Saturday, June 16, 2012
Is it Just Me?…... Part Deux.
The Bordeaux 2011 Primeur “campaign” whimpered to a close last week. And here’s yet another Blog about how silly the Bordelaise are/were with their pricing, how little they understand their market and the imminent collapse of all things Bordeaux-related. Never has so much been written about so little wine being sold…..
And it’s an easy subject to take pot-shots at – like kicking someone when they’re already down – a nasty activity. But I have this morbid fascination with the actual business thinking behind all of this, so please excuse the indulgence in some genuine head scratching.
But first, one caveat: we love Bordeaux. Few regions in the world come close to delivering the excitement in opening a mature bottle of elegant, complex, ethereal wine. We also have many customers who love Bordeaux too, and selling both en-Primeur and back vintages is an important part of our business. So I think we have a small right to a bit of a whinge.
At the end of this year’s circus, it would seem that very little wine was sold. The UK trade reports selling only 10% compared to previous years. Here at home, we couldn’t find a single compelling reason to recommend any wines to our own customers and consequently suggested they didn’t buy anything – or at least hold off until the wines are physically available in bottle. The only reason to buy something today is if you need it today, or if it will be more expensive tomorrow. The first consideration obviously doesn’t apply to en-Primeur, and the second has clearly been forgotten by the Bordelaise.
It looks like Option B predicted in the Blog below was the course followed by the majority of the Chateaux – keep the prices high and protect the Brand…
And we are definitely (and unfortunately) talking Brands here. If you take out full page advertisements in the Wall Street Journal and the Financial Times, you’re reinforcing a brand. If you spend millions on developing new cellars that not only function well, but look like the set of a Ridley Scott movie (given an unlimited budget – how mad would that be..?), then you’re talking about a Brand.
So you create your Brand, gently nurture it and grow it steadily. But genuine Brands depend on delivering exceptionally consistent quality – a Gucci handbag should always be the same high standard, a Bugatti Veyron has the same engine each time etc. etc. However, where wine is concerned, there is one small problem: Nature. How about a brand where the quality changes each year, where the stitching sometimes works – and sometimes doesn’t, where the engine sometimes has 12 cylinders and sometimes has 11? It wouldn’t really work, would it? You’d expect all the duds to be thrown out or sold off quietly at a major discount.
That’s the problem with wine – and hopefully the ultimate protector for the consumer. No matter what fantastic cellars the Bordelaise build, what dinners they host, what ads they take out – they can’t beat dear old Mother Nature. Sure, they can do their damndest to overcome it with all sorts of technical wizardry, but at the end of the day, it has to be taken into account.
So assuming the role of Nature has to be acknowledged – if not publicly, then certainly privately, in planning your world-dominating Brand, imagine the business plan you put in front of the Bank, or Alan Sugar: “Ummm, well if the weather is good, our revenue will be in the region of €18,000,000, but if it’s bad it’ll probably be about half that….” You’d be laughed out of the room for presenting a plan that essentially relied on the unreliable – Nature.
Take Two: you go to the Bank and say “no matter what happens, we’ll keep the price up and the money will keep coming in so revenue will be stable”. Sounds good in theory – but pretty difficult in practice – at least you would think so.
No so the Bordelaise. For some mad reason, all their business plans seem to assume that all the wine will be bought every year. And if it isn’t, don’t worry, they’ll just hang onto it until we need it. The problem is that the majority of the Chateaux don’t actually sell their wine – at least in the conventional sense. It passes though a number of hands before it actually reaches the end consumer. Wine Merchants (like ourselves) are the last point of contact before it passes into general consumption – and believe it or not, we respect our customers. We’re not going to sell them a faulty Gucci handbag or half-baked Bugatti Veyron – at least not without telling them so, and offering a huge discount.
And please indulge one quick aside: this notion that we’re all rip-off merchants who make a fortune en-Primeur. The normal trade margin for en-Primeur is 10% - that means for every 10 cases of Lynch Bages you buy, you have to sell 9 of them before you have even a hope of making any money. And in a bad vintage, selling that first 90% of stock before you can make anything is pretty tough. There are plenty of other regions producing quality wine that we can make a larger margin on.
So there’s a disconnect between the people owning and building the Brand and those expected to represent and actually sell the Brand on the ground. And those of us selling the Brands know how important good customers are – and we’re not about to try and piss them off by selling average quality but expensive wine – no matter what the Brand is.
Here’s my own business plan for running my own Bordeaux Chateau and selling all my stock each year.....
Assuming I’m a highly regarded Chateau producing excellent quality wine, I pick a price that is a substantial discount to the market price – so let’s say €50 per bottle. I then communicate this to all my end-customers (i.e. wine merchants) and ask them what volume they will commit to each year. If I make 25,000 cases, then I need 2,500 of them (from all over the world) to take just ten cases each. I then guarantee them that the price will rise by no more than 10% for a good vintage, and drop by no more than 10% for a bad vintage – assuming they continue with their allocation. In the good years their customers will be very happy, acquiring wines for a reasonable price that will increase substantially in value. In the less good (never bad!) years they will still get a very good wine at a reasonable price. I can go to the Bank with a genuine business plan – and be clear in my mind that my job is to get on with making wine that will keep my customers happy.
I don’t get involved in trying to guess the market, outprice my rivals, lose loyal customers and chase the latest and greatest rumour about a “new” region of the world being interested in Bordeaux. I save a fortune on advertising as I already have loyal customers (advertising only appeals effectively to potentially “disloyal” customers) and I understand the single biggest issue with making wine: it’s made lovingly to provide enjoyment.
Now if only there was a wine region like that…….
Oh yes, Burgundy.
And Germany, Spain, Australia, Slovenia, Austria……