What he said…
This is exactly what we see - with en primeur for recent vintages being so high. 2000 and 2005 for most wines can be found 10 to 20% cheaper than 2009.
This seems like a short-sighted strategy. Sure, the first few vintages they can “spread out” over a lot of years, but what happens when all of your vintages are spread out over many years? Then you’ve reached a steady state where you’re selling your entire production each year, but of many vintages rather than just of one vintage. But if the market is the same and you only have a certain number of people willing to buy your wines, there’s very little difference between the two scenarios.
I think prices are high now, but I don’t think they have to fall that much before they are sustainable. Unfortunately for me…
The model for exactly that would be Emidio Pepe and Lopez de Heredia. And it certainly sets them apart from their neighbors.
That’s exactly what came to mind for me. They also are sitting on more wine than they would like from the last few strong years. They don’t want to reduce the price to sell it, as that would be admitting that its overly inflated. So they’ll sit on it and hope the price climbs and that the market in 5-8 years is more agreeable for them.
Jeff
there are many implications, possible snow ball and butterfly effects. like if this whole thing gets picked up by more chateaux, what will happen to 100s of businesses who’s main biz is selling bordeaux em primeur?
what interests me though is finding the truth which i have a feeling we never will.
i.e is latour doing this b/c:
-they want a share of the huge money that is made by middle man and second market on aged examples? less likely imho.
-they are providing a service to wine lovers b/c they want to show them the real magic of properly aged latoru for reasonable price? give me a break…
- there are shit loads of recent releases in the market and their prices aren’t going up, so instead of flooding the market, adopt the de beers diamond model: manipulate the supply demand market. me thinks bingo!
many other or possibly combo of above plausible reasons…
sometimes the right answer is the obvious one.
- the consumer should pay a premium for currently drinkable top bordeaux. Thus future dollars are higher than present dollars, adjusted for carry costs.
- none of their juice is consumed too early, thus improving the drinking experience.
But the market hasn’t been working this way for awhile. Currently drinkable top Bordeaux is cheaper, sometimes significantly cheaper, than the most recent release. It seems consumers are more interested in paying a premium for the collecting-and-possessing experience than the drinking-and-discarding experience.
I think this is a brilliant idea; Engerer has thought outside the box, and realized the advantages of no longer selling futures. His objective has always been to make Latour the first of the first growths, and he will sacrifice cash flow for the bigger long term profits that being #1 will afford him. I think he is figuring:-
- Les Forts de Latour is now generating the kind of revenues that the Grand Vin used to, so in fact, the revenue while not as high as it could be, is still enough to make Latour hugely profitable.
- By not selling futures, he has set Latour apart from the annual First Growth pricing; therefore in his quest to become #1, he has ensured that Latour has been separated from the other first growths, and now has an interesting exclusivity.
- it gives him even more control over the merchants. I am not sure whether the plans to sell any of the wines through the Place; I think it makes sense to do so, and now he has enough carrots and sticks to be able to really call the shots.
- Mature Latour ex chateau with perfect provenance will be incredibly desirable in this post Rudy era. Expect serious premiums.
bingo!
Good point on the recent pricing of the Forts, Mark - these days it certainly generates income close to what the grand marque used to command.
I don’t see the differentiation from the other firsts lasting more than a couple of years – what’s good for the goose, eh?
Many of us have been wondering why the great growths have continued to play the courtier/negotiant game for so long. It might just be dimes in front of the bulldozer, but the firsts could sell all of their wine direct at whatever price they think full retail might be.
Simply not true for wine with top-notch provenance. I’ve pointed this out many times…
I am envious that I could not say it better… This is exactly what I see on a daily basis.
Stunning news. And a pretty significant investment on behalf of the chateau
Those businesses can and should significantly decline in importance. They are middle men, basically pimps, transaction costs that consumers have to foot. They needlessly complicate things, creating various types of credit/counterparty/settlement risk and increasing expenses of the chateau and consumer.
On the other hand the new plan gives Latour even more power to manipulate supply in the market, which may lead to more skewed pricing that is even worse for consumers. Only time will tell whether and how they can exploit this.
One thing is for certain though – Lopez de Heredia is not the right analogy at all, because Lopez de Heredia is not a luxury good, not a collectors’ item to anywhere near the same extent. They are price takers, not price makers. A better analogy within the wine world is the Champagne grand marques, whose products cost far more than they should and whose prices are remarkably steady over time given the allure of brand caches and the wealth of the client demographic. Or, outside of the wine world, a good example would be de Beers and diamonds, as someone remarked.
