Greg Sherwood MW: Navigating the slippery path to wine premiumisation

We’re now a couple of weeks into the 2024 Bordeaux En Primeur campaign here in Europe—an annual bellwether for the fine wine world. Traditionally, this period carries enormous weight, with the potential to shape not only the fortunes of the Bordeaux market, its négociants, and the reputations of individual châteaux, but also to influence sentiment across the global fine wine trade. A strong campaign can energise the market, creating positive momentum beyond Bordeaux, while a weak one risks deepening hesitation and deferring confidence industry-wide.

Increasingly however, merchants and fine wine retailers have started distancing themselves from the general Bordeaux market malaise around the Primeurs because for at least nine of the past 10 years, it has arguably been a commercial failure for most people involved, the possible recent exception being En-primeur 2019.

Two weeks into the EP 2024 campaign, the incriminations and merchant tantrums continue to grow ever louder, with not even a 30% decrease in the Chateau Lafite-Rothschild price (available to consumers at circa £1,770 per 6 Underbond or R43,500) able to assuage discontented merchants. But like in most Primeur campaigns, because the new price releases are massively staggered, those chateaux releasing later in the campaign have the benefit of context, able to see the relative indignation the pricing of earlier releases has stirred, thus allowing them to quickly reassess their own pricing level and avoid misfires.

Reading between the lines, this is almost certainly what happened with the Chateau Cheval Blanc 2024 price of €276 per bottle which was released this week at a level lower than even their post Lehmans EP 2008 vintage crash price of €300 per bottle. They almost certainly heard the mood music and realised that not even Lafite’s discount was sufficient to entice buyers to come out and play ball. With the release of Chateau Montrose 2024 in Saint Estephe on the horizon, rated possibly the best wine on the left bank this year, the anticipation grows steadily in the fine wine trade.

While merchants, negociants and chateaux owners can debate the relevance or complete lack thereof of the annual Primeurs endlessly, what is far more meaningful and important is to understand the reasons why the chateaux are not prepared to lower their prices further, and, in their minds at least, potentially damage their brand’s long-term reputation and equity in the wider global market.

Quite simply, the top chateaux – you can decide for yourself whether it’s the top 50 or top 100 – have all looked at the evolving fine wine marketplace as well as the rapidly changing consumer demographics and decided some time ago that traditional pricing structures ought to be dumped in favour of ‘luxury brand pricing strategies’, following principles more akin to the wider luxury goods market than to anything we see in traditional wine markets.

Much of this change in pricing strategy unsurprisingly coincided with the sale of several premium chateaux to the likes of the Chanel Group (think Rauzan-Ségla, Berliquet and Canon) and to Louis Vuitton Moét Hennessy owner, Bernard Arnault, now worth a meagre $192bn. If the Boomers don’t want to buy anymore new stocks, then perhaps this is the perfect time to realign pricing with other premium luxury consumer goods that many Gen X’ers and Millennials DO still aspire to buy. In due course, if strategies are successful, Gen Z’ers would follow suit as well as their incomes rise.

With all this pricing and strategy noise being touted around the fine wine market, perhaps it’s time for merchants to put their collective business and marketing caps back on to take a closer look at how these premiumisation strategies might affect the future marketing of wine and what these strategies might look like in reality.

In a wider consumer market context, premiumisation in retail is a megatrend and a strategic move by consumer brand owners to elevate their product offerings and charge higher prices. It was surely only a matter of time before the Bordeaux fine wine chateaux followed suit. If we are all going to be drinking less, as current OIV figures suggest, then why not focus on super-niche, high-value segments only?

Over the past few years, there has indeed been a growing demand for quality, authenticity, and more unique consumer experiences. At the same time, inflation has driven many companies to become more comfortable with overt price increases. “Value for money” is no longer the prevailing mantra. However, raising prices may be reaching a breaking point as consumers are becoming more discerning.

In many lower value categories of wine, the private label or Buyer’s Own Brand (BOB) is by default the cheapest option on the shelf in major retailers, and its market share seems to keep on growing. Brands need to rethink what makes them unique and worthwhile so as not to lose their customers. For many Bordeaux chateaux, this is quite simply wishing to see their wines sold at a certain higher price point that does not fluctuate massively like in past Primeur campaigns, but is constant, reinforced and upwardly scalable with increased quality.

