Sometimes, the wine gods smile down on us from on high and good things happen.

In my case, that good thing was news that my wine blog post on social media adoption in Bordeaux had been awarded the wine and technology top prize in the 2019 Millésima blog awards. It was paragraph two of the congratulatory email that caught my attention: “You have won an all-expenses-paid trip to Bordeaux during the famous “En-Primeur” week.

Needless to say, the superlatives spilling forth from my mouth cannot be repeated here. But let me assure you, there was celebrating, wine, and a lot of happy!!! All those (unpaid) hours of researching, writing, re-writing, re-writing again, image sourcing, fact checking, fact checking again…..worth every moment, because in the world of wine, there is no greater prize than Bordeaux.

The experience was magical. I spent a week drinking the best wines of Bordeaux and meeting the winemakers, technical directors and owners of storied grand cru classé châteaux. There was a ton of learning, a ton of tasting, and a schedule beautifully blended to showcase the grandeur, hospitality and rich historical tapestry of Bordeaux. The bonus was a deeply immersive multi-appellation, multi châteaux itinerary created by the incredible events team at Millésima. Thank you all!

 

In the small world category, the host château for our visit was the magnificent Cos d’Estournel – a second growth in the 1855 Classification and the first winery visited on my first-ever trip to Bordeaux in July 2018. How ironic that I was back to taste all that delicious fruit I saw growing at Cos and throughout Bordeaux.

Honestly, life doesn’t get much better than this.

En Primeur 101

So what did I learn? First, that Bordeaux is without a doubt the most exciting wine region in the world. Second, that selling wine in Bordeaux is complicated. And third, that en primeur is as much about research and doing that ‘literature review’ as it is about tasting wine. Yes, it is a thrilling, heady experience to visit the châteaux and taste classic, Bordeaux wines en primeur and I’ll be writing about that in my next post. But to truly understand Bordeaux’s annual “futures” campaign – the process, the players and the pricing – you need to understand the algorithm of influences framing the system.

Did I do that? My homework? Not well enough!

Let me explain. At the Union Des Grands Crus “Silent Tasting” – essentially the official launch of en primeur week – I asked a château representative if I could buy his wines in Toronto at the LCBO – our government retailer. He shrugged and said “I have no idea where my wine is sold. That is not my job…..my job is to make the best wine possible.” Ok – be like that, I thought. Next day, I posed the same question to a Margaux winemaker. Same response: “You should ask Millésima because I do not know,” the château owner kindly advised. What didn’t I know about en primeur and the Bordeaux distribution process?

For starters, that once a château sells their young wine to a “négociant” – Bordeaux’s famous wine merchants on the “Place du Bordeaux” – their sales work is over. Distribution is done! It’s now the job of the négociants, to build visibility for the brand and find buyers, wholesalers, retailers and end-of-the-supply-chain customers around the world. And in a business practice that is uniquely Bordeaux – and a BIT of a sensitive issue – rarely is that distribution spreadsheet shared between négociants and châteaux and rarely does a châteaux know its customers.

Hence, the responses I got, and my first of many “lessons learned”.

Other key learning: the Bordeaux business model is different from every other wine distribution system in the world. It’s loaded with history and tradition, and processes and players – all dating back to the 11^th century. And it has multiple layers:  châteaux, brokers, négociants, and retailers or end customers. Add to that, the spring en-primeur or futures market, a speculative financial instrument widely used in the agricultural sector (think: pork bellies and soybeans). In Bordeaux’s case, this financial product was implemented post World War II by négociants to help support cash-poor producers.

The theory behind it was simple. Top châteaux – producers – would commit to a highly discounted price (~50% of final value) for their fall-harvested wine. That discount would guarantee attractive returns to négociants, resellers and wine investors – essentially, all participants in the supply chain. In return, producers would receive full payment on their wine and important, up-front cash flow. They’d also have access to warehouses for storing and shipping the wine. This early release model proved popular and soon, other producers in France – Rhone and Burgundy – and also in Spain, Portugal followed suit.

