The stars of the September 2023 Hors Bordeaux campaign part III: the myths, frailty and future
What are we to make of the September hors Bordeaux campaign, and the state of the market for global fine wine more generally? db‘s Bordeaux correspondent Colin Hay gives his analysis of the campaign, displaying how it exposed the fragility of global demand as well as busting the myths that surround it.
With the release of the (excellent) Clos Lanson 2008 on 4 October, the (on the face of it rather strangely-entitled) September hors Bordeaux campaign came to its conclusion. What are we to make of it and the state of the hors Bordeaux market more generally that it reveals? In this wrap-up article I draw on a number of conversations with leading actors on La Place and with many of the properties now reliant upon it to assess the campaign. In the process I seek to identify and to debunk at least a few of the myths that already surround the institution that the hors Bordeaux release campaign is rapidly in the process of becoming.
How has the campaign gone?
There is good news and bad news here. The good news is medium and longer term; the bad news is, it is at least credible to think, shorter-term.
First the good. This September’s campaign more than any previous one has seen the acceptance, above all in London, of the significant recent expansion of La Place’s hors Bordeaux offering and the institutionalisation of the September (and we can only assume the March) campaigns as fixed dates in the global calendar like en primeur itself. That is excellent for La Place and excellent for hors Bordeaux on La Place. Crucially, it suggests that there is no way back. The costs of such institutionalisation are significant and such costs are also what economists would term ‘sunk costs’. And as such they are largely irrecuperable.
The implications are clear. We should get used to a growing share of the world’s leading wines being sold through Bordeaux in this way. That is what London, above all, now expects – judging by its actions.
That is the good news for Bordeaux and for La Place. But to appreciate it requires a somewhat longer term perspective. In the end it is likely to prove much more important than the bad news. But it might not feel that way now.
For the bad news is more immediate. The market conditions throughout the campaign have been truly dreadful. There are a number of factors here and it would require a full and separate article to do justice to them all.
The crux of the matter is that the September campaign was always likely to expose the fragility of global demand. It did. As we know from en primeur, the release of a relatively large number of high-end (if generally small production) wines (‘global icons’ in the terms of at least some of the London trade) onto the market in the space of a few weeks is always a test of market conditions.
It should be no surprise to anyone that such a test performed today reveals global demand to be low – indeed, at rock bottom. There are many factor involved here. But among the most significant are the following:
the volume of stock accumulated by merchants and brokers around the world in recent years;
the proportion of that stock being offered at discounted prices on the secondary market;
the fact that secondary market prices for global icons have been falling quite rapidly in recent months;
the considerable and now sustained increase in the cost of borrowing and the difficulty of accessing credit (the end of an era of ‘cheap money’); and
the relative strength of the euro, vis-à-vis Asian currencies in particular.
The optimists suggest that the most important factor here is the final one – that the euro is not only overvalued but seen to be overvalued – and that Asian buyers in particular are simply waiting for the now almost inevitable recalibration of exchange rates in their favour. They also point to the fact (as they would see it) that a market correction was required and has now taken place. In short, demand is there; it is temporarily pent up. In time it will be released.
That is certainly credible, in the sense that nothing in such a description is inaccurate; but it is still optimistic. Predicting the market’s low point is, in the end, a game for soothsayers.
This all sounds deeply troubling. And in a sense it is. But it may also serve to make the September campaign sound worse than it has in fact been. For, set in the context of such global market trends and conditions one might even suggest that it has proved surprisingly successful. True, from what I can ascertain from la place insiders ‘off the record’, few if any of September’s releases have already sold out. That is already a disappointment. Many of the same wines (often in lesser vintages) sold out in hours this time last year. But, by and large, the négociants have taken their allocations and even some of those whose release prices looked excessive have already sold well.
If the optimists are correct and market conditions improve over the next three to six months, the majority of the these new releases will have sold out before we get to the March campaign. If that turns out to be the case, September will have proved massively more successful than Bordeaux en primeur 2022 despite the wines being released in far less auspicious market conditions. The implications are clear.
Demystifying hors Bordeaux: 5 popular misconceptions debunked
This brief wrap-up of the September 2023 hors Bordeaux campaign also provides a useful opportunity to reflect on – and perhaps to begin to debunk and demystify – some of the popular mythology that has started to surround the expansion of La Place’s global offering. In what follows I identify five of the most pervasive myths that I encounter in my conversations with the properties themselves, their négociants, the brokers and merchants in the ‘on-trade’ and final consumers alike.
Myth 1: This is killing Bordeaux
This is perhaps the most frequent myth of hors Bordeaux that I encounter – that, in effect, every bottle of a global icon sold through la place is at least one bottle (and, given the price differential, more likely, half a case) less of Bordeaux sold through la place.
