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!