Fast-forward seventy years and the Bordeaux en primeur ritual is the most celebrated date on the wine calendar grabbing international wine headlines, (err – tweets) and boasting the requisite château glamour. With glitz and glamour, though, come profit expectations – high profit expectations. And for many decades, Bordeaux first-growth wines such as Chateau Lafite Rothschild, Haut-Brion, Mouton Rothschild, Margaux and Latour delivered on those expectations with sound investments returns.

But, the great crus can’t carry the weight of the region, and according to a recent article in The Economist, Bordeaux’s investment supremacy is being challenged. In 2010, Bordeaux represented 95% of wine trades. Today, it accounts for just 59%, a marked decline. Indeed, reduced investor profits, a few challenging vintages, inflated wine prices, volatile markets and a long list of exciting new wine regions have all made the business of selling Bordeaux wines early – en primeur – controversial and just a little more challenging.

 

A deep dive into En Primeur – read on.

Now that we have established that nothing in Bordeaux is simple or categorical, let’s get into the weeds. Below is my take on the key architecture of the futures market.

Included here are a) the economics underpinning the Bordeaux marketplace, b) the raft of considerations that influence the term “vintage” – like climatic and market conditions, and c) the layers of players that represent Bordeaux’s wine marketplace – château owners, négociants, brokers and the end consumers. I’ve also added my take on it all – the future of futures. There is no hierarchy of importance to the building blocks of en-primeur – they’re all equally important. So enjoy the homework! My ignorance is hopefully your bliss.

The En Primeur System

In spring each year, wine writers and the wine trade descend on Bordeaux to taste the previous year’s vintage – in barrel. The wine is not ready to be enjoyed; it will be another couple of years before an estate’s wine is bottled and shipped to importers, wholesalers and wine lovers around the world. Even then, classic, sought-after Bordeaux wines famously require 10 – 20 years of cellaring before they’re ready to drink. But tasting ‘in barrel’ gives the professional wine community a solid glimpse into the quality of the vintage, and this spring ritual is the hallmark of the Bordeaux wine marketplace.

For châteaux participating in en primeur, the spring season is about due diligence. They’ll meet with the wine trade and wine writers, assess their comments on the strength of their vintage and weigh these against the larger macro-economic trends affecting international and Bordeaux wine markets. Then they’ll release the price of their wine onto the futures market. Most of these price releases happen in April and May – some châteaux lead the charge on pricing, others hold back, playing it safe, monitoring press and investors reactions to the early releases.

Once a château releases its price, Bordeaux’s wine trading houses – négociants – quickly buy and confirm their cru “allocations”. The reality is they move quickly if it’s a strong vintage – often asking for more – and drag their heels if it’s not (i.e. weaker vintages are harder to sell and inventories are often held for longer periods). Négociants act the middlemen/women buying these highly prized wines as a future investment for their clients before they hit the market… hence, the term futures market. My research suggests négociants make a 10 – 15% commission for their part in the risk/reward equation, but I’m assuming that is supply chain and vintage quality dependent.

Négociants key role is to find buyers for these wines. Of course the theory behind en primeur is if a wine buyer takes a risk – buying wine in-barrel – and investing two years before the wines are bottled, shipped and physically released to the public – that the buyer should be rewarded with a lower purchase price. Buy low, sell high, right?

Right, but buyers need to understand – as with the stock market – market volatility and other macro-economic forces can have a positive or negative impact on a wine investment (keep reading for an analysis of market influences affecting the 2018’s). The famous 2010 en primeur campaign, for example, saw record-high release prices in spring 2011, with prices crashing later that fall. The value of many of 2010s have still not recovered, leaving buyers of the 2010 vintage out of pocket. Then there’s this finding from Liv-ex on the recently released 2016s: “Of the 50 wines represented by the Bordeaux 500 Index, 11 have risen since release, one hasn’t budged, and 36 have dropped. On average their prices are up 2.4% since release, meaning that the vintage has underperformed against the market so far: The Bordeaux 500 Index is up 8.7% since April 2017.”

Clearly patience applies to the equity markets and investors of 2016 Bordeaux.

In other cases, investors have realized significant gains – and as Ronan Laborde, President of the Union des Grands Crus de Bordeaux and CEO of Chateau Clinet told me “with low interest rates world wide, demand continues to grow in the world for many of the Grands Crus making these wines a good investment.” Plus, he says, if you look at some of the iconic 2018 Bordeaux wines that have already been released en primeur, “it’s very hard to get them. These wines are already sold out.”

