Maybe this was addressed in prior posts, but what about taxes? The Bordeaux estates are taxed on all of the wines that they keep in their cellars. Keeping ALL of your ready to release vitnage rather than selling it would create a huge tax burden, I would think, that would make this plan seemingly prohibitive.
From 2012 vintage onwards - Citing premature opening of bottles. Unspoken by Latour is the monetary factor.
Chateau Latour said it is no longer going to offer its wines to the “en primeur” system. Instead it will hold them until years — perhaps even up to a decade — after production.
It’s stated reason is that too many of the newly rich in Asia are drinking Latour wines before they’re mature. Apparently, the thought of a rich Hong Kong wine-buyer quaffing a 2009 Latour with their dumplings was simply too much to bear. So Latour is holding its wine until its time.
“From the 2012 vintage onwards, our wines will only be put on the market when they are ready to be drunk,” Frederic Engerer told the press. “Unfortunately, our wines are all too often drunk young. They keep for a long time and there is no point opening them too soon.”
I think Robert Frank, the author of the article, is expressing his own feeling.
Oops, sorry for the double post.
Kevin, no, I pulled that section direct from the WSJ Wealth blog.
Sean,
My apologies and I read the article and modified my post. I believe this is about a rich billionaire’s ego and the bottom line. As someone else mentioned, François Pinault also owns Christies. There was a Latour only auction in HK a year or two ago where the prices were 2 to 3X above the market. I posted that it smell very fish and some thought that the buyers paid for the provenance. It isn’t illegal for the sellers to bid on their own lots.
Kevin, no worries, and I agree w/your conclusions. I was a buyer of Latour in the 1990’s, and of the late Rene Engel’s Burgs that Pinault now owns.
I’m surprised this news doesn’t get more talk. It’s a game changer for a significant part of the industry (from Bdx producers to the négoce to wine writers/critics).
Faryan seems to have performed a sound analysis, I will try to complement it with a couple of thoughts
This change has been long in the making. I do not believe for one moment that this is only “from 2012 onwards”. I am 100% convinced that he situation that Faryan describes, i.e. that “Latour could hold back 80% of its stock and sit comfortably w/r/t operating expenses”, has been happening already since at least the 2008 vintage, and probably since 2005 or so. From a buyer’s perspective who started pre-2000, it’s obvious that the First Growths have been a lot tougher to get at any price than in the past, and I believe this is linked to the châteaux holding back more and more of the wine instead of releasing it. As basic numbers show, if you can afford to multiply your price by 5, you can afford to sit on 80% of the production with no change (the cost of storage is minimal compared to the price of the bottle, and I’m going to assume that the tax paid on unreleased bottles isn’t that much of an issue than producers say it is-since some of them already manage to do it anyway).
Re: the timing, I think the Bdx owners are looking at the bubble and they can feel it is about to burst. China seems like a potent, but fickle market. For auction houses Bdx already sounds like yesterday’s news compared to Burgundy (and soon something else: Champagne? Cult California wines?). Several merchants in Europe will not buy more Bdx at any price right now. They are just not interested, period. Everybody is sitting on a ton of Bdx. The financial crisis isn’t getting any better in the short term (or even mid term). 2011 is a lost vintage (despite price “drops”), Parker is not moving bottles as well as he used to. Everything comes together for this change to happen.
Thanks Guillaume. Few thoughts:
RE taxes - I’d assume if that hit was onerous, they could transfer their stock to London and hold In Bond. Create their own Guersney and be off to the races…
RE holdbacks - I think the issue is more and more brand management for a luxury good. I think the Chateau are more keen as to how their wines are perceived and creating a certain image around it in malleable markets. The verdict from their market research seems to be that molding the understanding of nouveau clientel is of grave importance.
Imagine you just bought a plot of land in North Dakota that turns out to hold significant shale oil reserves underneath it. Your new-found wealth drives you into the high-end wine market as an afterthought for drinking things besides moonshine. If you are not versed with the culture and practice behind wine, it may be difficult for you to build a balanced and drinkable seller. Just because you are throwing big money at futures campaigns doesn’t mean you have anything worthwhile of drinking for decades. You may be frustrated when popping your 2010 Latour to find it backward, tannic and unyielding (with a $1000+ pricetag to boot). You don’t have a deep bench of wines to dig into and you are wary of backfilling at auction because of reported shady practices. You may find your 20 dollar petit chateau to be more enchanting at such infancy and you may not have the patience or wherewithal to understand the difference in age curves.
I would assume that the chateau is seeing a disproportionate amount of their sales going to said clientel from across the globe, in countries without deep wine cultures. They must be worried about how their product is perceived and brand management at this stage is the name of the game.
I believe the Latour’s motivation is based the owner’s ego and the bottom line and very little to do with the early consumption of their wines. At the current price level, they need the support of the truly wealthy and for now, Far east seem to be their focus as evident in Latour and Lafite holding their auctions in HK and the chateau owners sending their kids to live in Asia.
BTW, I have read in numerous occasions make fun of the nouveau riches but almost none of us really have the history of family cellars. Most of us fell in love with wine. This is not that different than Fareast markets. Looking at the wine culture in Singapore, the wine lovers are as knowledgeable and sophisticate as us. I have met a lot of passionate wine lovers in the states with vast knowledge and experience who simply have poor palates and can’t tell any technical flaws let alone telling Latour and other FGs from crus bourgeois. The reality is such that those with the capable palate and $ are extremely limited whether it is in the states, France or Fareast.