I can understand where this comes from and I have great sympathy for the typically less iconic Bordeaux classed growths and their peers whose anxiety this myth reflects. But that does not make it true. These properties are almost certainly correct to think that they are not especially well-served by the institutions and the functioning of La Place today. That is precisely the basis of my sympathy for their plight. But both their plight and my sympathy for it long predate la place’s investment in the growing hors Bordeaux market and it has essentially nothing to do with it (or, at least, nothing directly to do with it).
There are, above all, two key factors to note. The first is that the problem here is not hors Bordeaux but en primeur. In recent years, en primeur release prices have simply turned out to be higher than the secondary market will bear. Regardless of the vintage and with only really a handful of exceptions, the average secondary market price of every vintage since perhaps 2016 is below its release price. That is even true of the 2019 vintage – released in the context of Covid and yet by far the most successful recent en primeur campaign.
In such a situation, with release prices constricting demand, the négociants have, understandably, reduced the number of wines they are prepared to offer en primeur – cutting back their own purchases to the 50 to 100 wines that now form the core of the market. Yet even for these wines, the négociants invariably now have to cut their margin (by selling the wine below the price agreed with the courtier on behalf of the property on first release) in order to have any chance of selling on the wine.
It is not difficult to see that this is unsustainable. And, in such a context, it is hardly surprising that the négociants have responded both by cutting back their investment in en primeur (for that, effectively, is what it is) and by becoming more and more enticed to offer wines from beyond Bordeaux (where they perceive their margin to be less at risk and where it is typically higher in the first place).
A second point follows on directly from this. If hors Bordeaux works well, in compensating négociants for the cut in their margin that they are obliged to accept for Bordeaux on release, it actually increases rather than decreases the probability of la place working well for the less iconic Bordeaux classed growth and their peers. For, quite simply, the more the négociants can increase their average margin by offering hors Bordeaux, the less they need to cut back on en primeur itself – especially where the wines are well-priced.
Myth 2: la Place only works when the times are good … a traditional distribution model is better in a bear market
A second myth is that, in effect, the present market conditions and the difficulties of the September campaign show that La Place only works well as a distribution mechanism when global market conditions are good.
That, too, is wrong. As I have argued before in these pages, the key to selling wine when market conditions deteriorate (as in the wake of the global financial crisis, during Covid or now) is the capacity to access and untap new sources of potential demand and the flexibility to act quickly and strategically (re-routing distribution between the restaurant and private collector markets, for instance, during Covid). It is, in short, the capacity to place a bottle of a coveted wine (a ‘global icon’) in the hands of a consumer anywhere in the world who might wish to purchase it. It is about servicing demand wherever it exists.
Traditional single country-single importer distribution models cannot provide that. But La Place can. For whilst the former rely essentially on demand from the same consumers holding up from one year to the next, the négociants of La Place do not. Until recently, however, La Place didn’t need to untap all of the demand that its potential for capillarity gave (and continues to give) it the capacity to access. That has changed. And so must the behaviour of the négociants themselves if they are to make good use of their advantage.
But, certainly in comparison to traditional single country-single importer distribution models, the négociants of La Place have all the cards. That might seem odd. For I have heard it said plenty of times during this campaign (by those perhaps previously tempted to consider a release on La Place) that their traditional distribution model is holding up rather well. That may well be true. But this is largely because traditional distributors don’t turn down their allocations of iconic wines, above all, until such time as they find that the previous allocation hasn’t sold through. If the allocation is an annual one that gives the property 12 months’ grace. In short, a traditional distribution system is slower to react to the switch from a bull to a bear market. But when it does eventually react, the bear market turns out to be a more savage beast the more traditional one’s distribution model. If your single importer refuses the allocation, you sell no wine at all in that market until you can find another.
The fundamentals are easily stated. When demand is scarce the cost of not being able fully to supply that demand is all the greater. Capillarity is at a premium.
Myth 3: there is no need for a courtier
When times were good it was not very difficult for the négociants of La Place to sell prestigious hors Bordeaux wines, spicing up their traditional Bordeaux offerings (and increasing their average margin) in the process. It is hardly surprising that at least some started avidly to court their favourite non-Bordeaux producers and with some success. In the process they cut out the intermediary, the courtier. The traditional tripartite structure of La Place was not respected and was replaced by a series of bipartisan accords between négociants and hors Bordeaux producers.
This looked like a win-win scenario. And it was. But it looks just a little different today. For a one producer-one négociant distribution model, however much of an improvement on a more traditional distributional model it is, remains sub-optimal. And in a bear market, any such sub-optimality is likely to be punished.
It is also extremely risky for the producer. For, rather like a single importer, a single négociant is liable to reject their allocation when demand falters. If that allocation is the entire production of a given wine then the stakes for the producer are extraordinarily high.
