April 6 - Dinner at The Modern Museum of Art in Bordeaux

by Chuck Hayward

About 500 people were in attendance, including chateau owners, negociants, retailers, distributors, and others in the Bordeaux wine trade. Seated at my table were Philipe and his associate from the negociant firm H.M.S., Michael and Chris from Sherry Lehman in New York, Rob, Jim, and Don from Wine Warehouse in California, and Jean-Guillaume Prats from Cos d’Estournel.

Throughout the evening, we enjoyed some great wines, including ’89 Rauzan Segla, ’88 Montrose, ’86 d’Yquem, 96 Ducru, ’00 Lynch Bages, ’01 Giscours, ’01 Cos d’Estournel, and ’01 Doisy Vedrines. The dinner was served buffet style, and I immediately became thankful that Prats was seated at my table – he advised all of us to quickly make a dash for the buffet table just ahead of the crowd…always thinking ahead is this man!

Towards the end of the evening, the master of ceremonies announced there would be a drawing of five wines, including Lafite, Margaux, Mouton, etc. From a hat of 500 names, the first name to be drawn was – can you believe it - mine! I was stunned. I had no sooner dreamed that my name would be picked as I heard it mumbled in very thick French. As I was walking up to accept my prize of a 1981 Lafite and a beautiful book, I saw my friend Michael Troise from Christie’s NY, look at me with a smile and just shake his head in envy…Now if I can only turn that luck into some savvy ’05 futures buys.

Speaking of ’05 futures, we had a really interesting conversation about the soon-to-be-announced prices of the ’05s that I think is worth mentioning. Obviously no one knows just where the first growths will peek their heads in terms of price, but if Prats had to guess it would probably be around 190-200 Euros (or US$230-245), which means that after the Courtier takes 1.5-2%, the negociant 5-10%, the importer 8-10%, and the retailer 10-15%, the end consumer will probably pay $300-350 per bottle. Believe it or not this is about a 75% increase over the 2000 vintage. The big difference is certainly the currency valuation, as the Euro is 45% stronger versus the US dollar. The other 30% is normal inflation over five years (about 15% cumulative) and simply higher prices due to better quality - about 15%. This last 15% is what the chateau owners see as the bottom line increase which they believe is very justifiable.

I also found it interesting that the chateau owners and directors pay very close attention to the wine forums on eRobertParker as well as Wine Spectator online. They are fully aware of any mention by Parker or Suckling about the quality of the vintage or specific wines as well as the general consumer opinion.

Now, it’s my firm belief that ultimately the critics don’t set prices – these are driven by the core consumer supply and demand for a given product. The critics, especially Parker, will influence demand in the short run, but once the product makes it way into the consumer circles and is tested over time, the consumer decides the price via supply and demand.

What is happening this year that is different from prior years is that there is an unprecedented, real consumer demand from Asia and Eastern Europe for top tier ’05 Bordeaux. These consumers do not necessarily have the experience of evaluating prices of past vintages and certain values that may still be available in the marketplace. They are, however, driven by name recognition and ratings, and will therefore create an even larger price disparity between the top 40-50 chateaux and the rest of Bordeaux, which for the time being may well be offered at incredible value pricing.

Now…a piece of trivia: How much does it cost to produce a bottle of first growth Bordeaux? Answer: about 13 Euros, or $16. This may come as somewhat of a surprise to many…and it certainly shows the incredible profit margins that the first growth chateaux enjoy in great vintages.

Another piece of trivia. How long did it take Anwilka, the new hot wine out of South Africa, to sell its entire 42,000 bottles of ’05 production? (Not sure on the release price, but it will retail for around $35). Answer: Well…after Robert Parker’s comment on his website of “Funny to me commenting on this wine after tasting 225+ rather astonishing 2005 Bordeaux this week, but this is the finest red wine I have ever had from South Africa...world class stuff...as one might expect from the people behind it.... release is imminent...exceptional wine…” it only took 2 hours according to Prats, who is a partner in the venture. This discussion came up after we debated the effectiveness of the sales chain of Bordeaux wines. Prats maintains that it is a very efficient system that nets the highest possible amount to the chateau versus the American system where he believes the wineries are left with a smaller residual profit margin. The main reason is that both the retailer and the distributor take approximately half the margin for Bordeaux wines than the average upscale Napa red wine. Prats says that maybe the Bordeaux system could do without a Courtier, who takes approximately 2%, but why rock the boat? He did recognize that there are some wineries such as Harlan Estate that have successfully sold wines directly to the consumer on a fairly large scale. However, he doesn’t believe that other wineries can successfully implement and maintain a similar direct-to-consumer program, at least not in the long term. Not sure I agree here, but we’ll have to wait and see.

It was a wonderful trip to Bordeaux and one that I couldn’t wait to share each day with you on this blog. I look forward to offering the ’05 vintage in WineCommune’s new “future sales.” Stay tuned for more information. Most of all, if you’ve gotten this far – thanks for reading! And above all, thank you for your business. I assure you that you will be most impressed with what last year in this region produced!