Now the tastings are over and people are reflecting on their notes, thoughts and impressions of the so called Vintage of the Century, attention is now being concentrated on price. Being in the middle of it all I have been hearing various rumours and the one that continues to go round is that prices from some of the châteaux may be prohibitive for the majority and this in turn may make this vintage less of an investment vintage. If Bordeaux doesn’t get it’s pricing policy right never mind being called the Vintage of the Century it could be called the Biggest Con of the Century!
The thing that really concerns me about the major French châteaux owners is not their ability to make great wine but their inability to be customer/market focused. They seem to have blinkers which may be governed by their arrogance as to the state of the market and the economies in which those markets operate. The economies of the West of late – as we all know – have faced great hardship for whatever reason with Gross National product (GNP) suffering from the downturn of the global economy. Whereas counterparts in the Asia- Pacific (Apac) are attaining GNP of around 10% and seem to be doing quite well, thereby creating wealth. Whereas in the West we seem to be standing still or worse. (I still think many European countries are being economic with the truth as to the state of their own economies but that is a different Blog on a different story).
This En Primeur situation refers back to a Blog I wrote last year on the 2008 En Primeur campaign (Open Letter to the Chateaux Owners) whereby châteaux owners are too product orientated. By which I mean they think their product is the best, maybe the best they have ever produced and therefore people have to pay for it! – rather than consider the market place in which they sell (market orientated). My fear is that they will disregard market and economic conditions and will take the view that the Apac countries will take up the slack i.e. buy the wines that their traditional markets will not be able to afford.
The rumour that I hear most is that châteaux will take the 2005 prices and add 20 – 30% to these prices to calculate this year’s release prices. If this is the case the First Growths which came out at roughly 450 Euros a bottle in 2005 will now have the potential to be offered at 540 plus Euros a bottle. Bearing in mind château owners are a cunning bunch and in the better vintages they always sell in tranches (various releases) I think they will release a minor percentage of the total they wish to release at what might appear to be an attractive price for the initial tranche and with subsequent releases they will increase their prices significantly! Later, when criticised about their pricing policy they will always refer back to the first price the wines were released.
Should this theory be put into practice I believe at nearly £5000 a case one has to question the investment potential as the chateaux owners will be taking not only the margins from the production but also any potential growth margin. Not to be outdone by the First Growths other châteaux, irrespective of quality/demand, all seem to release at a very similar mark up – at what price Cheval Blanc will be released is anybody’s guess because somehow they always seem to release at the highest price!
Operating at this price level Châteaux owners then become not only wine makers but also wine merchants because they hate the idea of other people making money out of their own wines and as this trend has continued the more embittered they have become and hence the hike in prices.
I believe the châteaux owners are set on the theory that the slack will be taken up by the Apac countries and that they will be OK to release at whatever price they wish. However China in particular as yet hasn’t really bought into the En Primeur market and have been reluctant in the past to pay for goods some 18 months/2 years before they receive them.
Although many people are convinced that they will enter the En Primeur market big time this year I remain a little sceptical about that theory. If I am wrong then the châteaux owners will be very happy and pat themselves on the back for providing a pricing model which has been successful. If I am right then I can see an awful lot of wine remaining unsold in the hands of French Negotiants and Wine Merchants throughout the world. If you bear in mind the Allocation system (where if you don’t buy one year you will not be offered wines the next) this puts extreme pressure on the cash flows of these businesses which could ultimately send them into liquidation.
The wine market is so fragile at the moment with pressure on margins and cash I believe that if the châteaux owners release at the 2005 plus prices their decisions could burst the bubble and potentially could be the end of En Primeur through lack of trust and respect from the market they supply . . . how does the expression go . . . ’never bite the hand that feeds you?’ Châteaux owners will dissipate their own market as buyers move on to pastures new such as Burgundy or the Rhone which is happening already as customers are fed up with the greed and arrogance of the top producers! Time will tell . . . or maybe this is what the chateaux owners want as underneath it all they wish to have more control on the distribution of their products? Now that would be interesting wouldn’t it?
On Monday I will be writing about a wine scam that has recently appeared on my desk. I have written about my concern of these appearing as a result of the hype surrounding the 2009 vintage and if you come across any over the next coming weeks please let me know!
Have a great weekend as it looks like we are in for some barbeque weather. Enjoy and remember to apply your factor whatever!