Fabrice Bernard, CEO of Millésima, négociants who brought us to Bordeaux agrees. “We must return to the fundamentals and ensure the possibility of an added value for the end customer. We often forget that buyers of great vintages and lesser vintages are not the same: there should be larger differences in price between great vintages and lesser ones.” He argues primeurs are a part of Bordeaux. “Bordeaux wines have never been better,” he says. We just need to find the right price to suit each vintage.”

With scarcity comes higher wine prices…

Bordeaux is often in the limelight, attracting attention and sometimes unfair and undeserved criticism, acknowledges Allan Sichel, chair of the Le Conseil Interprofessionnel du Vin de Bordeaux (CIVB) in an interview with wine-searcher earlier this year. “The most prestigious, sought-after wines are in very short supply and can reach very high prices. This is the result of high worldwide demand.” But he says this is only true for about 3 percent of the volume produced in Bordeaux. “There is no doubt in my mind that within the 97 percent remaining can be found a large proportion of wines offering the best value in the world.”

As I write this, just over half of the châteaux have released their Bordeaux 2018 en primeur wine prices. Liv-ex’s key finding: sales for 2018 are currently running at or just above 2017 levels but below the 2016s.

So who is Liv-ex? The stock exchange for wine buffs; the S&P of wine, if you will. The Liv-ex indices track the prices of the most traded fine wines on the market. It’s a fabulous resource for those in the wine trade and for investors and wine lovers looking for price trend analysis. The Liv-ex Bordeaux 500 – referred to earlier – tracks the price movement of 500 leading wines from the region. According to Simon Staples, head of sales at Berry Bros & Rudd, a large UK retailer, 85% of wine buyers purchase high-end wines online an investment vs. for personal consumption. So tracking the long-term price movement of the wine market, is important business.

Remember I said en primeur is controversial? It appears everyone has a point of view on the investment value of buying en primeur. The elite châteaux – by and large – like the system. En primeur gets their wine into the marketplace quickly, their wines are always the first to sell through, and they get their cash up front. Many others, however, say proceed with caution. By all means buy Bordeaux – the region has had a string of fantastic vintages and the wines of 2014, 2015 and 2016 are sublime – but as with all investments, do your homework. Release price, vintage quality, critic’s scores, previous years’ price points, inventories, value (!) all come into play when investing in Bordeaux. Speaking of the 2018 vintage….

Vintage – Climate Conditions

To know Bordeaux is to know and appreciate the idiosyncrasies of a vintage. That’s true in most wine regions but it’s particularly true in high-stakes Bordeaux. Speak to a château owner or technical director here, and you realize quickly that vintage charts are a highly simplistic, topline assessment of the quality of a vintage. For me, they’re a little too binary. It feels wrong to distil Bordeaux – with 60 diverse appellations and a world-famous blend that allows flexibility in a challenging vintage – into a black and white, good-bad scenario. It fails to account for the talented winemakers tasked with mediating Mother Nature’s influence and reshaping the metrics of the blend (think: Right Bank frosts in 2017 when many winemakers in Pomerol and Saint Emilion had to work with what they had while still delivering the grand cru standards of the estate).

When I attended the En Primeur Press dinner and had the pleasure of sitting with château owners from across the region, I discovered vintage discussions are rich, layered tales of weather disasters, HR challenges and inventory management. A meaningful vintage assessment often includes slicing and dicing and comparing and contrasting attributes, characteristics and nuances of vintages. A simple “how was the 2018 vintage?” question drew answers like this: “the 2018’s have the fine grained tannins of 2000, the freshness of 2017, are more concentrated than the 2016’s, but less opulent than the 2015’s.” Or: “the current 2016 release is showing the freshness and aromatic intensity of 1996, the ripeness of the 1989, 1990 and 2010 and the pedigree of the 2005s”.

Got that? Bordeaux expertise requires intimately knowing your grapes and your vineyards, and locking and loading a vintage’s data set into your brain. If you ask me, Bordeaux is a lot like golf: it’s a celebration of the wins, the wines and the scores and when you have a good, or challenging game, you never forget.

