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Wine: A Bordeaux Pricing Brouhaha

“Bordeaux”: the word evokes the smell and taste of rich, refined red wine from France with “cashmere tannins,” “elegant fruit,” and “chocolate, tobacco, or cedar chests.”

We hear about ancient wine families, “first growths,” the sacred “terroir.” But many wine lovers, especially those who don’t have Rothchildian trust funds, also have other associations, centering around questions such as “Why is a bottle of 2005 Pétrus worth $4700? Is it that much better than the $8 Chilean plonk I get at Joe’s Wine and Liquor on the corner? What forces determine the price of a Bordeaux Grand Cru? How do they get away with it?”

We set out to answer some of these questions on a recent visit to many of the top winemakers in the Bordeaux region. And we found some interesting information not often reported by the great wine writers, who in any case are more obsessed with discussions of the “nose,” “finish,” “finesse,” and romance of Bordeaux’s famous wines.

The French typically do not like to discuss money. It is a conversation best left to “les Anglo-Saxons,” meaning generally Americans and Brits, but also including just about any other nationality. As Jean-Philippe Delmas, the winemaker at Haut Brion (a classified First Growth winery, incidentally, that is owned by Americans) told us, “We are not involved in ‘commercialization.’”

The barrel room at Haut-Brion.The barrel room at Haut-Brion.

Bordeaux winemakers are artists, craftsmen, farmers, magicians. Not, God forbid, “hommes (or femmes) d’affaires.” A nice sentiment. And one that a wine lover wants to believe when tasting a divine 1990 Haut Brion, the crown of Mr. Delmas’ art. But is Delmas really so unconcerned with business? If he is not a canny businessman, why does a bottle of 2005 Haut Brion cost $1325 at the wine merchant on a different corner from Joe’s, say the corner of Park Avenue and 59th Street in NYC? And will “Les Anglo-Saxons” continue paying these prices as they see their stock holdings, savings, and pension funds diminish?

We wanted to understand how Bordeaux wine prices are set and how the wines are sold. And we discovered a world of complex and ancient relationships, not often found in most other wine region in the world. It seems to date back to about the early 18th century. The Dutch had drained the Gironde estuary northeast of Bordeaux, resulting in a land mass now called the Médoc. Nobility from France, England and elsewhere bought up property and discovered that wine made from grapes grown on their properties tasted very good indeed. They built their châteaux, drank their wine, and decided they needed a way to discreetly earn enough to pay for all of this. But how? An 18th century nobleman could not consider haggling with some lower class merchant (known as a négociant) who hung out on the quais of Bordeaux, mixing wine in barrels and shipping it to les Anglos. They needed an intermediary – a person who might be from a slightly higher social class but who would be willing to dirty his hands by wheeling and dealing with those négociants.

The answer was the wine “courtier,” a broker specializing in wine. As Claire Ouzoulias, a well-known négociant from the St. Emilion area, whose family company is now celebrating 120 years in the business, tells us, “One can say that Courtiers en Vins have been around as long as wine was traded in the Mediterranean region. The Romans called them ‘Corrateri,’ meaning they had to go back and forward to help sellers and buyers finding some common ground.”

The Bordeaux winemakers of the 18th century adopted that Roman concept. And when Emperor Napoleon III requested a classification system for France’s best Bordeaux wines, which were to be on display for visitors from around the world at the 1855 Exposition Universelle de Paris, the Bordeaux courtiers were appointed to rank the wines according to a château’s reputation and trading price, which at that time was directly related to quality. The result was the Bordeaux Grand Crus Classés (Wine Official Classification) system of 1855, which still serves as the official classification of the top Bordeaux wines.

As with many traditions in the Old World, things change slowly, when they change at all. Three hundred years later we look at the wine trade in Bordeaux and see that much of this same system persists. The famous Grand Cru wineries are still owned, for the most part, by modern nobility (either “old money” families or global corporations) and they still use their courtiers to do their business with négociants, who in turn sell and ship Bordeaux wine to the world.