Kevin,
Undoubtedly the move is about profitability (and perhaps differentiation which is in many ways just another extension of profitability). However, with luxury goods, brand marquee is of utmost importance for the long-term viability of the product. My comment was not to disparage Asian wine drinkers. Rather, when a culture assumes wine into its passions, just as the United States did maybe 30-40 years ago, I think it is safe to say that it does not have the same heredity and generational knowledge sharing as the old world. There are less people in Singapore that grew up with wine at the table as kids and inherited their family’s cellar (just as there were in the US 30-40 years ago). That knowledge dissemination and cultural imprimatur is important for wines that differentiate themselves over generations (e.g. First Growths). That knowledge is not easily acquired. It either takes diligent (and expensive) tasting alongside those with knowledge. My knowledge base of old Bordeaux would not be where it is if I had to buy every bottle I’ve tasted, or if I didn’t have the privledge of drinking alongside knowledgable veterans such as yourself, Chris Bublitz, Panos et al.
What they lack in leadership, they make up in insatiable appetite to master the subject of interest. In my visit to Singapore, I was impressed by how knowledgeable and experienced they were. Also as I pointed out, most of FGs will be drunk by those with $ to spare in the states not that different than Fareast. Anyhow, back to the topic.
Interesting move. Is Latour just the first to make the change many others are considering or are they a true trend setter? There are a variety of factors that make this a good time for them to try this as others have pointed out. I do think there is some push back involved in this in respecting the wine and giving it a proper drinking window. Clearly that is not the sole reason but I cannot dismiss it so easily as others have. We are wine snobs after all and the originals still exist back in the mother land where this all started.
If other Chateau follow this lead it will be interesting to see what it does to real pricing in the market without all the in-betweens setting prices for everyone. This also brings into focus the slip we might be seeing with RMP cutting back and the traditional critics of pre-market Bordeaux getting up there in years. I bet this is a big factor in the timing of this move by Latour. Or maybe he and they were merely the gas filling the bubble.
I don’t really see the comparisons to De Beers being apt unless you think Latour controls 90% of the high end Bordeaux market.
The timing is SO perfect…
They have so much leftover inventory from the recent pseudo-collapse of the traditional (recent) Bordeaux market, and now they can simply claim it was purposeful! ‘It’s not that we couldn’t sell multiple vintages of wine because the market got reamed, it’s because we purposefully held them back to sell them when they are ready to drink!’
I don’t understand this part about the bubble bursting. If the Bdx chateaux owners thought that, wouldn’t they be trying to reduce their inventory of unsold wine as much as possible? This strategic move by Latour results in their inventory going up quite a bit, and to me signals that they believe the high current prices are sustainable.
I think the last desperate move right before the bubble bursts is to try to prevent the bursting. This sounds to me like Latour is not liking what it sees and is trying to adjust.
Nick, I’d agree with that for a monopoly or oligopoly or disciplined cartel. But in a competitive market, and I think Bordeaux is one although with some amount of cooperation, the last desperate move before the bubble bursts is every man (or chateau) acting for himself and his own financial interest. That is why bubble bursts tend to be so steep and violent. Just my $0.02.
At the risk of sounding posh, what do we think about how this affects Bordeaux lovers in a nonpecuniary sense? Leaving aside the obvious $, £ and € related motivations behind this change, I would make the following observations:
–Does this mean we as drinkers no longer get to decide when we’re ‘ready to drink’? To my mind one of the great magical qualities of Bordeaux is the ability to buy a case and open bottles gradually, deliberately drinking one that is technically too young, then marvelling as the rest grow and evolve.
–Alternatively is this a positive development in step with the times? Maybe this will allow more to enjoy Latour when it is showing at its finest, even if they don’t have the time, space or patience to cellar.
–If I’m overseas in Hong Kong or New York, should I be worried more about the affects of shipping on wine? I haven’t considered this scientifically but have always assumed that due to their stuffing and lack of sediment, younger wines are more durable for shipping over long distances, and mature wines are more likely to be damaged by travel shock, and possibly have their course of maturation permanently altered, as you are stirring up the very compounds you wanted to put to rest.
Totally agree with you on that. I still think this marketing decision was made years ago, not yesterday. Escalating prices as hard as they could was part of the overall strategy.
Of course it can also be explained by short-sighted greed and having to get out now, willing or not. But given what’s at stake, I’d be surprised.
I totally agree with you on the brand management aspects.
In a way, this is exactly what Latour is doing (acting for themselves). They had to cut the prices quite hard this year compared to last. At the same time they are trying to organize a sales model more in line with the new world, where the price is the price, day in and day out. Hiccups like that don’t help, especially when the trade is lambasting the producers every opportunity they get. If a producer can afford it (and Latour can), the smart way out is to hold back until your new sales model can be implemented. The bad way out would be to have a fire sale.
The reaction of Christian Seely (Pichon Baron) on his blog: http://www.christianseely.com/
Seely’s blog is stated in a simplistic fashion, but is quite a good analysis, I think. The key question, of course, is whether any given futures price is correct to have this system work. I’m not close enough to the Bordeaux market to have any opinion on that, but certainly I did very well when I was buying Bdx futures, from 1982 up through the 1990 vintage.
When a leading, benchmark winery’s release schedule is out of sync with the market, I think this often works to the disadvantage of that winery. If the current vintage is highly sought after, people want to complete their purchases of their personal favorites, but they cannot do that for the out-of-sync chateau (Latour in this case), who is only offering some back vintages that may be less desirable. So they spend their budget on other wines instead. When the current vintage is less good, and Latour may have a better 10-year-old vintage on offer, some people have already bought all they want of that earlier year, and have already moved on. So Latour is counting on newbies who have recently come to the Bdx market, and don’t have that older vintage in their collection. I think a strategy of churning your customer list is fraught with risk. Just my $0.02.