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Friday 3 July 2015

En primeur: ‘It’s not rocket science’

24th May, 2013 by Rupert Millar

With the 2012 campaign over, merchants have spoken to the drinks business about the campaign’s shortcomings and what it may mean for the future of the en primeur system.

barrels-640x424As db has reported during the campaign (halfway through and at the finish yesterday), the chief and most obvious reason for the campaign’s poor performance was price.

What is more, with rather lacklustre scores the vintage was widely seen as one for drinkers rather than investors – but again, only if the price was right.

Liv-ex director, Justin Gibbs, explained: “It was not perceived to be a great investment vintage, only for drinking.

“Merchants needed to be able to pick up the phone and say, ‘I think you should buy because it’s delicious and good value. It’s not for investment it’s a drinker’.

“But they and the customer didn’t get the sense there was much value for money so it was easy for the consumer to make a collective decision and say ‘thanks but no thanks’.”

To give the châteaux their due, Gibbs did point out that in the pre-campaign survey, 86% of merchants polled had over-estimated what the prices would be.

They were in fact 17% cheaper than expected (the full results of the survey can be seen here) and Gibbs argued that the châteaux, “managed expectations rather well.”

The out and out winners from the campaign were, by common consent, the first growths and Right Bank estates such as Vieux Château Certan, Pavie-Macquin, Conseillante, Gazin and l’Eglise-Clinet.

On the other hand, as Liv-ex has noted, the second growths fared less well. Berry Bros & Rudd’s fine wine buying director Max Lallondrelle, thought that this was part of the problem of 2012 being a drinking rather than investing vintage: “Despite a good price to the négoce, the second growths haven’t done well generally,” he said.

“The wines were well-priced but consumers are still struggling at that price level. They’re second growths, not firsts and they’re long-term wines that need cellaring.”

chateau-pavie

Failing “spectacularly”

And if they’re not going to appreciate during that time, why bother? On the other hand Gibbs noted that Pichon-Lalande and Montrose had made, “a real effort. To see seconds come out below fifth growths (Pontet Canet and Lynch Bages) is rare.”

Nonetheless, as he continued, the brutal truth was: “There were no buyers anyway. There are lots of reasons for this, macro-economics, people losing their jobs in the city etc.

“Really though 2011 was over-priced, 2010 too, and people have lost money. In the last six or seven vintages only 2008 really made any money.

“The problem is that prices have got ahead of the market. And market is saying enough.”

“Fundamentally this campaign failed because they didn’t get the price right.”

Then again, he added: “Perhaps there’s a feeling that if you’re going to fail, fail spectacularly.” A reference to the likes of Pavie and Angélus and an echo of the old advice that it’s better to leave university with either a 2:1 or a first or crash and burn as best you can taking the campus with you as you go.

“The sense is they didn’t want to sell their wine but I think that’s not true. It’s up to the châteaux to do their research. I don’t think there’s any grand plan, they just misjudged it,” he said.

Chateau Margaux

Margaux: one of the firsts that got it right

At the heart of the matter though is the way the campaign is weighted towards the châteaux rather than the end-customer.

“It’s not the châteaux that determine the price it’s the market,” said Gibbs. “If the market doesn’t want it, it’ll sit in a chais until the market comes around.

“They have to sell it to the end user. It’s not sold until it’s off the lists of the merchants.”

Gary Boom, founder of Bordeaux Index, stated his belief that the rot set in around the 2009 campaign.

“I remember all those previous vintages where there was a reason to buy. It all went wrong around the 2009 campaign when they charged what they thought they could get away with.

“It should not be, ‘what we can get away with charging?’, but, ‘what will make the customer happy?’.

“They need to rekindle the love affair with the customer because they’re unloved at the moment and Bordeaux is running out of time on this.

“You can’t keep releasing wines that don’t sell. The only reason they don’t sell is price. Something’s got to give.”

“If you put yourself in a collector’s shoes, you have to wonder what is attractive these days in buying en primeur,” agreed Bruce Aston, director of Aston Lovell.

“Traditionally, the benefits of buying en primeur were clear. You got in at the lowest price that the wine was likely to ever be priced at and watched it grow in value.

“But if you can buy a decent physical vintage, a vintage of comparable quality to the en primeur, at a lower price than the new vintage, why bother?”

But what does this mean for the system? Is it in danger of collapse?

“No I don’t think so,” said Lallondrelle.

“We always complain about the system. It is in danger at the moment but these things are cyclical and eventually things will come back to normal and we will carry on.

“In the 70s, 80s and 90s it was difficult too. Boom and bust, I doubt system will disappear, but it is important for the system to be sustainable and that means a re-balancing of the margins across the system.”

Corney & Barrow’s associate director, Will Hargrove, called for “a bit more coherence” to the releases and considered how it might be possible to release according to commune or perhaps hierarchy but concluded that, “will it be markedly different in three to four years? No.”

And what of the great unknown, the 2013 vintage? With two poor campaigns under their belt, what will the Bordelais do when faced with either a “great” or rather more run-of-the-mill harvest?

bordeaux

What will 2013 bring?

“It’s almost a more interesting thing, scary too,” said Hargrove, “if 2013 is a five star vintage, how high would they go up again? Perhaps keeping price where they are now the same in a great vintage would be a better way to re-engage with the consumer.”

“I would say they’re going to have to be cheaper in 2013,” Gibbs thought. “2010 saw record prices, 2011 cut 30%  but didn’t sell, 2012 cut 20% and still didn’t sell.

“The more stock builds up in châteaux and négociants the more important subsequent campaigns are.”

He concluded: “You release based upon the market place, nothing to do with the previous year. They (the producers) will find a level but they need to do it quickly.

“They appreciate that it works well for them and that the négociants and merchants work hard for them but when it comes to the consumer they fail. They don’t understand that the consumer wants to make money too. ‘If the consumer is making money I should make more,’ they think. But it doesn’t work like that.

“It’s not rocket science.”

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