by Mike Supple
Written for the WSET Diploma Program
10 Nov 2008
A Brief History of Bordeaux En Primeur
The modern Bordeaux trade depends heavily on its en primeur system, a method of selling wine that has as many critics as it does supporters. The current trade system is steeped in history with its beginnings dating back to European expansion in the 12th century when wine was sold and transported in large barrels. This selling of unfinished wines to négociants is the seed of today’s method of selling the wines “en primeur” (when the wine is still in barrel and before it has gone through final blending or aging) to négociants, merchants and consumers.
The process by which a bottle of wine gets from a chateau to a consumer involves several steps and the wine passes through many hands. The tiers in the en primeur system began with the French aristocracy. These wealthy landowners produced the good wines for which there was great demand from the nobles in the United Kingdom. The landowners did not want to have to deal directly with the rough merchants (négociants), and so rose the role of the courtier, and intermediary between the proprietor and négociant (Kissack, 2008). The courtiers simply bought the wine from the proprietors, marked it up about 2% and sold it to the négociants. The négociants were then responsible for the transporting of the wine in barrel, the aging of it, and the eventual bottling and sale to local merchants or consumers.
The chateaux made the wines available for sale in the spring following the vintage, and some négociants began purchasing several years in advance. By doing so they could lock down current market prices, gambling that demand and prices would go up before the wines were released. This practice largely ended after the incredible 1961 vintage when many proprietors had to honor contracts for wine that was far below the value due to the quality and increased demand (Kissack, 2008).
The practice of consumers purchasing en primeur began only recently in the late 20th century, and has been particularly popular when good vintages coincide with a strong global economy. The demand for Bordeaux was such in the early 1970s that many of the wines were purchased sur souche, or when the grapes were still on the vine (Robinson, 2006). En primeur campaigns are still most successful in good economic times, but the increased access to information and critics’ reviews has greatly increased the number of consumers who feel confident enough to purchase Bordeaux en primeur. Whether or not this system will continue is based as much on economic considerations by the proprietors as it is on acceptance by the consumers.
How the En Primeur System Works
The chateau proprietors are the most obvious beneficiaries of the en primeur system. Chateaux have large expenses and lots of capital tied up in stock. To alleviate this burden, a percentage of the crop is made available for sale in the spring following the harvest (Fielden, 2006). To promote the wines and allow consumers to purchase with a modicum of confidence, in the spring after the harvest chateaux make samples of their wines from barrel available for tasting by the trade and media. Since these samples are not finished or blended great variation in quality can exist between barrels. The young, inaccessible quality of many of the wines combined with the potential for great variation makes the wines very difficult to assess.
Early reports about the vintage can have a great impact upon the amount of interest and the number of people who travel to Bordeaux to taste the wines. This was evident in the number of visitors tasting the acclaimed 2005 vintage as compared to the less anticipated 2006 vintage. Jean-Philippe Delmas, proprietor of Chateau Haut-Brion, told me in April, 2007, that the number of visitors in the spring of 2007 tasting the 2006 vintage was 20% lower than the number who tasted the 2005 vintage the year prior.
Once the various pundits have released their notes and evaluations of these young wines, the chateaux begin to slowly release small allocations of their wine for sale. The wines themselves remain in barrel, but quantities of the eventual finished product are allocated to various courtiers. The first small release, or tranche, is generally at a somewhat low price and is used to gauge the demand of the market. Pricing for the en primeur wines is often based more on market buzz and critical acclaim than on the quality of the individual wines (Losh, 2007). If the demand is high, chateaux often release a second and third tranche of wines at higher prices each time. Great critical buzz can lead to incredible price hikes as were seen recently with the 2000, 2003 and 2005 vintages. Unfortunately for the majority of the Bordeaux producers, only about 5% of the chateaux receive critical attention, and thus demand, to be able to sell their wines en primeur. This leaves 95% of the wines on the market accessible and much more reasonably priced (Fallowfield, 2001b).
The courtier generally marks the wines up about 2%, and then sells to a négociant, who in turn marks it up another 15% to sell to the importers and merchants. Négociants often wait until the second or third tranche prices have been released, then average the costs and make one offer to their clients. The role of the négociant is very important to the en primeur system, as they are the primary marketing power, particularly in difficult vintages. Négociants are able to advertise the wines and chateaux as brands in many key markets around the world that the proprietors would otherwise be hard pressed to find the time or resources to visit. Once purchased from the négociants, the merchants mark the wines up another 10 – 30% and sell directly to collectors, consumers and investors. Approximately a year after being sold en primeur, the wines are blended and bottled, and then aged another 1 – 2 years before being shipped to the consumer.