But back to the weather. This is a BIG – bordering on monolithic – concept. Key to the term ‘vintage’ is the range of climatic conditions affecting the wine and importantly, the wine’s ability to age.

Was it a good vintage? To answer this question accurately, requires a four-season, 365-day assessment of the conditions leading up to harvest.

Starting with winter: was there snow cover over the winter months, adding much needed spring moisture to the soils? How cold was the winter? Did winter-kill result in vine loss and was replanting required (thereby reducing chateau yields)? How about rain….was there too much/too little/just the right amount of rainfall during the growing season? Did it affect harvest? Late rains can dilute fruit and seriously mess with picking schedules. Was there spring/fall frost (reduced crop – see 2017) and if so, did it impact all grapes in the blend? Was there a secondary budding; was the ‘second growth’ harvest-ready or green (affecting blend)? Was there disease pressure from, say, moisture, critters or biodynamic/organic practices? Were temperatures too high/too low/just right? Was there enough heat to ensure phenolic ripeness or too much heat resulting in higher alcohol, higher pH? Was there hail and did it damage the vines? Was it windy …hot….cool at night and how did those conditions affect grape skins, tannin levels and acidity scores? Any forest fires (grape taint)? Was the crop harvested early/late/on time?

No one said growing grapes is easy and we haven’t even addressed the impact of climate change!

For those considering investing in en primeur wines, most merchants will offer an overview of the climatic considerations affecting the current vintage. You can see a few here, here and here. The short answer on 2018: rough start, dream end. Not quite the textbook, legendary vintage of 1982, 1989 or 2010 but a very, very good growing season.

Vintage – Market Conditions

 Then, of course, there are the often equally challenging macroeconomic issues affecting the vintage and by extension, the value of wine purchased en primeur. Much can happen in the world (elections) and the uber competitive wine world (Burgundy) to affect demand and your en primeur investment.

Like Brexit. Châteaux may have produced a highly regarded vintage – the 2018’s – or recently bottled an equally impressive vintage – the 2016’s – but market uncertainties can throw a wrench into the best laid plans. The market challenges around a deal/no deal Brexit have caused tremendous anxiety for château owners and merchants in Bordeaux (see this article on Château Bauduc). The UK is the fourth largest international market for Bordeaux wines at 24 million bottles in 2018. With potentially no online system in place to support the logistics and transportation of wine across the UK border, it’s easy to see how politics can affect Bordeaux pricing, inventories and revenues.

Are currency devaluations in the UK and the EU a concern?

Is the strength or weakness of key export market economies affecting demand for Bordeaux wines?

French wine and spirit exports to mainland China declined in 2018 by 14.4% as the Chinese market slowed and friction with trading partners increased. Economic growth also slowed in Japan, Italy and Germany.

Then there are the global trade tensions and increased tariffs, particularly between the U.S. and China. The U.S. president loves tariffs: “I’m a tariff guy” and “America First” he’s been known to say. The EU is about to re-start trade negotiations with Donald Trump…

Other market influences? Closer to home, is the news around Bordeaux’s 2018 current release a good-news story and is the community coming together to help build excitement? The horrible frosts in 2017 in specific Bordeaux appellations like Pomerol, Saint Emilion, southern Graves and more, resulted in the community soft-pedaling the vintage out of respect to those affected. This compassion is admirable but there are some who say the net affect was to reduce perceived vintage quality and vintage value.

And then making sense of it all……

The Wine Critics

The whole point of en primeur is to assess the previous year’s vintage (2018) and evaluate how it stacks up vis-a-vis previous vintages. Critics need to know all of the above to provide insight and a critical look forward – aka: age-ability.

Who determines the quality and market value of a vintage? For almost three decades one voice dominated the wine-buying world. Now, with Robert Parker, chief Bordeaux critic and godfather of the 100 point wine score, forever retired from the Wine Advocate (announced May 16, 2019), investors are seeking advice from a range of critics, and more than ever, looking for consensus. Wine critics from Wine Spectator, Decanter, Vinous, Wine Advocate and James Suckling are generally the dominant voices in this discussion.

