In the latest post in our series, we look at En Primeur, a term often banded around, but one that is far more complicated than a simple “Wine Futures” tag suggests. Specifically we’ll be looking at:
“En Primeur”, for the man on the Clapham omnibus, is simply buying a wine before it’s been bottled, usually just after its finished fermenting and certainly far before its ready for drinking, primarily for cash-flow reasons. The wine maker chooses to sell the vintage whilst it’s still in barrel and so doesn’t have assets tied up for several years and can avoid any financial worries involved with storing wine.
Traditionally En Primeur has only happened in the old world, more specifically Bordeaux, Burgundy and Rhone, although increasingly today for wines from Piedmont, Tuscnay, Ribera del Duero, Rioja and some of the cult new world wines.
Historically, in Bordeaux, the vineyard owning nobility refused to deal with the unkempt merchant classes and so engaged a long supply chain to ensure their detachment, employing courtiers, straight brokers, to sell their wines to interested parties not merchants selling to the end consumer but rather négociants who would handle all of the shipping and blending. As these two parties performed a vital role in the system they were both entitled to a cut of the profits, courtiers taking 2% on either side of the trade, whilst the négociants got a more liberal slice of the pie, around 10 to 15%. Today this somewhat redundant system is still in existence, and known as La Place. Its continued existence in the modern global world of commerce is most likely due to French conservatism and the ability of the Châteaux to protect their brand, setting the release price, the prix de sortie, that the négociants can offer the wine on at.
Outside of Bordeaux, in regions such as Burgundy, négociants are still employed but to a lesser extent, with many of the top Domaines having exclusive agency arrangements with U.K. merchants. From a customer point of view, En Primeur’s benefit is supposed to be: that in supporting the wine-maker in taking the wine before it’s ready, the customer gets a better price, however in recent years, particularly in Bordeaux, this has not been the case.
The problem with any antiquated market place is the out-dated and anti-consumer tactics are often employed. The first of these is the perceived price-fixing done in the name of brand reputation: the Chateaux set the price that the negociants can offer their wines or risk loosing allocation. The négociants then pass this problem on to the merchant who does the same to the consumer, or the merchant/negociant tells the negociant/chateaux that the price is too high and that they can’t sell the wine. However in a recent example of such anti-competitive practises, one of the more renowned Bordeaux châteaux refused to deal with, and denied allocations for several negociants and U.K. merchants that were offering their latest vintage at a loss (just to get it out of the door). This example ties into the second problem of allocations, as the top wines are in high demand the négociants are forced to allocate the wines to their preferred customers with bias placed on those who take their allocations in the good years as well as the bad. With price variation no longer going hand in hand with vintage variation, several merchants have sacrificed future allocations for simple survival purposes; not tying up capital in overpriced under-demand wines. Finally, as mentioned previously there are more people involved in the Bordeaux supply chain than needed and so the prices are artificially raised, whilst in other regions this chain is generally shorter, the nature of the agency system is that both the merchant and the negociant will be taking rather large margins: 30-50%.
Over the past ten years there has been a glut of good vintages, especially in Bordeaux and Burgundy, 2005, 2009 and 2010, this combined with the aforementioned emerging markets and the Bordelaise and Chateaux owners couldn’t help themselves but ramp up the prices to eye-watering levels on the back of media and merchant hype. The result of this has been a huge loss of faith in the En Primeur system, by customers and merchants alike. The 2010 sales campaign may have been the highest grossing campaign ever, but where once most wines would sell out, many of the best 2010 releases are still available on the open market at their original release (or cheaper) price. Furthermore 2011 fell flat on its face, with a huge lack of interest from negociants, merchants and customers. Originally, where it was essential to buy En Primeur year in year out to secure a cheap allocation of the most sought after wines, more recent events have led to such a break down in the system that even some of the top château, like Latour, are no longer using the system.
When a model is so weighted in the Châteaux favour, free press and a seamless route-to-market, it might seem odd that one of the most sought after names in Bordeaux would leave, but given recent events such as their auction in Hong Kong , one can quite forgive them for wanting to circumvent this out-dated system and pocket the returns directly. Whether other properties will follow suit is anyone’s guess, although if they do we could quite see the biggest overhaul of Bordeaux since the phylloxera-blight. However even if more châteaux do pull out, we doubt it will be the end of either La Place or the En Primeur system, with both being equally entrenched. Customers will also continue to look and hope for a return of the 2008 level bargain pricing, where mid-recession, the desperate Bordelaise slashed their release prices. Outside of Bordeaux in places like Piedmonte, the Rhone valley, and Burgundy, the use of En Primeur as a financial safe-guard will doubtless continue under it’s current agency guise.
Ultimately En Primeur was and continues to be a gamble, not just in terms of pricing or allocations, but also whether the wine you’ve ordered turns up at all.
Closing Thoughts – En Primeur in a nutshell
- En Primeur came about as a way for wine makers to finance their production
- Bordeaux En Primeur is an over complicated and often expensive way to buy wine,
- Outside of Bordeaux, agency agreements dominate.
- Securing or sacrificing allocations, along with higher prices make En Primeur troublesome and unrewarding
- En Primeur is a gamble, and for Bordeaux one that apart from the 2008 vintage, hasn’t been too beneficial a wager.
With En Primeur looking to be problematic and even some chateaux no longer taking part, it will be interesting to see what place it has in the future of wine investment, which we’ll be looking at in the next post in the series.