So when I was at Latour last year they told me that they were establishing a direct to consumer model “like California” and would I be willing to give them my contact details. They specifically touted the benefit of back vintages stored impeccably that never left the chateau. So, during the tour, it became evident that they were sitting on an ocean of back vintages. I saw hundreds of cases of 1989 Latour on the floor, as an example. I can only imagine how much off vintage wine they have. I put 2 and 2 together and figure that, they have lemons and are making lemonade. Now they release these back vintages as being ready to drink, try to steer the market that way by curtailing sales of the new, hot vintage, and become Ampeau like in the process. Makes sense to sell the older stuff before the newer stuff, doesn’t it? Anyone familiar with the LIFO/FIFO model?
I thought Latour indicated this decision was partly motivated by the Asian market which generally buys wines to drink in the short term rather than to cellar.
-Al
Can anyone clarify who the ownership of Latour is?
Francois Pinault - PPR, which owns Gucci, YSL, Puma, fnac, and God knows what else. Pinault also owns Christies. These are not people who are unsophisticated about marketing.
Seems to me the math, as always in deals, comes down to your discount rate. It’s a bet that the ex-chateau price X years down the line is higher than your EP price plus your rate of return. (Faryan, I know you’re saying “duh” - indulge me.) That doesn’t strike me as a crazy bet, especially given the level of middleman drag in the Bordeaux marketplace. Now, I don’t think it’s as attractive a bet for the second tier (prestigious enough to sell EP but not prestigious enough to tell the negoces to take a hike), but if the EP market loses critical mass it’s hard to see how the 4th growths keep it going.
It is brilliant & not unexpected.
The old process and the negotiant market is so incredibly inefficient!
It used to be they had to release futures to generate operating capitol while the wines were in barrel. Then once released, there are up to 15 middlemen that scrape for pennies. But by the time the wine reaches the consumer, especially in our glorious “3-tiered” system, prices are 3-4x’s what the chateaux get. How is that good for the chateaux?
I think this is spurned on by the direct-to-consumer model that the chateaux have been exposed to, especially through auction. For many years, many chateaux have only released a portion of their wines as futures anyway, as they have seen huge success releasing direct to consumer via auction. Think of all the consignments from chateaux we have seen. They probably made more money on a mature case in one of those than in 10 cases they released as futures… Latour and Christies have the same owner after all - so isn’t it more efficient for them to sell via auction, or direct like Cali cult lists and recoup all that money in the middle?
When I studied the Bordeaux Tutor course that Sopexa put on in Boston in 2007, I challenged Dewey Markam, the instructor and “Bordeaux expert” about the inefficiencies of the negoc market. It seems logical that if many houses need working capitol, they would be well served to get a line of credit - live lean for a few years - then release direct to consumer. The negotiant market is one of the least efficient in the world - and the French wonder why their economy is crap! It was a tense exchange as he insisted the necociant system was necessary to float Chateau in bad vintages. I contended they don’t really have “bad” vintages any-more, just less-age worthy ones as technology and viti/vini improvements have fixed that. Even if there were a total disaster of a vintage - having back vintages to release would be better for the chateaux than the current system that ties them to the production of any given year - like how port houses are protected with back stock… Ultimately he insisted it was the French way, it was the way it has always been, it is the way it will always be and that it would never change! (this Brooklyn native has turned utterly French!) I disagreed - and everyone in class good some good entertainment.
In the past few years at the MW residential seminar in 2009 & the Symposium in 2010 in Bordeaux, I have asked some producers about this, at times quite indelicately. (I know you are all shocked - Yes, I can be indelicate - but in a perfect parisian accent!) Some admitted they were holding back stock - some insisted they had “sold every bottle as futures” which was a clear indication they had not (there are no absolutes after all, especially in France…), and some like the charming Thomas Do Chi Nam, of Pichon Lalande toyed with me asking why that was such a good idea - and how direct to consumer would benefit the Chateau. (love that guy!) I think at the time he had a consignment planned already… Sneaky Thomas!
Anyway - I think this is a great move. It far more efficient. I also agree with all the reasons Mark Golodetz pointed out. It may well drag Bordeaux into the 20th century kicking & screaming, and if successful - maybe in a few years they join the global mkts of the 21st…
MD