François Mauss, April 2007

While the Champagne region indisputably is the French viticultural area which, by far, has the most effective marketing system and the best control of its own image, Bordeaux on its side established a successful and unique sales organization called the "Trade" (Negoce in French).

Historically our English friends, followed by the Dutchs and the Germans did set up this particular organization: the wineries (or chateaux) produce the wine and the trade organization sells it. I will briefly and schematically recall the dual process of the Bordeaux futures organization.

Every year in March, traders taste "en primeur" wines of the most important chateaux, mainly those who have a true international sales potential. Their assessments, comments and scores are the primary elements for the chateaux to set a possible "initial offering price" for the vintage. In order to possibly increase their prices at a later stage, the wineries often apply a "tranches" system as they only initially sell a portion of the volume of wine produced. Depending of the success of the first tranche's allotment, they can adjust the price for the following tranches accordingly.

• Benefits:
   - the chateaux do not have to support an expensive sales network
   - properties remain close to the Trading houses and benefit from the trader's international reputation and banking facilities. Financial risks are therefore reduced
   - the chateaux receive important amounts in cash while the wine is still stored in their cellars befpre delivery 6 to 18 months later, depending of the length of the breeding.

• Disadvantages:
   - the chateaux know very little of their final clients and it often is a real issue for them
   - according to:
  a. the wine's final quality
  b. the Trade organization's power of negotiation or
  c. the reputation of the vintage,
  in reality it happens that it is the trade that effectively sets the rules and fixes the prices. And chateaux owners can only accept this way of dealing as they have a complete lack of any other relevant sales alternative in order to market their wines efficiently.

As usual, the points mentioned above should be tempered by the fact that the test of strength between wineries and traders is more than ever changing. Recently one could see disgruntled chateaux owners promptly reintegrate the system only shortly after attempting to leave it, as they often had to face informal banning from the industry. Several studies have been published on this topic and most amateurs have heard about Trading houses such as Johnston, Mähler-Besse, Cordier and more recently, Moueix and Castéja, two tough trading houses which are quite difficult to circumvent today.

The current system has nevertheless to take into consideration a fast changing environment such as:

- Internet's e-trade business is a growing global inexpensive way of purchasing wine, apart in the USA, where outdated protectionist laws from prohibition times close the market to external suppliers while providing fat margins of benefits to local importers, distributors and retailers.

- The European retail industry has a huge potential purchasing power and has the habit to squeeze margins at all levels. Their policy is to deal directly with the wineries and to short circuit brokers and traders. Given the wide international expansion of French and European retail groups such as Carrefour or Auchan, it is easy to understand that the retail channel will become increasingly important in the future.

With Bordeaux future's complex and rather opaque system, one should not ignore a crucial actor of the wine scene: Robert Parker, the world's most famous wine critic. Parker was a genius in the early 80s for introducing his 100 points scoring scale which today has pretty much become a worldwide wine rating standard. He also has the great ability to write comprehensible notes in his newsletter and wine guides. His recommendations therefore progressively gained in importance and now have a significant impact on prices.

Robert Parker's impact on the price of Bordeaux wines

The Bordeaux wine industry, and more particularly the pragmatic "Union des Grands Crus" (UGC) organization, has for a long time understood the importance of wine critics for their business. Every year by the end of March, the narrow roads of the Gironde region are flooded by thousands of journalists running from one place to another to taste barrel samples presented by hundreds of chateaux, or to attend to official blind (or not) tastings, organized by the UGC. During that period of the year, chateau owners open wide their doors to the press while red carpets are unrolled down the stairs to welcome the most influential critics. But Robert Parker's final assessments only will put the cherry on the cake for the best rated properties. With solid 95+ Parker scores, top estates take advantage of Parker's ratings to easily sell their product with a premium. Nevertheless, one should not forget the following fundamental rule: if the traders are obviously interested by the wines' final quality, their primary interest is in gaining a margin benefit. One could quote several examples of "secondary" properties trying unsuccessfully to put upward price pressure on traders after receiving a one time stellar score by Robert Parker. Wine brokers usually do not let such trends happen as they already have to ensure increasingly high advances of funds to the top chateaux.

The situation on 2005 Bordeaux reached an unprecedented climax with the conjunction of 3 essential factors:
1. 2005 gathers exceptional grades with perfect sugar, flavours and tannins levels
2. Bordeaux wine industry perfectly orchestrated the rumour of an outstanding year. And journalists were convinced to greet a "vintage of the Century" long before they could taste the barrel samples
3. finally Robert Parker largly agreed on the exceptional outlook of the vintage.

The situation on 2006 Bordeaux is much more trickier:
1. the Dollar has dramatically lost ground vs. the Euro
2. the preliminary echoes from Bordeaux confirm that quality is far from approaching 2005
3. traders and distributors have large volumes of 2005 and 2004 left which strongly burden their cash-flow: Bordeaux traders should seriously consider these issues before pricing the 2006s.

For 2006, more than ever, selection will be crucial. One expects owners, traders and importers to first consider the consumers' current situation as many have already spent a great deal of their wine budget in purchasing 2000, 2001, 2003 and 2005.

Smart amateurs might have discovered the "pearls" of recent overlooked years such as 2002 and 2004: and believe me, there are quite a number of beautiful wines available for relatively moderate prices. At this point, each of us should do his homework and follow the wise recommendations given at the time by the most dedicated wine critics.

 François Mauss, for Winemega

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