The massive media coverage of, and consumer interest in, the Bordeaux en primeur system has helped forge Bordeaux’s place as a dominant force that often overshadows the rest of France if not the whole world: “the whole circus of journalists and buyers visiting the region and then sending their divine wisdom down to the commoners, followed by the drip, drip, drip of price releases, anticipated then discussed, agonized over and, perhaps, believed, has a terrific theater to it that nowhere else can match” (Losh, 2006b). While it is most often the large chateaux that benefit directly from the en primeur system, the great buzz surrounding the whole process does lead to a trickle down effect of boosting sales of all Bordeaux, particularly in heralded (and expensive) vintages like those of 2000, 2003 and 2005.
Advantages and Disadvantages of En Primeur
From the producer to the end consumer, there are many interests involved in the en primeur system. While en primeur can be to the benefit of each member of the chain, there are also risks and drawbacks to the system. Each member in the system has individual risks that must be weighed against potential advantages, and these can change every year due to vintage variations and global market conditions.
The proprietors and chateaux have much to gain by selling their wines en primeur and allowing them to bring in money just a few months after harvest and very quickly recoup production costs. By releasing the wine in tranches, the chateaux can gauge market reaction and increase their pricing to maximize revenue. In addition to releasing the wines slowly, selling a portion of the production early allows many of the chateaux to keep back wine for future exploitation of profit potential (Fallowfield, 2001). The larger profits from these early and deliberately slow sales in successful vintages allow the chateaux financial flexibility to ride through weaker vintages. The buzz created by the larger chateaux in the en primeur system also leads to a trickle-down effect that aids the sales of the smaller chateaux which, without the high profiles and historically recognized names, struggle to sell their production even in strong vintages (Losh, 2006). Indirectly related to immediate income is the benefit proprietors gain from this system by using their négociants as their marketing system. The négociants are responsible for presenting the wines to a diverse world market so the proprietors do not have to spend their time and resources doing this. An added benefit to the chateaux is that by pushing the wines on the négociants, even in weaker vintages the wines always find a market (Styles, 2008). The financial risk is thus thrust upon the négociant, alleviating risk for the chateaux.
Contrary to the benefits, only a small portion of the chateaux in Bordeaux fully benefit from the en primeur system, leaving approximately 95% of the producers struggling to find markets for their wine. For the 5% that do successfully sell en primeur, the main drawbacks faced with the current system deal with potential earnings given to the other members of the chain. The price for which a producer sells wine to a courtier is well below that which the end consumer pays. If producers could sell directly to the end consumer they could make more money while saving the consumer money at the same time. Producers can also lose potential revenue due to the increase in value of the wine between the price for which it is sold en primeur and the higher price often fetched on the open market upon release of the wine. Money is not the only issue at stake for the producer, as reputation can be affected by the en primeur system. With many links in the chain between producer and end consumer, it can be difficult for the producer to keep a finger on the pulse of the market, and pricing for new vintages may be beyond what the market will bear. Though the producer can shove this risk on to a courtier or négociant by forcing them to take a full allocation or risk losing future allocations, longer-term affects could harm the producer as it can lead to producers boycotting en primeur, as is rumored to happen with the 2008 vintage if prices are not reduced substantially (Styles, 2008).
The role of the courtier is becoming increasingly minor in the en primeur system, and many producers are bypassing it altogether. Because of this, the largest risk to the courtier is being displaced entirely from the en primeur system. To prevent this, a more active role can be taken with the producers and purchasing large allocations even in difficult vintages, but this puts financial risk on the courtier who may be unable to sell all of the wine in a tough year. Overall the role of a courtier is more lucrative with high benefit, as they simply act as go between for the producer and négociant, mediating transactions and taking a small percentage of all the wine that moves directly from the producer to the négociant.
Négociants play a crucial role for the producer by getting the wines out to key world markets. They thus potentially receive a high reward from the en primeur system (making about 15% on each case of wine) but also face devastating financial risks. Négociants are the link in the chain of the en primeur system that control distribution of the wines. They hold large stocks of wines, and can thus control the pricing in the market. The vintages of 2003 and 2005 were highly acclaimed and prices jumped quite markedly in the Bordeaux market. As a result of this, many consumers looked for better bargains still available. The 2004 vintage was somewhat overlooked in the shadows of 2003 and 2005, and moved sluggishly en primeur. Négociants who held on to large stocks of the 2004 wines were able to increase prices and make large profits (Tapie, 2007). In the more successful vintages like 2003 and 2005, négociants are able to sell much of the wine before ever taking possession of it, thus decreasing risk of lost capital as well as never having to spend money on storage and warehousing.
