Background

Bordeaux Sales Hitting The Wall

The bankers in Bordeaux are rubbing their hands, covertly, of course, about the prospects of picking up bargain real estate at the expense of some great wineries.

The sky seems to be falling, according to reports, on a quarter of the wineries in the world’s greatest wine region.

It's been a tough haul for French winemakers, with exports for all except the ultra-luxe wines dropping 11% this year: Australia, California, Chile and South Africa, once France’s main customers are now producers, aggressive rivals, carving into France’s export markets.

Meanwhile, the robust euro has tied France's hands on export prices and the Iraq conflict has brought U.S. boycotts. At home the French are drinking less wine, down 5% last year, and half what they drank in the 1960s (from a heroic 115 liters annually to 60). Tough times for an industry with $9.3 billion of exports and 300,000 workers.

New drunk-driving laws have had a damping effect. Faced with heavy fines, loss of licence and prison, drivers have cut back and restaurants lost one-fifth of their wine sales. Anti-alcoholism campaigns blocked wine ads and last year half the population drank no wine at all.

Another problem is US wine critic Robert Parker, with a palate for big, fruity un-French wines, whose scores can kill a wine’s US chances. The châteaux that make "Parker wines" sell better and for higher prices.

France’s share of US wine imports fell by half, despite good recent vintages. [Aussie exports hit US$600m last year, second to Italy, a 29-fold increase since 1990. The Aussies have also overtaken France in Britain, the big market for Bordeaux.]

In the first half of 2004, French exports stalled 4.2% in volume, 8.4% in value. Although Burgundy grew, Bordeaux dropped 11% and 25%.

Bordeaux’s performance is partly attributed to the popular 2000 vintage, released in ’03, a hard act to follow. Champagne showed a 14.2% increase on the first half. However, French exports to the UK and US are down 15.3% and 26.8% in value. [Forecasts for production in 2004, meanwhile, are 58.5 million hectolitres, up 20%.]

Apart from the top 5%, Bordeaux's 10,000 small wineries have been hit hard. Prices for the elite wines are up but lesser wines are barely selling, even with tiny margins. And the crisis could force 2,500 estates out of business, according to observers.

"We’re seeing the beginning of the end of the négociant system. It’s crumbling," says Corinne Bonne, owner of Château Meyre, an up and coming Cru Bourgeois in Margaux.

"The small producers have always relied on the trade, La Place de Bordeaux. The big names are still there but they sell their own wines first and forget the rest. Things are very different now, and it’s especially tough in categories like Entre-Deux-Mers and Bordeaux Supérieur."

Corinne is her own distributor in key markets like Hong Kong and Tokyo (her degree is in Asian studies) where she also represents 25 producers from Spain, Italy and Portugal. In Canada, her agent is Gisèle Trubey of Vinplus.

Business is good but she reinforces it with an upscale accommodation sideline offering de luxe suites at the château as a tour base for Bordeaux. "The reasons we bought the estate in ’98, from Lenôtre, the Paris patissier family, were they had made improvements and the old château was perfect as a tourism destination."

In the big picture, however, even if retail prices fall dramatically, it might not help all that much. Grapes cost too much to grow. One vineyard owner told London's Independent his crop costs 5,000 euros per hectare to produce, but fetches 3,000 when sold in bulk.

Well established properties will survive but France’s onerous regulations – based on place of origin – hinder modern marketing and brand creation. Unlike New World wineries, producers can’t use the recognizable grape names – Merlot, Chardonnay, Pinot Noir, for example – on the label and at the same time say Bordeaux or Burgundy.

It’s impossible to match the brand-creation power of less-fettered New World producers: Two Buck Chuck in California just sold its 10 millionth case, at $1.99 a bottle, Yellow Tail from Oz is close behind, Southcorp just launched The Little Penguin, and Canada’s Vincor has had success with Sawmill Creek and, especially, Jackson-Triggs.