extraído do blog: http://www.blog.liv-ex.com, matéria escrita em 24 de abril de 2012
Latour quits En Primeur – but to what gain?
In a letter to negociants on 12th April, Frederic Engerer, who runs
Latour on behalf of its owner Francois Pinault, explained that 2011 would be
the last vintage that both Les Forts de Latour and the grand vin would
be sold En Primeur. In future the wines would only be released when the team at
the chateau felt that they were ready: seven years after the vintage for Forts
and 10 to 12 for Latour itself. This is a major departure from how
business has historically been done.
The chateau has obviously been working towards this initiative for some
time, having dramatically cut back on the amount of wine it releases En Primeur
over the last ten years. The stated reasons were, first, that there was a
diminished appetite amongst consumers to buy wines En Primeur and, second, that
by controlling the storage themselves, they could guarantee both the provenance
and the quality of the wine.
The unstated logic appears to be that this initiative will allow the
chateau to keep the difference between the release price and the price of the
mature wine for themselves, rather than sharing it with distributors and the
consumer. It will also give them greater control over price, supply and
who actually buys their wine.
Removing themselves from the En Primeur system completely, however, is a
high-risk strategy that has many potential ramifications. Not least because
Latour has been one of the system’s biggest beneficiaries, with release prices
regularly exceeding €500 per bottle in recent vintages (see chart). It also
represents a step away from one of the most positive trends of recent years:
increased transparency and openness. This has greatly increased market
confidence for the good of all Bordeaux wines.
What has En Primeur ever done for us?
As we have highlighted before, both the En Primeur system and the Place
de Bordeaux have many inherent weaknesses. Nevertheless, as a global marketing
and distribution machine, it has no peer in the wine trade. For nearly four
months each year, the new Bordeaux vintage captivates the imagination of
merchants, the press and consumers. No other wine region has the capacity to
generate so many emails, tweets and column inches – all at a relatively low
cost to the chateaux. Leaving the messy business of marketing, sales and
supply-chain logistics in the hands of specialists allows Latour to concentrate
on what they do best – making great wine. As Jean-Guillaume Prats of Second
Growth Cos d’Estournel explained to the Wine Spectator, “Why would I leave the
Place de Bordeaux? It is an extraordinary system. It costs us nothing. The
négociants take low commissions while I sell my wine in 30 minutes and the wine
is distributed all over the world.”
It is questionable whether any chateau in Bordeaux, even Latour, is big
enough to replicate this on its own. Removed of the oxygen, excitement and
competition provided by the En Primeur system, there is a very real danger that
it will become an expensive curiosity, however good the wines remain. (Think
Harlem Globetrotters compared to the New York Knicks.)
Latour’s strategy is undoubtedly influenced by its owners experience in
luxury brands. Pinault is the owner of Gucci, amongst other things. Obviously
Latour is a luxury, but from a business sense the comparison with Gucci ends
there. Luxury brands fulfil an instant consumer need for luxury and prestige;
top Bordeaux draws its strength not just from the pleasure its consumers get
from drinking it, but also from the confidence that is derived from an active
secondary market. Buyers know that, in time, their wines will likely gain
value.
From a commercial perspective, even the people at Gucci must look at
Latour’s business in awe. Gucci sustains its brand with enormous spending on
marketing and advertising, which includes a chain of shops in the most
expensive and prestigious locations around the world. Latour’s marketing and
distribution costs are as close to zero as is possible in business. Its gross
margins exceed 95% (assuming that it is difficult to make a bottle of wine for
more than €15-€20 per bottle). Under the new model, Latour will hold at
least ten years’ worth of stock. This will require an enormous investment in
warehousing, insurance and marketing support. It also carries a very material
opportunity cost and additional risks, which have traditionally been spread
across many thousands of intermediaries and consumers. Moreover, the benefits
of ‘getting to know’ the final consumer are uncertain in fine wine. Many of the
drinkers of Latour 2010 probably haven’t been born yet.
