growing season. Mother Nature also must be applauded for delivering five weeks of sunshine throughout September going into October without which this vintage would have been undeniably ruined.

In my opinion they have produced better wines this year than in 2007 and marginally better than in the 2006 vintage. However the ability of the Chateaux Owners to make good wine does not come into question but their business prowess and empathy with their customers definitely does!

Chateau Angelus having released its first wine at €59 a bottle today (41% lower than last year) has just lost the hearts and minds of their loyal customers – customers who have to support these wines or lose their allocation in successive years. By releasing at this price and offering no other incentive they have devalued their products and squashed any propensity of loyal customers to buy this years vintage.

In pure economic terms, ‘all things being equal’, Grand Cru Classes can be considered a Veblen Good where people expect high prices to be a mark of quality and are willing to pay for it – such as a Rolls Royce for example. With Angelus devaluing their products to this level customers will now see this as an ordinary everyday product from which they will receive very little pleasure knowing it becomes accessible to the many rather than the few – lets call it the snobbery factor. This demographic group have been the loyal supporters of certain wines gaining much pleasure from their purchases knowing they have something special in their cellars.

As we are currently facing an unprecedented global economic crunch – ‘things are not all equal’. Loyal customers will now feel cheated knowing they have bought previous inferior vintages at much higher prices and will loose respect in the Bordeaux system as well as their wines should this price reduction policy be adopted by other Chateaux.

This is a time that Chateaux should think more radically than merely act like a scared rabbit caught in the head lights of a car acting irrationally by simply reducing prices and not thinking through the consequences of their decisions. Having written about this in a previous blog Open Letter to Chateaux Owners there is a simple solution.

In 2008 many vineyards have produced less than in previous years. 2007 had to be supported via the allocation system by loyal Bordeaux Merchants who remain with a lot of unsold stocks like many of the Chateaux. Whilst I was over in Bordeaux last week I overheard a well known Chateaux owner telling someone he still had over 50% of the 2007 vintage unsold at the Chateaux. Therefore this suggests fewer people bought 2007 than normal but those who did felt obliged to buy the vintage through the principle of allocation.

After Chateau Angelus released its prices customers are now wondering how they can sell the 2007’s they bought last year in the full knowledge it is of inferior quality and it cost them twice the price of the new vintage.

Put simply they will not be able to sell this vintage given the present economic climate. They either have to sell it at a massive loss which will be fatal to their business or if they can afford to keep it on their books for several years hope that higher price levels will be restored in the future. As we are unclear how long this global recession is going to last this will also be futile potentially placing too much of a strain on cash flow with money tied up in stocks, this will most likely be fatal to their business as well. No sales = No cash!

So what is the solution for Chateaux owners to adopt to win over the hearts and minds of their customers, maintain the value within the brand (label) and kick start interest back into the Grand Cru Classes market?

To get an answer to this question the Chateaux should look no further than major stores or supermarkets with their loyalty card system. Which works on the principle that the more loyal their customers are by regularly spending their money with the store the more discounts are offered to them by way of loyalty bonuses off the products they buy. By which the stores wins the hearts and minds of their customers and gain their loyalty who return time after time.

Applying this principle to Angelus and taking the exchange rate differentials out of the equation I would suggest that their release price for the 2008 vintage should have been €100. This should have been offered in the first instance to their customers who bought the 2007 vintage. Offer them the same number of cases as they did last year (the loyalty factor) at a discount off the €100 release price of a round 50% insisting they use this discount to reduce their prices of their 2007 stocks and amend their selling prices accordingly. At the same time the Chateau should also insist that the selling prices of the 2008 vintage should be based on €100. For those who didn’t support the 2007 vintage their buying price should remain at €100 and only be offered an allocation once all customers who bought the 2007 vintage have had the opportunity to buy – enforcing the loyalty factor. Better for all to have an over priced good vintage in our cellars than an over priced inferior one!

In turn the Chateau should reduce its selling price of the 2007 vintage accordingly and offer it back on the market at this new price.

Through the allocation system this should be easily administered through invoices raised by the Chateau, Bordeaux merchants and trade merchants globally. By adopting this pricing model Chateaux will receive the same level of income, the 2007 vintage is reduced to a sensible price helping to kick start demand in a vintage that to date has had very little interest, helps those ailing business to gain momentum by giving them a cheap vintage to sale and wins over the hearts and minds of loyal followers of the Chateaux.

Those who are demanding a price reduction in the market then have the opportunity to buy a vintage at a very sensible low price ie the 2007 vintage to those customers whose demand is based on price not quality. Loyal supporters will have the ‘feel good’ factor and feel they are a ‘cherished’ customer by being looked after creating even more loyalty to a Chateau, label or brand.

By merely adopting a reduction in the prices of the 2008 vintage irrespective of those who advocate such a move, Bordeaux Classified Growths will become a devalued commodity within its market place, loose respect around the world as a quality item whilst at the same time loose the loyalty of its genuine customers.

So if Chateaux owners want this vintage NOT to be a catastrophe they need to start ‘thinking outside of the box’ and more about what their customers value! As true market forces are not being applied because of the allocation system, should the pricing policy of Angelus continue and be adopted by further Chateaux releasing their wines at silly prices I would urge those customers who bought the 2007 vintage to return their right to the wines they bought, demand their money back on the grounds that the wine is clearly not fit for purpose at the price paid and boycott the 2008 campaign. Why? – because loyal customers of Bordeaux are clearly not valued by the Chateaux!

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2 Responses to En Primeur 2008 – What a Catastrophe!

