Sorry for that title. It came out, and I left it. I wanted to blog about this topic a few days ago, but I couldn’t find a decent article to link to. Mostly just tweets and blogs (and really nerdy wine forums). Chateau Latour, producer of one of the most expensive bottles of wine in the world, announced recently that it would no longer sell its wines en primeur. What the hell does that even mean? Great question. Simple answer: if you like finance, this story will get your motor running.
First, en primeur. Also known as selling “futures.” Let’s say I make wine, and you like to buy my wine. I just finished making my wine from last year — 2011’s grapes. It’s in barrels at my place right now getting tasty. You, being the savvy consumer that you are, don’t want to pay full price off the shelf when my wine is finally ready. So you come to me and say, “Hey, I’ll give you money now for that wine. But I want to pay you a little less. Cut me a deal.” Done. That, my friends, is buying wine as a future. Someone pays now for bottles they will get in in about two years.
Here’s the catch. There’s no guarantee that you’ll actually pay less. Probably, but you never know. In the meantime, the economy might tank. It might skyrocket. Maybe I made some really crappy wine this year and now nobody wants it. Maybe it’s amazing, and it ends up being worth twice as much as you paid. Who knows? But either way, you’ve paid for it, so you get it.
This happens every year in Bordeaux. They call it En Primeur week. Journalists come from all over, taste barrel samples, and start to rate wines for that year. Shortly thereafter, wineries start listing their futures prices that they’re going to charge to the middlemen (negociants), and these middlemen sell the wine down the pipeline to retails shops. It’s a big media blitz and wine nerds love to read and write about it (guilty).
Back to Chateau Latour. These guys rake in the money. People pay thousands of dollar per bottle for their wines, so Latour can pretty much do as it wants. That’s why this year they announced they will no longer participate in this en primeur system. Instead, they will hold their wines in their own cellars as long as necessary until they feel the wine is ready to be drunk. Mostly likely, this will add on a few extra years of aging at the Chateau (they’ve built brand new storage with perfect temperature controls, etc. just for this purpose) before they sell it.
Really, this isn’t a crazy new idea. It happens everywhere around the world, except Bordeaux mostly. American wines are sold directly from the winery all the time (I bought some last week online). But for Bordeaux, with their old system, this is huge.
I can think of a million questions this brings now. Will other Bordeaux wineries follow suit? Will Latour charge more or less now that they are more in control? Perhaps this will save consumers money because there won’t be a middleman anymore. Perhaps the wine will cost more because we will be buying “aged” wines now. While Latour holds onto their wines for a few years, they won’t be releasing anything, so where does that extra money normally spent on Latour go in the market? People spend millions per year on Latour. Will other wineries make more money while the giant slumbers?
I can’t wait to see what happens in the next couple of years following this announcement. There are sure to be some serious ripples throughout France, and the industry at all levels. I’ll keep you posted.