Michael Fridjhon: Bordeaux, Burgundy and how best to get product to market
By Michael Fridjhon, 17 June 2020
For around 50 years Bordeaux had the smartest pricing and marketing model for the sale of high-end consumer goods. Six months after the vintage and at least a year before the wines were ready to go-to bottle, the producers used to invite their clients (and the leading critics) to taste what they had made. They issued a caveat which said that the sample being offered for tasting was representative of the final wine, but was not the end result. The critics assessed these cask samples as if they were the final assemblage and gave them ratings (where it was common to find variances of up to 30% within the actual range of scores). The invitation came with the opportunity to party extensively in the region. The wining and dining was at the producer’s expense, but all the travel and accommodation costs were for the clients’ accounts.
Then, officially without having consulted their neighbours (because that would be collusion), the individual estates announced their primeur prices (which amazingly were pretty much in line with all the other producers whose wines were graded alongside them). They were free to manipulate the volume on offer and they were not obliged to disclose the full and final amount being released on the market. On paper it was a mug’s game, where the buyers were the mugs: the sellers controlled the essential data without which the buyers couldn’t make a properly informed decision.
What was sold during the primeurs campaign could cashflow the entire crop. Producers were paid more than a year before their customers received their wines, certainly in time to buy the new wood barrels which are an essential component of the sex appeal of undrinkably young claret. In a bull market, the producers wept all the way to the bank. While the primeurs haven’t worked perfectly lately, the system functions well enough as long as the vintages are small. A run of decent, good volume vintages causes the whole structure to take the serious strain.
For the fewer than 200 estates whose wines are widely sought-after throughout the world of wine, it’s an addiction too difficult to give up. It simplifies distribution, cashflows their operations and achieves an equitable pricing arrangement that, despite the occasional leads and lags, reaches an equilibrium. Given that most of the Left Bank properties produce 15 000 – 20 000 cases of grand vin in a decent vintage, it takes the horrors of hand-selling stock out of the equation.
Compare this for a moment to what has happened at the pointy end of the Burgundy trade. Half a century ago there was no market for growers’ wines. Before the war, the Domaine de la Romanee-Conti kept a large basket at the entrance to its offices with loose bottles for retail sales. This situation has completely changed in the past 35 years: demand for Burgundies only available in tiny quantities from the best addresses has sky-rocketed. For these producers, the game is about allocation: how to spread their wines through the maximum number of influential markets without losing momentum and without compromising relationships. And whereas for the Bordelaises a small vintage is a blessing, for the Burgundians – who have experienced a succession of them – it ratchets the tightrope to breaking point.
The Cape wine industry looks at both these models with deep feelings of envy. Depending on what end of the spectrum a producer finds himself he tries to decide which – if either – could be panel-beaten into a shape to meet his particular requirements. It’s a fantasy with about as much chance of becoming a reality as Minister Patel’s Covid-19 winter clothing list. These different sales and marketing strategies developed over time, and to meet the specific features of the two, vastly different, French wine regions. Burgundy land holdings are tiny: most growers’ vineyard blocks average less than a hectare. They make up critical mass by owning several such parcels or operating a fermage (or sharecrop) arrangement. Most smart domains function on volumes of less than 10 000 cases (and in most cases less than half of that), spread across several appellations. In other words, they have fewer than 1000 cases per wine type per vintage to offer for sale to the entire world.
Arguably the few South African producers whose reputation and trading template most closely approximates the Burgundy model are already operating along these lines. The Sadies, Alheits, David & Nadia’s are faced with the enviable (or unenviable?) task of trying to spread small volumes of prestigious wines through the trade and to private customers. Sometimes they have to make the sales of the rarest wines “conditional” on the uptake of the newer, less prestigious selections. It’s not rocket science: it works for them because volumes are quite small and demand is quite strong. That’s how it works for Harlan and Screaming Eagle in the US.
For producers with small volumes, Burgundy presents the obvious solution. The usefulness of the Bordeaux model is less evident. It would probably never have evolved today: it grew out of a centuries’ old arrangement whereby the landed gentry sold their wine in barrel via courtiers, who in turn managed the unsavoury business of handling filthy lucre. From the 1860s to the 1960s the great Bordeaux estates were not only losing money. They had also lost control of their wines, and of their brands.
Over 35 years ago The Bergkelder tried to follow the Bordeaux model and set up a primeur arrangement for the wines of its leading estates. It worked pretty well until the pipeline filled up. Then, a little like a Ponzi scheme, it imploded the moment it ran out of suckers. The idea was good in theory – but in an era of isolation, there was nowhere for all the wine to go.
No doubt there are still producers of big volume brands dreaming of a one-off sale of the entire vintage even before the wine has been bottled. Meerlust could probably manage it, so could Kanonkop. Neither needs to do so and both would have to evaluate the loss of control over the stock against the apparent cash flow benefit. In my view, both proprietors are way too smart to fall into that trap. On the contrary, they need only look to how Chateau Latour has walked away from the primeur market entirely, releasing its wines when it considers them market-ready. Why dream of a horse-and-buggy when the world is at the threshold of inter-galactic flight?
- Michael Fridjhon has over thirty-five years’ experience in the liquor industry. He is the founder of Winewizard.co.za and holds various positions including Visiting Professor of Wine Business at the University of Cape Town; founder and director of WineX – the largest consumer wine show in the Southern Hemisphere and chairman of The Old Mutual Trophy Wine Show.
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