These writers spend several weeks leading up to en primeur assessing the idiosyncrasies of the vintage, interviewing winemakers, technical directors and chateau owners. They travel the gravel and clay-rich hills and plateaus of Bordeaux’s key appellations – Margaux, Saint-Julien, Pauillac, Saint Estèphe, Pessac-Léognan, Pomerol, Saint Émilion – tasting, tasting, tasting the young wines. These are seriously intense weeks. For the 2018 en primeur campaign, critic James Suckling says he visited 67 château tasting more than 1,100 wines from the 2018 vintage.

All of the key critics race to post their reviews of the vintage – providing scores and tasting notes for top Bordeaux estates. No question – the focus is on the big guns – the first growths and prestigious grand cru classés. But they’ll often add reviews for some of the smaller, less visible estates in Bordeaux that offer impressive quality and value.

Like Robert Parker before them, these critics influence demand and ultimately, the châteaux selling price for the wine. Liv-ex – gotta love em – is once again your friend, and you can use this chart to track their scores. You can also compare and contrast the critics’ châteaux rankings with those of the merchants subscribing to the site. For hard core data lovers, Liv-ex also has a “fair value” score (ex-EP), which weighs vintage quality with release prices to help establish a “fair” market price for a wine (vintage quality decided by most influential critic scores. In 2018 that’s – Lisa Perrotti-Brown (WA), Antonio Galloni (V) and James Suckling (JS); Neal Martin – now of Vinous, is used by Liv-ex to assess vintages between 2013- 2017).

In the meantime, here are a few links to my favourite wine critics covering the 2018 Bordeaux campaign:

Jane Anson – Decanter – Bordeaux 2018 barrel samples were full of surprises in a ripe vintage that has pockets of brilliance but also some inconsistencies

Antonio Galloni – Vinous – The best 2018s are positively stunning. I don’t see the consistency of 2016, for example, but 2018 offers a tremendous amount of choice for the consumer, from everyday gems to the rarest of collectibles.

Elin McCoy – Bloomberg – The 2018 wines combine the mouth-filling plushness of the 2009s with the ripe structure of the 2015s and 2016s, plus a cool, bright energy that made me crave another taste.

Jeb Dunnuck – jebdunnuck.com – Bordeaux Rising – unquestionably another great vintage.

James Suckling – I can tell you that 2018 is an exceptional year for Bordeaux wines.

 The Role of Négociants (aka Wine Merchants)

So after the vintage, the markets and the critics have all had their say – the price is set… then what happens? I touched on the role of négociants in the business model section, but given their importance to the process, it’s important to round out the learning.

If you want to purchase any of the elite wines of Bordeaux, you’ll have to buy them from a wine merchant or négociant. Bordeaux châteaux don’t sell directly to consumers and you can’t buy a bottle when you visit. Producers may hold back 15 – 20% of the vintage for their own inventory, but in almost* all cases, the sale of wine is left completely to négociants who buy allocations from the producer. Those allocations must be honoured in high quality and lesser quality vintages, and négociants risk losing their future allotment if they don’t play by the rules.

(*The exception is Latour which is owned by Gucci, and who famously pulled out of en primeur system in 2012 electing instead to sell their wine at their Gucci boutiques.)

During the en primeur or “futures” campaign, the Châteaux release their wines at the same fixed price to the ~400 négociants on the Place de Bordeaux (the umbrella term used for all négociants participating in the system). The négociants purchase their allocations guided by pre-allocation orders from clients and anticipated demand. Then they sell, store the wines in warehouses and eventually ship them to importers and clients around the world. The large châteaux can release their wines to as many as 40 “Place” merchants. As I mentioned earlier, this longstanding system of chateau, selling to négociants, has been in place since the 11^th century with the development of the wine trade between Bordeaux and England. At the time most of the wines were bought in bulk from the estates by the négociants and then aged in négociants cellars who were then responsible for selling them. For many centuries – it was the négociants name on the wine – not the producing estate.

All these years later, it’s fair to ask, does the system work? “We’d need a large international, multilingual sales force of 40 – 50 people if we were to do this on our own,” said Geraldine Giroux of Cos d’Estournel when I spoke to her last summer. Anthony Burton of Leoville Barton told Decanter the system works well for them as well, with 75% of their turnover happening 24 hours after release. Bernard Magrez who owns a number of vineyards in Bordeaux including Pape Clemant and La Tour Carnet, says the en primeur and négociant process is essential for building visibility.