The 21st-century courtier (especially in Bordeaux) performs many functions for winemakers and négociants. They serve as the dealmakers, price setters, price negotiators, consultants, mediators, and therapists. Ouzoulias continues, “The courtier is the person to whom the winemakers assign their wines for wholesale commerce. The courtiers inform the négociants about what wines are available at what prices. A good courtier should be able to provide négociants with whatever they need at all times,” as well as give winemakers necessary advice on the direction and special circumstances in the market. “One can say that courtiers in Bordeaux control one hundred percent of en primeur purchases for Grand Crus Classés. And they are responsible for most of the winemakers’ sales as well as negociants-to-négociants transactions.”

Chateau Latour in the Bordeaux region of France.Chateau Latour in the Bordeaux region of France.

Corinne Conroy, the Marketing Director at Second Growth winery Brane-Cantenac, adds another level of importance of the courtiers to Bordeaux winemakers: “We feel [the courtiers and négociants] are making our life easier, allowing us to spend most of our time making the best possible wine, rather than spend a lot of time and energy on actually selling the wine worldwide.” Jean-Guillaume Prats, CEO of the famous Saint-Estèphe Chateau Cos d’Estournel confirms this, explaining that “they help smooth negotiations and have a key role when it comes to arbitrating prices on the secondary market of mature vintages.”

The system works more or less like this: every spring, each of the major châteaux holds what may be called a big party called “en primeur.” Courtiers, négociants, foreign wine importers, wine collectors, speculators, and what might be called “wine hustlers” are among the guests. As many as three- to four-thousand guests may show up at each Grand Cru château over a period of two weeks to taste a small sample of the new vintage. Strange thing is, the wine has not yet been fully blended, bottled, or otherwise readied in such a way that the final product will necessarily be similar to the en primeur taste.

The process of setting en primeur prices can be quite complex. Conroy says, “Every year it is a long and daunting decision we have to make, and we always err on the side of caution to respect our long time customers. We think that prices are made based on the market, the worldwide demand – just like blue chips and the stock market – and the general attraction people have for certain wines of Bordeaux.”

The winemakers set their prices based on factors mentioned by Ms. Conroy and on negotiations with their courtiers and informal conversations with other customers down the sales stream. Sometimes these prices are lower than the eventual market price of the vintage, which may increase or decrease depending on the reputation the vintage earns later (greatly influenced by Robert Parker’s tasting notes). Further haggling can take place later on, with the courtiers in the middle, negotiating with the growers and négociants.

And then, like the long slow process of winemaking, comes yet more waiting. The winemakers continue their magic of tasting, blending, waiting, and praying. The courtiers collect their two percent on all futures deals they make. Finally, almost one year after a deal is made, the winemakers are ready to bottle the vintage. The négociants pick it up and ship it off to their customers all over the world. And indeed it does show up almost anywhere. Most well-off wine lovers in China claim to only buy Château Lafite. Château Latour has been sighted on the shelves of Costco in the U.S.. The winemakers don’t like this but they have no control over it. The négociants sell to whomever they wish.

Chateau d'Yquem liquid gold.Chateau d’Yquem liquid gold.

When the wine is finally bottled yet another level of price setting begins. Over the year since the en primeur, speculation has occurred, particularly if Robert Parker or certain other influential wine critics have determined the vintage to be a “vintage of the century.” In those cases the négociants may have raised their prices to their clients, and retailers have used Parker grades to justify higher prices. But the pricing game can be dangerous. If Parker, for example, determines after bottling that a vintage or a particular wine to be of a lower quality than expected, the prices paid and offered by the négociants can end up being lower than the prices they paid the winemakers – and everybody in the middle loses.

Auctions run by Christie’s, Sotheby’s and wine auction houses such as Acker Merrall and Zachy’s set the market for older famous wines. Acker Merrall’s Auction Director John Kapon tells us, “Auction houses are the lifeline of the older wine market. Following trends they can be very useful in seeing where the real value for wines are, where the market is willing to pay more and less. The new-release market is separate in that many people who buy young wines do not buy older wines, but in the end, they are always somewhat linked. Demand is demand. The auction market is still a tiny percentage of overall wine sales, but they are sales at the top of the pyramid, so to speak, so their results do trickle down and affect the rest of the marketplace.”

In the uncertain economic environment of 2009, everybody is worried. Unlike most people, owners of Grand Cru wine estates know they will sell their inventory in full to négociants in spite of the economy. And already it is quite evident that prices are coming down. Where they will settle is anybody’s guess.