Those fine wines that do release when ready to drink – some Champagnes,
Riojas and fortified wines – tend to have vast volumes of cheaper wines
underpinning the business. They are the detail, not the foundations. At the
very least, Latour’s business will generate lower returns than it does today –
even if it can sell at higher prices (given the much higher cost and asset base
that it will need to sustain). Notwithstanding this, the strategy could
backfire.
Reducing air time, transparency and confidence
Merchants, like any intermediary in a free market, tend to be drawn to
the products from which they make the most money. This is rational. There are
only so many hours in the day and there is only so long that you can keep your
customer engaged. Faced with 50 cases of Lafite to sell or a six-pack of
Latour, the choice is a simple one. We believe Lafite’s relatively
laissez-faire approach to distribution is an important reason for its success
in China. Under Latour’s new system, there will be more problems for both merchants
and consumers who buy the chateau’s wines.
The knowledge that Latour has 10 years’ worth of stock in its warehouse
will not inspire confidence. The market will worry about the overhang that so
much mature stock poses to supply. They will also wonder whether Latour is in
fact a competitor, rather than a partner, and start second-guessing whether the
next release could actually be at a lower price. With a limited history of
tastings or transactions to draw upon (and a shorter drinking window), wine merchants
and consumers will be understandably more nervous than they are today of paying
€500 or maybe €1,000+ per bottle. Moreover, consumers and the trade will be
robbed of the experience of monitoring the wine’s development from release and
comparing it to its peers on a year-by-year basis. With the chateau itself
deciding when to release, Latour’s fans will only ever be able to taste each
wine’s summer and autumn – never its spring.
What is most depressing is that the fine wine market has enjoyed so much
success from the transparency that the internet has introduced. This is a jump
back into the dark.
The price of provenance
The stated aims of releasing wines when they are ready to drink in order
to overcome consumers’ lack of interest in En Primeur, and to guarantee
provenance, are surely aimed at the Asian market. But in our experience, they
don’t ring true.
The unprecedented success of the 2009 and 2010 campaigns, despite
eye-watering prices, does not point to a dimming appetite for En Primeur,
particularly in top Bordeaux’s biggest market: the UK. The concerns over
provenance are valid and continue to vex everybody in the supply chain (Liv-ex
included). Nevertheless, considerable resources have and continue to be
invested in new bottling and labelling technology, temperature-controlled
transport and storage, and other initiatives by producers and distributors
alike. We have long been highly sceptical of the ex-chateau premium and have
seen little evidence of it in anything other than very old vintages like the
1961. Is storage at the chateaux really so much better than the professional
storage provided by reputable merchants around the world? Given the advances in
technology and new initiatives already underway, the provenance risk will
probably be greatly diminished by the time Latour is ready to sell its 2012
vintage, sometime between 2022 and 2024.
It is easy to point to the difference between the release price of the
1982 (about €20 per bottle) and the current price on Liv-ex (of about €1,700)
and calculate how much money Latour could have made if only they had held on.
But this is hopelessly simplistic because these price gains did not happen in a
vacuum. Would Latour have been as successful historically if it had pursued its
current strategy? What if prices don’t appreciate as much in the future? These
are big questions. Until they are answered, Latour’s competitors in Bordeaux
will be rubbing their hands together with glee. The rest of us are left asking
the question, why?
Comments
If this means that I will be able to send Latour an e-mail and buy a
couple of cases of wine directly from them at cheaper than I would otherwise
have to pay to a merchant - that works for me.
Right. I know that when I think of it, I wrote it in a hurry. But
anyway, it doesn't really change anything. Trading will decrease substantially
as well, so Liv-ex clearly has a lot to loose from this decision from Ch. Latour.
One thing's for sure - the merchants and wine trade need Latour much
more than it needs them.
Hi Henrik
Thank you for your comment. Liv-ex is not a merchant and does not hold
any stock.
As we pointed out in our post, Latour's new strategy will require an
enormous investment in warehousing, insurance and marketing support. So will
its departure from the EP system really benefit consumers? Time will tell.
A very good initiative from Latour. The article is clearly biased since
Lix-ex and the other merchants are the big loosers here. Personally I'm very
much looking forward to be able to buy drinkable wines (that can still be kept
for decades if one wishes) with perfect provenance without having to provide
for the whole supply chain.
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