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Did China Really Save Bordeaux?

The 2010 futures campaign was lucrative, but there are troubling signs

Suzanne Mustacich
Posted: August 10, 2011

Throughout this summer's sales campaign for 2010 Bordeaux futures, as châteaus released their wines at record prices and a number of loyal customers in America decided to pass, most analysts believed China would make up the difference. Thirst for high-end Bordeaux among China's wealthy has been growing for five years. This was supposed to be the year China came through for Bordeaux, leading to one of the most lucrative futures campaigns ever. If only it were that simple.

“We had a really good campaign,” said Jean-Pierre Rousseau, managing director of the négociant Diva. "We did as well as last year [value-wise]. But overall, we sold much less wine—fewer brands and less volume of each brand. And we also kept less wine than last year."

Several sources told Wine Spectator that yes, this was the most profitable futures campaign ever and China deserves a large amount of the credit. But the campaign was not the blockbuster many had hoped it would be.

Bordeaux’s top producers released the 2010 vintage at record prices, but the châteaus’ pricing strategy backfired in several ways. Merchants said that while some top names sold easily, other past bestsellers were not in demand. To move the wines, négociants would only give clients the top wines if they also took the others. Clients refused to hold onto “grossly overpriced” wine, and there was widespread discounting to quickly move the “toxic” brands out the door.

As for China, many châteaus priced themselves out of America and Europe and failed to attract the Chinese. “It would be wrong to say that Chinese customers have jumped at buying everything. That is not true,” said négociant Philippe Laqueche, general manager of Yvon Mau, whose 2010 campaign profits topped the 2009 campaign. “I think the campaign showed the strength of brands.” Pontet-Canet, Pichon-Baron, Beychevelle and Grand-Puy-Lacoste flew out the door. Smith-Haut-Lafitte, Rauzan-Ségla and Figeac, not so much, according to leading merchants in London and Hong Kong.

According to one broker’s report, 365 wines were released as futures during the 2010 campaign, with 89 percent of the allocated cases finding buyers. That’s the same clearance rate as the 2009 campaign, but fewer wines—403 wines sold during ‘09—and a far cry from the 93 percent clearance rate on 436 wines sold during the 2005 campaign.

Some merchants did well. ASC Greater China, a leading fine wine importer with 23 offices in China, increased its purchases but still only took a fraction of the offer. “We bought about 70 labels, of which 30 to 40 were for China and the rest were for Hong Kong,” said Don St. Pierre, Jr., CEO of ASC. “In total we purchased 90 percent more by value than we did last year and our total quantity was up by at least 70 percent. We took all the normal allocations and tried to get more allocations for the key wines that have demand and recognition in China.”

Demand for those key wines is fierce, and prices aren’t likely to come down unless the Chinese suddenly stop giving wine to business partners and high-ranking government officials. “The wine used for these purposes has to be famous and well-known in China [such as Lafite Rothschild]. Otherwise the gift giver or host may lose face,” explained Hong Kong businessman George Tong, whose own 2010 shopping list included the first-growths, second-growths, Le Pin and Pétrus. “If someone presents a bottle of Penfolds Grange or Harlan Estate as a gift or hosts a dinner serving them, he will lose face. They are very fine wines, but few people in China know them.”

But ongoing Chinese demand for other wines is less certain, particularly since China's nouveau riche were forced to take wines they didn’t particularly want in order to get their hands on the Lafite and other must-have gift items.

Nor did Chinese companies appreciate the disorganized tempo of the campaign—snail-paced at first, then frantic at the end, with 35 estates releasing in a single day. Pricing and tempo left private investors, a growing segment in China, disenchanted. “If prices drop later, everybody will be upset,” said Bandy Choi, a Macau and Hong Kong retailer who provides wine investment training to Bank of China executives.

Speculators are also muddying the waters. “We see quite a few wines that are not selling so well yet in China, but because of demand in Hong Kong the perception is they are very popular in China,” said St. Pierre. “We think most of the speculation is coming from brokers in Hong Kong and the U.K., betting on the next big thing. But since none of these companies have much of a presence in China, they are really very far away from reality.”

Aside from the seasoned importers with strong distribution networks like ASC and Aussino, most of the Chinese buyers, many of whom are large corporations who would just as happily import scrap leather, are worried about the next step: turning a profit. “They bought in '09 and haven’t seen any profit and now with 2010 they question if they will see profit again, so they are right to be cautious,” said Doug Rumsam, managing director of Bordeaux Index (HK). “Time will tell as to how these corporations offload these wines and the success of their long-term strategy.”

At its essence, the futures game is one of opportunism, nowhere more so than China. “If the Chinese cannot make big money in the primeur business, they will quit,” said Laqueche. That is particularly worrisome, because a large amount of Bordeaux’s grand cru classé now goes to China and Hong Kong. “The new concern over the long term is the geopolitical balance of wine,” said Laqueche. “Shifting from loyal customers to new customers—that’s an upside-down way of thinking. Perhaps it’s a historic move but it’s a dangerous one. We need to maintain traditional markets.”

Some négociants hope that Americans will begin buying petit châteaus priced between $15 to $35. But those wines aren't well-known in the U.S. “There really is not much of a petit [château] market,” said James Gunter, senior vice president at Glazer's, a major U.S. distributor. “Négociants want to sell them, but do nothing to promote them or help sell them and build in the marketplace. Estate owners really don’t get marketing and promotion in the U.S.”

Which means Bordeaux may be putting all its eggs in China's basket before it truly knows—or understands—the Chinese market.

Troy Peterson
Burbank, CA —  August 10, 2011 6:31pm ET
Bor-dough = Bor-ing for me. I've played enough guessing games with their futures and I've refused to play since the 2009 campaign. I'm sure someone somewhere (maybe not in China?) will sip a fine Bordeaux 10 years from now and thank me for staying out of play. I wish them all the best. For my taste I live in the best place for fine wine in the world: California!!!
Christopher Sihler
Las Vegas, NV —  August 10, 2011 7:05pm ET
Greed will pop the bubble eventually, it always does.
Mark Ricardo
Alexandria, VA —  August 11, 2011 11:34am ET
It will be interesting to see what the chateaus will do with their futures pricing if and when there is a string of poor vintages. Will this bring them back to reality?
Tone Kelly
Webster NY —  August 11, 2011 6:21pm ET
My fervent wish is that the Bordeaux have great year after great year. If prices continue to rise with each year, the Chateaux will have to hold back ever increasing amounts of wine to keep the prices up. And of course everyone wants 2014 Lascombes at $500 a bottle or 20113 Lafite at $2500 a bottle.

And if they lower the price, then the previous vintages will get stranded and no one will buy them.

I wonder who is going to be stuck with the wine when the bubble bursts?
Miles Beaman
Australia —  August 30, 2011 2:10pm ET
Well, Troy, your thoughts about Bordeaux are precisely what the rest of the world feels about California. Napa must be the worst price to quality equation in the world.

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