Weaker vintages can be very financially troublesome to the négociant. Producers favor négociants who buy every vintage regardless of demand or quality, thus it is important to purchase wines in difficult vintages to maintain allocations for better years: “we [négociants] are really an investor because we have to buy. Because if we don’t buy…we do not secure a position for the next vintage” (Tapie, 2007). Having taken a position on a lesser quality vintage, the négociant then has to make the difficult choice of how to sell it and how long to hold it: “when we don’t have the demand we have to handle the stock for ourselves, so that’s the reason why this is a risky business, really” (Tapie, 2007). Demand could return, such as with the 2004 vintage, but this is not always the case. In 1997 the prices of en primeur were artificially inflated due to perceived demand in new markets, particularly Asia. However, demand was not actually there and the négociants were stuck holding the wine. They had to purchase en primeur, and when the wines were released two or three years later the prices had decreased by 30% (Tapie, 2007).
Merchants face similar advantages and disadvantages as the négociants, but on a smaller scale. By offering collectible wines to the consumer en primeur, merchants have the potential to bring in large revenue streams before having to pay for the product and never having it take up valuable floor space. While they also risk ending up holding wines in bad years, merchants are not as obligated to purchase wines in bad years, as if one négociant won’t do business with them in the next good vintage, the likelihood exists that another négociant will be happy to do so. Merchants do run the risk of ruining their reputation if they sell wines and then cannot get them when released, but this is more of a disadvantage to the end consumer.
Consumers participate in the en primeur system for two main reasons: securing small production wines and saving money. Some chateaux produce a very small amount of highly sought wines, and the entire production disappears quickly. Buying these wines en primeur gives the savvy consumer a chance to secure wine otherwise impossible to find. Other expensive and highly collectible wines also often increase in value greatly between the en primeur price and market prices 5 – 10 years later. By purchasing en primeur, the consumer has an opportunity to purchase wines otherwise unaffordable, as well as sell the wines for profit years later. Consumers clearly appreciate this system and have begun to demand other popular regions follow the Bordeaux model. As a member of the retail trade, demands for en primeur wines from the heralded 2007 vintage of Chateauneuf du Pape have increased greatly in the past few weeks.
The biggest risk for consumers is the lack of regulation in the en primeur system which encourages unscrupulous companies to take advantage of customers (Isark, 2001). Retailers such as Cellaret took their customers money and did not pass it on to the négociants; hence they received no wines for their customers. In this case in the UK the consumer has no legal recourse as consumers are only purchasing “an intention for when that wine was eventually bottled, not the actual wine itself” and are thus not legally entitled to the wine or a refund if the retailer is not able to provide it (Losh, 2008). Beyond the risk of being defrauded, the consumer is open to financial climate changes decreasing the wine values as happened to the 1996, 1997, 1998 and 1999 wine prices that dropped after the en primeur sales (Jefford, 2000), as well as the simple fact that the quality of the wines can change drastically in bottle after the initial barrel sample tasted by a critic years before release (Talkingdrinks.com, 2006b).
Alternatives to En Primeur
The simplest (though not entirely useful) solution to changing the en primeur system was proposed by Leoville and Langoa Barton proprietor Anthony Barton: “the next generation must sort it out” (Isark, 2001). Chateaux with collectible or small productions could be very successful selling directly to consumers much in the way of small wineries in Napa, CA, through online sales and private mailing lists. Producers can also cut out middle-men by working directly with agents or establishing their own sales teams in different markets (Talkingdrinks.com, 2006c). The négociant firm Millesima has taken advantage of the new direct shipping laws in many of the US states and is selling directly to consumers rather than through distributors, and this is something producers of fine Bordeaux would be able to accomplish as well (Talkingdrinks.com, 2006). By forming these partnerships and increasing direct sales through mail or creating compelling sales websites, producers could raise prices and increase profits while still offering the wines to consumers below the prices caused by the mark-ups from the en primeur system.
The End of En Primeur
To decrease consumer risk and increase producer profitability, the en primeur system must come to an end, and it seems to be slowly heading that way of its own accord. The producers of the wines have more right to capitalize from the demand than the middlemen, and though some consumers are disgruntled about price increases, many other customers are clearly willing to pay (Jefford, 2001). Improvements in viticulture and oenology help ensure that while there will always be “good” and “great” vintages, there will unlikely be many more “bad” vintages, thus reducing the need for a négociant to help push sales of lesser quality wines. Chateaux are searching for better roads to efficient distribution and price maximization (Jefford, 2000). Only through streamlining this producer-to-consumer process can the needs of the parties on both ends of the spectrum can be met.