What marketers then ask themselves is “how can consumer brands ‘premiumise’ while still retaining their core customer base?” But, if like in the Bordeaux fine wine market your core customers are rapidly changing, then surely this would seem the perfect opportunity to change the way you market, sell and price your products? Too many chateaux clinging on to selling via the Primeurs system is perhaps what is really holding the region back? The negociants will always be there willing to offer their distribution networks if there is money to be made.

The most obvious path to premiumisation is to have a high-quality product and there is no denying the quality revolution that has occurred in Bordeaux in the past 20 or 30 years. Many premium chateaux are now capable of producing second wines that are of a higher quality than even their Grand Vins were in the 1970s or early 1980s. Yes, these wines have also become more expensive, but they have also been fine-tuned with remarkable modern winemaking craftsmanship.

While the chateaux have certainly tailored their product offerings to individual preferences and purchase behaviours in an attempt to build brand loyalty, doing so effectively within the fine wine category is a lot more difficult and complicated compared to building a loyalty programme for Starbucks coffee drinkers. The general detachment and inaccessibility of the top 100 chateaux still makes building an effective emotional connection and consumer product experience a difficult proposition. Bordeaux has still not fully embraced a wider end-consumer interface engagement strategy.

Post 2009 and 2010 vintages, the Chateaux have certainly had the money to ‘embraced the new’… new cellar tech, new equipment, new wineries, new second and third wines, new premium label designs, and some have even embraced new interactive consumer tasting experiences in London, New York or Hong Kong to drive up the excitement value of their brands. Also viticulturally, embracing ‘the new’ has had a particular resonance with the next generation of consumers where organics, biodynamics and regenerative viticulture has taken on a greater importance for these ‘green aware’ fine wine end consumers.

Unfortunately, the Bordeaux chateaux, and indeed premium wine producers across the world, have struggled to leverage one of the most important tools in the luxury brand marketing tool kit, namely scarcity. We all know that the top boutique chateaux wines are made in more limited quantities than before, and even the first growth Bordeaux chateaux who once botted 8,000 or 10,000 dozen bottle cases annually are now only making 3,000 or 4,000 cases in an effort to build the notion of scarcity and quality, however, much of this endeavour has been negated by a rapidly shrinking consumer base of active fine wine drinkers with pockets deep enough to afford these premium wines.

Even with the increased use of more sophisticated ‘pricing architecture’ or classic ‘good, better, best’ ladder branding of their chateaux wines, lower quality tiers of second, third of even fourth label wines have merely shifted into more direct competition with alternative premium products from the USA, South Africa, Australia and New Zealand especially if we are talking about red and white Bordeaux blend categories.

Somehow, the Bordeaux chateaux will have to re-examine how they justify their wines’ price tags to a new generation of consumers. A large part of this will be redetermining how elastic their premium pricing can be, whether sold direct to merchants or through the Primeurs system. How will demand change when product pricing increases or decreases? These factors will then help them determine qualitatively how elastic their demand is and how loyal their consumers are.

Markets do not always function logically, especially the fine wine market. Sometimes, there are simply “magic price points” that represent steep drop-offs or sharp increases in demand. Premiumisation is not a simple solution but a strategic approach that will require careful planning, execution and adaptation if chateaux are to achieve long-term success and reinvigorate the entire Bordeaux region.

• Greg Sherwood was born in Pretoria, South Africa, and as the son of a career diplomat, spent his first 21 years traveling the globe with his parents. With a Business Management and Marketing degree from Webster University, St. Louis, Missouri, USA, Sherwood began his working career as a commodity trader. In 2000, he decided to make more of a long-held interest in wine taking a position at Handford Wines in South Kensington, London, working his way up to the position of Senior Wine Buyer over 22 years. Sherwood currently consults to a number of top fine wine merchants in London while always keeping one eye firmly on the South African wine industry. He qualified as the 303rd Master of Wine in 2007.