Earlier this year, there was a tremendous debate among the first and second growth producers about whether or not they should lower them to suit the economy. Indeed, there was discussion among the Grand Cru estates about the possibility of holding the en primeur events in April but to delay setting prices until the fall, hoping that the world economy would improve by then. Some of the young MBA-educated sons of the traditional houses thought this was a great idea. Jean-Guillaume Prats of Second Growth Chateau Cos d’Estournel was the biggest advocate, commenting, “I believe that it could be a good move for Bordeaux in order to give more oxygen to the market. This could only be done under the ‘sponsoring’ of the First Growths, and should be announced in March or April in order for our customers to organize themselves.” After much behind-the-scenes haggling, it was ultimately decided to leave 600 years of tradition intact and to hold the en primeur as usual, even though it’s already evident that prices are coming down.

The Bordeaux village of St. Emilion.The Bordeaux village of St. Emilion.

Anthony Barton, the sage tenth-generation proprietor of Second-Growth Château Léoville-Barton waxed philosophical about the brouhaha, saying, for “the En Primeur sale of 2008 [it was obvious] we [had] the good sense to realize that prices must come down in the present economic climate, even if the wine is good – which it is.”

Corinne Mentzelopoulos, owner of Château Marguax, has her own take on the economic effects, adding, “Today I believe that, yes, in such an economic environment, prices for the 2008 will have to go down, although it is absolutely impossible at this early stage to be more specific. Our market is a free and open one that answers to the laws of offer and demand, a process we can’t control whether prices go up, or down. A downward tendency is nothing new to us, it has happened so many times in the past. I can also say that I [had] never ever thought of ‘selling’ our 2008 in April without setting its price. How can it even be done, technically? I’d be happy to hear some more about a ‘sale’ taking place without a ‘price,’ a process I was taught in college which necessarily includes both.”

Kapon says, “If the top producers of wine in the world think that they do not have to lower their prices, they are living a dream. Prices in the auction market have dropped significantly over the last few months, anywhere from 20 percent to as high as 50-plus percent depending on the wine, and people are not going to pay more for younger wines than they can for older ones. Demand for new releases of $100-plus wines is becoming extremely selective. Buyers are just going to pass, and there will be a massive glut of young, overpriced wine that négociants, wholesalers, and retailers will not be able to buy, or even worse, buy and not be able to sell. It could compromise their ability to stay in business if they are not careful. The prices for new releases must come down.”

And they have. How far will the bottom drop? No one knows. Stay tuned to see what happens!

[Jesse Nash has contributed celebrity interviews, luxury travel, food and wine features to magazines and newspapers worldwide including “Rolling Stone,” “Paris Match,” “Hello,” the “New York Post,” the “New York Daily News,” “Harper’s Bazaar,” “Vanity Fair,” “Cosmopolitan,” and “Elle,” to mention but a few. Nash currently resides in New York’s trendy Hamptons where the rich and famous come to play every summer. Barney Lehrer is Vice President of FITA Online and President of NEXCO, the oldest international trade association in New York City. Lehrer has a Certificate in Wines and Spirits from the Wine and Spirits Education Trust of London, and he is a graduate of the University of Massachusetts and holds an MBA from the Thunderbird School of Global Management.]

About Jenny Peters (155 Articles)
<p>Jet Set Jen is the brainchild of Jenny Peters, a longtime freelance journalist whose career has spanned everything considered “Lifestyle” reporting, from movies and celebrities to fashion and fast cars, with plenty of food, wine and travel thrown in too. She currently contributes regularly to USA Today’s 10Best.com, AARP.org, New York Magazine, Coast Magazine, Bask Magazine and numerous other newspapers, magazines and websites worldwide. She is a founding and voting member of the Broadcast Film Critics Association (www.criticschoice.com), which annually honors the year’s top films with the Critics’ Choice Awards. Jenny and her crack cadre of reporters at Jet Set Jen offer up opinions, suggestions and insider scoops on the best that the world has to offer, to keep you on the cutting edge of that ever elusive pursuit of life, liberty, happiness – and fun, fun, fun.</p>

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