Works Cited/Consulted
Fallowfield, G. (11 June 2001)
“FRANCE: Outrage as Bordeaux prices soar to record levels”
www.just-drinks.com/articleprint.aspx?id=76406 October 2008
Fallowfield, G. (18 June 2001)
“Bordeaux: Spiraling 2000 prices divide Bordeaux”
www.just-drinks.com/articleprint.aspx?id=85227 November 2008
Fielden, C. (2006)
Exploring the world of Wines and Spirits, London: Wine & Spirits Education Trust
Isark, M. (17 May 2001)
“En Primeur – Fraud or financial necessity?”
www.just-drinks.com/articleprint.aspx?id=85175 October 2008
Jefford, A. (4 December 2000)
“Vino or financial vehicle?”
www.just-drinks.com/articleprint.aspx?id=84883 October 2008
Jefford, A. (11 April 2001)
“Bordeaux: expectant market ready to pay for 2000 vintage?”
www.just-drinks.com/articleprint.aspx?85186 October 2008
Kevany, S. (16 June 2008)
“Price cuts on Angelus, Las Cases, Pavie, and Bellevue Mondotte Welcomed”
www.decanter.com/news/258797.html October 2008
Kissack, C.
“Courtiers & Négociants”
www.thewinedoctor.com/regionalguides/bordeaux5.shtml November 2008
Lechmere, A. (5 August 2008)
“Margaux 07 by the bottle? New website starts up”
www.decanter.com/news/265001.html October 2008
Losh, C. (8 May 2006)
“The Losh Cause – Excellent 2005 wines unlikely to rescue Bordeaux”
www.just-drinks.com/articleprint.aspx?id=86368 October 2008
Losh, C. (17 July 2006)
“The Losh Cause – Bordeaux’s long shadow”
www.just-drinks.com/articleprint.aspx?id=87128 October 2008
Losh, C. (8 May 2007)
“Spotlight – Overpricing threat to Bordeaux en primeur market”
www.just-drinks.com/articleprint.aspx?id=90205 October 2008
Losh, C. (7 February 2008)
“The Losh Cause – Bordeaux’s en primeurs: Risky business”
www.just-drinks.com/articleprint.aspx?id=92934 November 2008
Robinson, J. (2006)
The Oxford Companion to Wine, 3rd ed., New York: Oxford University Press
Stevenson, T. (2005)
The Sotheby’s Wine Encyclopedia 4th ed., New York: Dorling Kindersley
Styles, O. (20 October 2008)
“Wine prices: Bordeaux ’08 must come down say UK wine merchants”
www.decanter.com/news/270371.html October 2008
Talkingdrinks.com (18 November 2005)
“First Barossa en primeur a success”
www.talkingdrinks.com/news/news-headlines/2672-first-barossa-en-primeur-a-success.html October 2008
Talkingdrinks.com (9 March 2006)
“Millesima launches US arm ahead of 2005 primeur scrum”
www.talkingdrinks.com/news/news-headlines/3014-millsima-launches-us-arm-ahead-of-2005-primeur-scrum.html October 2008
Talkingdrinks.com (11 May 2006)
“Figure-hugging vintages”
www.talkingdrinks.com/blogs/industry-blog/3119-figure-hugging-vintage.html October 2008
Talkingdrinks.com (06 July 2006)
“Bordeaux or bust”
www.talkingdrinks.com/blogs/industry-blog/3347-bordeaux-or-bust.html October 2008
Talkingdrinks.com (02 June 2008)
“The Independent”
www.talkingdrinks.com/news/wines-in-the-press/6759-the-independent.html October 2008
Tapie, P. 4 April 2007
Bordeaux Négociant, H.M.S. Selections
Video of my interview available online: www.jjbuckley.com/bordeaux-futures/2007_04_01_archive.cfm
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Anderson Valley where Chardonnay and Pinot Noir are grown to produce traditional method sparkling wines. The climate is similar in many ways to that of Champagne, and these are arguably among the best sparkling wines produced in the US.
Most of the wines produced in California are made of the popular international or European grape varieties, though small vineyards with unique and delicious varieties can be found scattered throughout the state.
to give a generic overview (particularly since the areas under vine run about 600 miles from north to south and another 135 miles east to west). The soil in California is made of many different things due to the coming together of the Pacific tectonic plate and the North American tectonic plate (the cause of all those lovely earthquakes).