  1. Jef says:

    Here’s my first question:

    Who kidnapped Nick Stephens and replaced him with a pod person from the planet Zod?

    I’ve never read anything so convoluted and misguided in all my life.

    First of all, I’ve been buying Angelus since the 1990 vintage, and I consider myself a true fan of their wines. I didn’t spend anywhere near €100 (or its equivalent) back then. Over the years I’ve paid between $75 and $130 U.S., depending on the vintage. But I skipped the overpriced 2000 vintage. When the 2005 vintage went screaming over the $300 mark I went screaming in the opposite direction. So did a lot of other people.

    Maybe you’re missing a really key point here. After the insane hype over the 2000 and 2005 vintages, dedicated Bordeaux devotees like me have declared “No mas!” We’re sick of the free-flowing, artificial inflation pouring out of the Chateaux and into our marketplaces like so much Two Buck Chuck. We’ve had it.

    Furthermore, in case you missed it, so has the worldwide economy. The 2000/2005 hype has come home to roost in the warehouses full of ’99, ’01, ’02, ’03, ’04, ’06, and ’07 vintages, soon to be joined by the ’08 and ’09. It’s not the consumers’ fault. The fault lies clearly with the producers and their objectionable, arcane marketing ways.

    They’ve sown the whirlwind, and now they’re reaping it.

    To even remotely suggest the use of something akin to a “supermarket loyalty card” is proof positive you don’t know what’s going on out here. When my neighborhood market instituted a loyalty card system seven years ago, it didn’t build my loyalty. It pissed me off. Suddenly, unless I was packing their card around with me, my money wasn’t good enough for them anymore. They chased me away, and I haven’t shopped there since. Too bad for them — that’s where I purchased 90% of my groceries and wine. Not any more.

    When a Seattle business writer suggested in his newspaper column several years ago that the objection to loyalty cards had blown over, his mailbox was overwhelmed by those who begged to differ. He ultimately had to write another column, retracting his earlier claim.

    Your suggestion that adopting a price reduction in the 2008 vintage will render Bordeaux Classified Growths a “devalued commodity,” and cause them to “lose respect around the world as a quality,” is pure hokum. You want the Chateaux owners to start “thinking outside of the box,” but you can’t see past the end of your nose. The “true market forces” are we consumers, not the Chateaux. Things have changed. There are no more Wall Street yuppies and billionaires to overpay for wines they just had to have, to show off with, or to compensate for their lack of self-esteem. People who overpaid and speculated on the 2007 vintage pretty much got what they deserved. If, as you claim, “the wine is clearly not fit for purpose at the price paid,” I must ask what exactly that purpose was.

    Loyal customers of Bordeaux, like me and thousands of others, have clearly not been valued by the Chateaux for a long, long time. Now it’s our turn to decide whether or not we feel like valuing the Chateaux.

    I applaud the fine owners of Chateau Angelus for injecting some reality into this heretofore false market economy. They make some of the best wine in the world. There’s no reason it should be languishing in a dark warehouse. The other Chateaux would do well to follow Angelus’ example. Give us a break for a change. We’ve been giving them our change for years, and all they’ve been doing is breaking us.

  2. Nick says:

    Hi Jef many thanks for your comments.

    I must agree with you that Angelus as an estate produces excellent wine and I can understand why you are a follower of it.

    Having read your comments I feel we are on the same side here but from different angles. Loyal customers to Bordeaux wines have been shown no respect at all over recent years by the Chateaux. The prices have only reflected their greed to line their own pockets without any respect for those who buy their products.

    Their customers are not only the end user (the public) but the wine merchants throughout the world and the Bordeaux Merchants through whom they sell initially. It is the trade that are governed by the allocation system. “you don’t buy our wine this year then you lose your allocation for successive vintages” – which does not represent true market forces, more of a threat and dictate. Merchants have been working with this system for decades allowing the ‘end user’ to receive his favoured Bordeaux wines normally under the same system. If your supplier has not operated this system with yourself then you have been lucky.

    I am uncertain as to the last vintage of Angelus you bought. I can only assume from what you have eluded to that it was well back into the 90’s. I can therefore understand why you stopped following it as the prices did go stupid. That said $75-$130 was still a lot on money even back then.

    As for those who have been following Angelus all the way through recent years (including the vintages you mentioned being in storage) without missing a vintage, such as Merchants and the consumer, those are the customer I am referring to – in the way of a thank you by offering a discount to those loyal supporters. Those who have dipped in and out of vintages will still be looked after by being able to get the 2007 vintage at a very much cheaper price as the discount would be applied to the stock which has remained unsold thereby everyone wins from the suggestion. This is the way a loyalty card system works (not a credit card bearing the stores name) as you support a store you are offered further incentives to buy by way of additional discounts off the products they sell.

    All things being equal, a price should reflect the perceived quality of any good with a strong correlation between the two. Therefore should a better product be produced at a cheaper price shouldn’t the dearer product, produced by the same company, which is known to be inferior, be cheaper and priced accordingly? If this mechanism isn’t adopted with the superior product (the 2008) being vastly reduced in price to the inferior product (the 2007) surely the product will be devalued in the eyes of the loyal consumer and deemed unfit for purpose. The purpose of which is drinking a high quality wine but due to its price isn’t as high a quality as its successor which has been sold at a much lower price rendering it unfit for the perceived propose for which you purchased it for i.e to drink ‘high quality wine’

    I applaud Angelus as well however I think it would have been better to do it differently as some people buy for the quality of its products and others merely on the price!