BORDEAUX: An iconic region battles to sustain market share - Part 2
January 22, 2014
Part 2 of this two-part series. To read the first piece, click here.
A Weak Value Proposition
Despite the shrinking number of wine properties in Bordeaux, the region remains a world of small farmers. Their wines may carry the name of a château, but the edifice depicted on the label is typically more of a country house than a grand castle. As is true elsewhere, small viticulteurs can be resistant to change, or they simply lack the resources to modernize cellars or hire a famous consultant. This is not to say that modest properties have not been gradually updated with new presses and tanks, because in truth change has always characterized Bordeaux. If this were not true, the region would never have survived for centuries and attained iconic status. It is equally true that the image of Bordeaux is derived from the upper crust of its wines. The large, broad base is the part under serious threat.
Regional red Bordeaux and Bordeaux Supérieur (by law, lower maximum yields at higher maturity) constitute the foundation of the region: half of total output. This amounts to a very substantial volume averaging 27 million hectoliters (30 million 9-L cases) in recent vintages. There are many examples of well-crafted regional reds—and dry whites—made to a style which can stand up to New World competition at lower price points. Equally, critics contend there are too many which lack the fruit and flesh to appeal to contemporary wine drinkers. There is no mystery as to why Bordeaux is losing, or is unable to grow, volume on some key foreign markets. Meaningful increases in shipments must be based on wines retailing in the U.S. below $15, or certainly less than $20. Nielsen research shows that approximately 80 percent of wine volume falls at less than $11.99. Focusing a U.S. marketing campaign on products with consumer prices up to $55 a bottle, as the Bordeaux Wine Council (CIVB) has chosen to do, assures that growth can only come in small increments. This strategy seems to be dictated by the needs of producers, not the behavior of consumers. The Wine Market Council has shown that the most influential factor determining the purchasing decisions of American consumers is an exceptional price-value relationship. This is precisely the Achilles heel of Bordeaux.
Meaningful increases in shipments must be based on wines retailing in the U.S. below $15, or certainly less than $20. Nielsen research shows that approximately 80 percent of wine volume falls at less than $11.99.
A 2011 survey by Wine Opinions reveals that U.S. consumers have a largely unfavorable view of Bordeaux wines in terms of value for money. Only 4 percent say they rate as “excellent” value and 17 percent as “good”—in all 21 percent strongly positive—while 32 percent say they are “fair” and 12 percent “poor.” Compare this to Rhône Valley wines, which 51 percent indicate are “excellent” and “good” values and only 14 percent “fair” and “poor.” Recent trends of the two regions on the American market reinforce the relationship of perceived value and growth. Bordeaux exports to the U.S. continue to seesaw in keeping with the appeal of specific vintages. Peaks in shipments have been driven by notable vintages: 1990, 1995, 2000, 2005 and 2009. Exports have fallen in intervening years. While the volume climbed in 2012 on the strength of vintage 2010 and remaining 2009s, Bordeaux has yet to match its record shipments of 2.8 million cases in 1985. The Rhône, on the other hand, is smaller but far more dynamic: The region’s exports to the U.S. in 1985 were around 358,000 cases and have grown to 1.5 million cases in 2012. The U.S. is now the Rhône Valley’s second largest export destination after the U.K. and has become the region’s number one client in euro terms, according to Inter-Rhône.
A Segmented and Fragmented Offer
Focusing on the consumer has not been a strength of the French wine industry, which has relied on tradition and terroir to market its products. Martin Sinkoff, director of marketing of Frederick Wildman & Sons, importers of Compagnie Médocaine selections, states that “Bordeaux is very dependent on the press for scores and on the reputation of the vintage.” A château name on the label has been a persuasive marketing device for Bordeaux, but also a barrier to brand building. Any single estate produces a limited volume of wine averaging perhaps 20,000 to 40,000 cases with larger exceptions. As long as Bordeaux relies on château-bottled positioning, it is unlikely to establish brands of scale and grow volume to 4 or 5 million cases in the U.S. With over 7,000 estates, 300 négociants and 39 cooperatives in Bordeaux, the region’s offer is highly fragmented, posing handicaps for coherent marketing.
