The Primeurs System in Bordeaux – A Personal View

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Chateau Latour’s recently announced decision to quit the en primeur system as from next year has naturally stimulated quite a lot of debate, and the subject merits reflection.

There has been talk of the consequences of this decision, suggesting that it might be the beginning of the end of selling Bordeaux en primeurs, and some debate as whether this would be a good or bad thing.

I do not think myself that it is the beginning of the end of the current system. Latour is Latour, and is in a position to do more or less as its owners wish. The same is true probably of the other Premier Crus, but it is by no means certain that they will wish to follow suit. Time will give us the answer to that, and in the meantime it is just pure speculation to talk about it. However, since the question has been raised about the advantages or otherwise of the current system, I think it is perfectly valid to discuss this aspect of the question.

Like any system that works, it has its advantages and disadvantages. I think the positive aspects outweigh any negative ones, both from the point of view of the chateau and of the consumer. So here’s how it works, from my viewpoint at Château Pichon-Longueville Baron.

The system depends on the existence in Bordeaux of the numerous negociants who make up the Place de Bordeaux. There are over four hundred of them, but a property like Château Pichon-Longueville Baron will typically work with between forty and eighty of them. Any more and it begins to be difficult to know them all well. The reason for working with so many is that they have different strengths and specificities, many having strong distribution in different parts of the world, some being particularly strong in one particular part of the market etc etc.. By selecting a number of negociants with different strengths, the chateau can make sure of a good global distribution of its wines, reaching every part of the market that it wishes to reach. The existence of these negociants, managed by knowledgable wine professionals who travel the world promoting the wines they sell and ensuring a global distribution for the wines of Bordeaux, is a major asset for Bordeaux producers. But I also believe that it is good for consumers. There being so many first rate negociants in existence, competition between them is intense, and their margins relatively small. This ensures that the wines achieve their global distribution at a relatively low cost.

When a property like Château Pichon-Longueville Baron declares the price of its Grand Vin during a Primeurs campaign, it will communicate the price to its negociant partners via the courtiers. This might happen for example at 11.30 in the morning. If all is well, within an hour or so all the negociants will confirm that they are taking their allocations. They in turn will offer the wine to their partners around the world, and if the price is right they will in turn confirm that they will take their allocations. In a good year this can happen the same afternoon, meaning that by the end of the day the chateau has sold its crop (or as much of it as it decides to put on the market) and within a few hours achieved a global distribution for its wines. The advantage of this to the chateau is clear.

From the point of view of the customer, the wine lover who wants to buy some Château Pichon-Longueville Baron, I believe that the system is a very efficient way of getting the wine to them, wherever they may be. If the chateau tried to achieve this distribution on their own without working with the negoce it would be more expensive and less efficient, as it would not be possible to ensure the remarkable capillary distribution that the various negociants are able to achieve.

Supposing that we accept that this unique system is a good way to get the wines to the consumer, that still leaves the question of when is the best time to sell the wines. At the moment, En Primeur sales happen in the spring or early summer of the year following the harvest. So the 2011s have just begun to be offered to the market. The wine is of course still in barrel, and will be bottled next year and despatched to the customers.

It is perfectly valid to question whether this is the best time to offer the wine for sale. A good argument can be made that the campaign should take place a year or so later, after the wines are in bottle. However, I think it highly unlikely that the system is going to change in that way.

The temptation for a Grand Cru property is more likely to be to keep its wines for longer, in the hope of selling them for a higher price by choosing the moment at which the Chateau puts them on the market. Seen from the point of view of the chateau owner, it can sometimes be a little frustrating to see the price of the wine rise by a significant percentage after the sale en primeur. Obviously, if you are a wine producer and you see the price of your wine double on the market within a few years of releasing it, the tempting thought is likely to cross your mind that if only you had held the wine back for a while, you could have sold it for that higher price yourself! There is nothing particularly wicked in thinking this way. Imagine you were the owner of the chateau yourself: you might well have similar thoughts.

However this is to ignore the enormous value for a Bordeaux chateau of the remarkable world-wine chain of distribution that exists, and which thrives on the possibility that wine bought en primeur may gain significantly in value. This can of course be advantageous for the distributor if they keep back some stocks themselves, but above all it is highly motivating for the final customer, the person who buys the wine to drink themselves.