Detractors argue the Bordeaux system favours large established château – the higher release prices by the Grand Cru Classés means négociants are less likely to support the mid and smaller sized chateaux. The biggest sticking point, however, seems to be the lack of transparency between producers and négociants, where château have no idea where their wine is being sold – described by one château as a “hope for the best” strategy. There are stories of supermarket price wars where prestigious wine brands are being sold at a deep discount – well below the early purchase price. If you’re an investor how would you feel if you bought a case of _____ only to see it in a Carrefour supermarket for 50 € less than you paid – in the process, ratcheting down grand cru equity and investors’ hope for a generous ROI.

Millésima – a new business model

Our generous host, Millésima, is one of the top five negociants on the famous Place de Bordeaux. Millésima participates in and buys en primeur, but has chosen to sell to private customers only (other négociants include restaurants, hotels, cruise ships, retailers as customers). So in effect, they’ve eliminated transport to resellers in the distribution supply chain, which can have a detrimental effect of the quality of wine.

Founder of the company Patrick Bernard realized early on there were new emerging opportunities with online, direct-to-consumer sales. Millésima was the first Place de Bordeaux merchant to move their sales system online and sell to foreign customers using the Internet. Today 75% of their business comes from online sales.

In addition to selling Bordeaux wine, Millésima acts as a wholesaler managing the direct sale of French and international fine wines (Champagne, Rhone, Burgundy, Rioja, California, etc) to more than 150,000 private individuals, shipping 600,000 – 650,000 bottles a year. They have more than 12,000 wines in their catalogue and more than 2.5 million wines stored in their cellars.

Courtiers – aka Brokers

There is a third layer in the Bordeaux merchant system. They’re what I would call the “wine whisperers”. Courtiers are intermediaries acting as a “broker” between the château and négociant. Their job description includes providing counsel on price, facilitating the transfer of wine and deconstructing the larger economic variables affecting the marketplace. Brokers are also referred to as “the 2%” – a reference to the commission they charge. The négociant/courtier system actually became law in 1680, when King Louis XIV decreed all Bordeaux wine regions must work with these players. Today, there are only about 20 active courtiers but they have the ear of the most famous estate owners – which makes them “a force”.

The Future of Futures

Still with me? If you’ve hung in this far, you’ll know the Place de Bordeaux château – broker – négociant system has history and tradition on its side, but is also in a state of flux.

Many articles point to the lack of distribution transparency between négociants and châteaux and inconsistent price strategies in the marketplace as the key culprits. Frustration over price hikes by high-end châteaux in 2016 (i.e. for the recently bottled 2016 en primeur campaign Vieux Château Certan +28%, Figeac +47%) has left a community of investors …. grumpy.

Is the sky falling? No – but most pundits say the pressure is on Bordeaux as a region, to better align price to vintage and market conditions.

What’s in it for ME?

For wine consumers, to win at en primeur, they’ll need a spreadsheet (!) and that magical Bordeaux blend: wines that represent classic, age-worthy Bordeaux, which have earned consistently great reviews from the critics, that are released at a low enough price, and offered in limited quantities. And they’ll need patience….and a five year timeline. Minimum.

On the one hand…this en primeur system feels like a historical relic – and yet …. it works for most participants. Each player gets to make the most of their expertise – and the world continues to beat a path to Bordeaux and the en primeur door.

I admit – Bordeaux is now in my blood. I have found the wine community exceptionally warm and welcoming, and if you’re a student of history, terroir and great wine, how can you not love Bordeaux.

If there’s one thing I might work on, it’s the relationship between the châteaux – the merchants – and the people who drink their wine. As a long-time marketer, I’m not sure how you build a relationship and a brand if you literally don’t know who you’re talking to? I now understand the responses I got at the en primeur tastings to my “where can I buy your wine in Toronto” question. And I suspect, like everything else in Bordeaux, these challenges will be worked out in time.

Feature image: Tasting the Listrac appellation at the lovely Château Fonréaud (Cru Bourgeois) with the Chanfreau Family