In the final analysis, La Place is a mechanism for the generation of demand through enhanced capillarity. To work well, above all in difficult market conditions when global demand is falling, it needs a carefully coordinated strategy managed by a courtier on behalf of the property working with (and at times giving instructions to) an (ideally flexible) pool of négociants. This protects all the parties.
Today’s difficult market conditions show very clearly the success of that model – and the comparative disadvantage of all others. It is for precisely this reason that we see today a number of properties without a courtier on La Place reassessing their options. The number of single négociant-single producer partnerships has definitely peaked. The days of the courtier, it seems, are back.
Myth 4: If it hasn’t sold out yet it’s not going to sell out
A fourth myth is rather more specific to this campaign, though I also heard it a fair bit (really for the first time) following the March releases too. It comes from anxious producers as much as from potential buyers and market watchers. It is the idea – the fiction, in effect – that the hors Bordeaux campaign is a form of spot market in which wines either sell through immediately or not at all.
We are now of course accustomed, after the experience of a series of hors Bordeaux campaigns, to think that global icons selected by and released via La Place and under the increasingly bright spotlight of global wine writers’ attentions will sell out immediately.
But, as argued at least implicitly above, what matters is not that they sell out immediately but that they sell through reasonably well before their next release. That, as we also know, is now rarely the case for Bordeaux en primeur. And it cannot really be allowed to become the case for these wines either. But we are a long way from that, yet.
Moreover, the search for capillarity that I have argued is now the key to selling these wines in more ‘bearish’ market conditions, requires considerable work. That takes time. As I have argued before, this can no longer be thought of as a September campaign, but needs to be recast as an autumn campaign in which it is very possible to imagine that at least some of the troops will not be home before Christmas!
Myth 5: It’s all a question of price
A final myth – which comes from presuming the hors Bordeaux campaign to be more similar to that for en primeur than it turns out to be – is the idea (the myth, the fiction) that the success or failure of the campaign is largely a question of release pricing. If the campaign fails, or is judged to have failed (the discussion of myth 4 above notwithstanding), it is because prices were too high. If the campaign succeeds, it is because prices were well-judged.
Unlike the other myths discussed thus far, there is of course a certain grain of truth to this one. Like anything else, it is possible to kill demand for these wines by pricing them excessively and, above all, by assuming that a release on La Place warrants a price repositioning (upwards). The market does not work like that and those who seek to recalibrate upwardly their relative price positioning with their first release on La Place invariably regret such a decision. In fact their courtier (if they have one) tends to talk them out of it before they get to that point.
But that is not the key issue here. Much more significant is that the hors Bordeaux market is much less price sensitive than the Bordeaux en primeur market, at least for now.
Again, there are a number of factors at work here. First, the hors Bordeaux market is characterised by an incredible complexity in which perceived quality-to-price ratios are both difficult to gauge given the very different price positioning of the regions whose wines are present and much less the focus of attention for the critics rating these wines. Second, and in this respect more like the sub-market for the first growths and such unclassified Bordeaux icons as Petrus, Le Pin and Lafleur, Ausone, Cheval Blanc and Angélus, these ‘global icons’ are wines that tend always to have been priced above those of their neighbours and, as such, to be sold not because of their price but despite it! They come, in other words, from the least price sensitive part of the regional markets from which they hail.
What this means, more practically, is that demand and access to that demand is the crucial determinant of the success or failure of a release on la place not the release price per se. Put more directly still, I do not believe that a ten per cent decrease in prices across the board relative to last year’s releases would have made any significant and substantive difference to the perceived success of the September hors Bordeaux campaign. The contrast with en primeur is palpable. For such a generalised price reduction would clearly have transformed the en primeur campaign.
All of that said, there is a final irony here. And it is with that irony that I will conclude. Coming to La Place increases the release price sensitivity of demand for these wines. For wherever and whenever there is a release campaign (a short window in which a number of wines arrive on the market together) there is likely to be a heightened focus on pricing. Why? In a word, transparency. The existence of an hors Bordeaux campaign (above all of ‘global icons’) produces a previously unprecedented degree of release price clarity – a transparency that exists in no other fine wine market save other than that for Bordeaux primeurs. And with price transparency comes heightened price sensitivity. This goes some way to explaining why Burgundy (the least price sensitive of fine wine producing regions) has, to date, largely resisted the temptations of La Place.
So whilst it is true for now that hors Bordeaux demand remains much less price sensitive than that for Bordeaux, it is not clear that this will endure.
Click here for full tasting notes of the latest release, as well as tasting notes by country: Italy; Spain, France, Austria and Germany; the US; Chile and Argentina; New Zealand, Australia and South Africa).