Of course, for all this to work, the prices en primeur have to be right. But it is up to the market, made up as it ultimately is of individual buyers, to make the judgement of whether a chateau has offered its wine en primeurs at the right price. If the price is too high, then the wine will not sell well, and the market price is likely to come down. Any chateau that makes this mistake will be punished by the market in future years by a weaker demand for its wine and by a strong demand for a downward adjustment of future prices. That is part of the mechanism of en primeurs. But it is usually possible for a consumer by buying wisely to buy the wines en primeurs at significantly lower prices than the wine will trade for in the near future. All recent vintages of Château Pichon-Longueville Baron are trading today at significant premiums to their en primeur prices, some of them twice as high, some of them more than this. It has been a good idea to buy Château Pichon-Longueville Baron en primeurs over the past decade. I think it will be over the next decade as well and we will do our best to make sure that it is so. Would it be wiser for us to keep the wine back and sell it later, keeping this extra profit for ourselves? I do not think so, although it is only human to have such thoughts. An important part of the dynamic of the demand for Grand Cru Bordeaux is precisely the possibility for distributors to make a fair margin when selling our wines around the world, and for the final customer, who is the most important person of all, to feel that he or she has bought the wine at a good price en primeurs, far cheaper than it would be were they to try to buy the wine at a later date.

The traditional advice given by wine merchants to their customers was to buy twice as much as they wanted of their chosen wine, wait till the price had risen, then sell half and drink the rest for free, or at a significantly reduced price, subsidised by the profit on the wine sold. It is still perfectly good advice, provided you have the means to do it and you choose your chateau well. But even if you never intend to sell a bottle, (and my favourite customers are those who would never resell a single bottle of Château Pichon-Longueville Baron­ I certainly wouldn¹t: what would you buy with the money that you are going to enjoy more? ) it is always a source of satisfaction to open a bottle that cost you much less than its value today. That is part of the fun of the en primeur system, and an element that I do not think we should forget: it is a game which is fun to play, and which attracts the interest and enthusiasm of wine drinkers all over the world. This excitement is an important motor of the Bordeaux wine business, and I think we would be unwise to lose it.

Château Pichon-Longueville Baron
Château Pichon-Longueville Baron

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13 thoughts on “The Primeurs System in Bordeaux – A Personal View”

  1. A fascinating analysis of the Latour decision. I have to say that it is easy to by-pass the en primeur market, when you can sell your second wine for double the price of Pichon and you are backed by Pinault. The other interesting facet is that they have an already functioning alternative to the negociations if they decide to parcel it out in smaller quantities use Christie’s, both teh house and/or the mailing list.

    The second part of the blog where you talked about the virtues of buying futures:

    “But it is usually possible for a consumer by buying wisely to buy the wines en primeurs at significantly lower prices than the wine will trade for in the near future.”

    My experience has been very different. If you look at pricing of wines at the Place a couple of years after the initial offering, you are absolutely right. But the secondary market here in the US has been less kind, and with the one notable exception of 2008, I can buy most wines at a discount over what i would have paid as a future. For example, the 2005 Pichon was magical, and I have paid between $74 and $106 for it within the last 12 months in the US market. That is for a strong vintage, yet priced way below the initial offering (allowing for mark-ups from importers and retailers) never mind five years of lost opportunity cost, storage and insurance. Sadly, any financial advantage of buying futures has been absorbed by the estates, and there seems to be little incentive to go out and buy them.

  2. I think Latour underestimates the added value that the fuss around EP is contributing to its label. It might find itself after a few years with less promotion and interest in the market. Taking out the motivation from the EP system might prove itself to be a big mistake.
    The reasons that they communicate to the market are bullshit. It’s all about greed.

  3. Thanks for your view, Christian, and the extremely interesting background information you shared. I heard this about Latour, too, but did not fully understand the motivation to do so. Let’s see where this discussion ends.

    Very best

    Axel

  4. Wise words, Christian, and a very interesting read.

    I wonder what proportion of Grand Cru is consumed by those who purchase En Premeur? If that percentage is high, Latour may be in for a disappointment over the next couple of decades. Only time will tell.

    Derek

  5. Agree totally with your comments historically, and believe going into the future this will remain true for the vast majority of wines. However, I think the dynamic for the first growths has changed.
    The first growth en primeur prices have risen astronomically over the years, and I was surprised at the degradation of the recent 2005 prices compared to their peak, and the now higher prices of later vintages.
    We are continually sold the concept of 2000 being great, then 2005 being possibly the greatest ever with virtually all first growth with 100 points and some 100+ points!
    So, where does the hype and prices stop – after all how much does even the greatest wine cost to make?
    I believe the first growths are in a unique position of having made so much profit over the past decade, that they are likely to be cash rich, and hence have the luxury to choose whether to make the “Latour” decision to withdraw from enprimeur. I do not think it will make a lot of difference to them in that they will probably only make the same as they would have en primeur, BUT of course they are thinking somewhat differently!
    I believe their withdrawel due to “expected” higher margins and profits will merely hasten the overall decline in the what I predict will prove to be cost of inflation historically highest en primeur prices for wines for the foreseeable future, and that there will also be a steady decline in prices, which this decision will merely hasten.
    I believe buyers are very wary at these prices, as the 2005’s have proven, and many buyers have been caught out – example the 2005 Ausone reached a peak of 32k a case – oh to have paid that!
    I sold off all my 2005 wines last year, and was lucky to get 16k for my Ausone, and 13k for my Lafite’s(all bought en primeur), and jolly glad I did!
    I am out of the market at these recent en primeur prices sorry, but still have plenty of lesser(but great!) 00’s and 05’s to drink myself!

  6. I find the logic of your reasoning hard to follow.

    Yes, it can be very beneficial for a wine producer to work with a number of distributors (negociants, if you prefer) that have a distribution and sale channel that a single producer cannot have.

    But that is an entirely separate thing than the Primeurs system, isn’t it?

    It is much more difficult to see what the benefits to the consumer are of a stage-managed “release” of a wine in an infant age, with uncertain similarities to the finished product, and whose main purpose seems to be to create a world wide media attention for the producers.

    It is a system that have been very profitable for producer and for wine speculators (those banking on profits from increasing prices) in recent decades, but is it good for wine consumers in general? Not so obvious.

  7. Christian, It is good to hear that you are not going to try to jump on the band wagon and are going to continue to Sell en primeur, In all markets there must be some upside for the traders and the end buyer also likes to think he can get good value, The en primuem system provides this. I am sure there are many wine buyers who will continue to support you and enjoy your you good sense and great wines! Thanks Nick

  8. Thanks for this clear article on how the ‘en primeur’ system works, both from the view of the chateau as well as the consumer. However, in my view there is an important part missing from a consumers point of view: how to determine the quality of a vintage and as a consequence the price one is willing to pay. Since the wine is still in the barrell only a few people have the opportunity to taste the wine. Based on the view of these people, the marketing campaign of all the chateaux and various other elements the prices are determined. For me as a consumer it is very difficult to determine the true value of a vintage and decide whether to buy it. Are there ways to improve the system in that respect?

  9. A really interesting overview of the En Primeur system, Christian.

    To my mind the problem lies not in the fundamental concept of outsourcing distribution, attempting to obtain the best possible price or selling futures, all of which are legitimate, even good business practice.

    Rather, the issues with En Primeur relate to the way in which it is done, to certain less-than-ideal practices that are peripheral to basic process, but which threaten to undermine the validity of the system.

    We need to accept that, for better or worse, Bordeaux has become an investment medium and therefore a secondary market trading in Bordeaux futures has arisen on the back of En Primeur.

    This leads to a potential blurring of the role of the wine critic in certain minds – partly assessment of the wine itself, partly investment advisor.

    Add a lack of any market regulation, the rise of China as a major investor in Bordeaux, the disproportionate influence of a small number of critics and it is a very high-risk market to be in and naturally attracts a greater degree of scrutiny.

    To me, most obvious poor practice in the En Primeur market is that the wine reviewed by critics may bear no relation to the final blend – it is a pig in a poke.

    To score a wine that has been blended potentially with the express aim not of reflecting the final selling product but merely of showing well at En Primeur stage is meaningless – it is akin to buying a car from the manufacturer with no guarantee of how many wheels it will have.

    Secondly, the conferring between Chateaux over release prices is a cartel that in any other business would be pursued as illegal.

    En Primeur has a lot to offer to both producer and customer, but it needs to be done properly, honestly and transparently.

  10. Bonjour M. SEELY,

    Bravo pour votre longue et pertinente description du système des ventes en primeur.

    Nous sommes tout à fait d’accord avec vous sur la pertinence de ce mode de commercialisation qui a fait ses preuves depuis longtemps.

    Très cordialement.

  11. Very interesting account of en primeur and for most part completely accurate but there are two problems that I see:
    – 2009 and 2010 vintages seem to be an indication that we may have reached the ceiling for release prices. Unless the chateauxs lower their prices significantly it could mean that the value of en primeur is gone.
    – for me is the time of ownership and the knowledge of having cellared and cared for those wines myself that make them special more than the price I paid vs. the price now.

    Interesting to see what the future brings for en primeur.