The wines of Bordeaux are distinctly segmented. The uppermost tier of classified growths and equivalent top-end wines comprise perhaps 5 percent of output. They are blue chips traded on a controlled market and sold almost always via non-exclusive trading arrangements. An allocation system and privileged relationships determine which shippers and importers have access to this elite group, and in what quantities. Sales of these luxury bottlings are likely to continue riding a roller coaster propelled by vintage perceptions and pricing. Access to this tier for most consumers may be limited to so-called “second” or even “third” wines.
In the middle, there are thousands of properties from dozens of appellations. For the consumer attracted by the image of château-bottled Bordeaux and willing to take a chance on an unknown bottle, these selections combine romantic appeal with a relatively affordable price. In 2010, sommelier-importer Daniel Johnnes launched a range of selections with suggested retail prices below $30 per bottle. He says there are “many small, artisanal properties which make wines which I and many other people love.” He is bullish on Bordeaux despite what he describes as a “reverse elitist attitude” toward the region “among younger sommeliers and consumers.” Nonetheless, château bottlings tend to be imported by regional companies in very small amounts, often hundreds or a few thousand cases.
These wines invariably suffer from fractured and limited distribution. For a retailer or restaurant, they tend to represent an opportunity buy, not a product with continuity. An interested consumer may find it challenging to locate a point of sale offering any given château bottling in their state. The vagaries
Château bottlings tend to be imported by regional companies in very small amounts, often hundreds or a few thousand cases. These wines invariably suffer from fractured and limited distribution.
of distribution are illustrated by one of the CIVB’s featured 2013 “Today’s Bordeaux,” Château Mayne-Guyon 2011 (Blaye-Côtes de Bordeaux), subsequently picked by Wine Enthusiast as one of their top 100 values. One retail listing appears in the U.S. on Wine-searcher.com in Upstate New York, and it turns out that the wine is a quasi-exclusivity of Trader Joe’s. Confirming which units stock the wine, and its price, demands time and effort a consumer is unlikely to invest given all the easy alternatives.
At the bottom of the Bordeaux pyramid, the enormous volume of basic wine should by all rights deliver the requisite raw material to build brands. This segment is populated by a host of so-called petits châteaux. Terroir imagery, vintage and ratings are less relevant to this lower-priced segment. To exploit this critical mass, a strategy focusing on regional Bordeaux, blended by négociants across multiple origins to achieve a consistent style, would appear to offer promise.
Branded Bordeaux—The Answer?
The Rhône and Burgundy, like Bordeaux, have large numbers of individual landholders—roughly 5,000 and 4,300, respectively (per Inter-Rhône and BIVB). Even so, shippers play a significant role in the commercial identities of these regions on the U.S. and other markets. Domaine-bottled selections are balanced by recognized brand names such as the Rhône’s Chapoutier, Guigal, Jaboulet and Delas or Burgundy’s Louis Jadot, Joseph Drouhin and Louis Latour. The Bordeaux offer in the U.S., in contrast, largely misses the branded dimension. Of numerous Bordeaux brands sold by various merchant companies, only Mouton-Cadet has carved out—and retained—a modest hold at a current U.S. retail averaging $8/bottle. Their agent, Constellation Brands, claims Mouton-Cadet is the largest-selling Bordeaux in the U.S. with an unconfirmed one million cases sold worldwide. Others have tried and failed, or have preferred not to take up the challenge. The obstacles seem insurmountable given both the bias in favor of a château name and the costs of brand building. “I’ve seen many other branded Bordeaux not do very well,” says Daniel Johnnes. Some shippers say that obtaining sufficient raw material from cooperatives and small growers to create large-volume blends is a further limitation. On the other hand, should it be inherently more difficult to craft a regional Bordeaux than an equivalent Côtes du Rhône?
The reluctance of Bordeaux merchants to bring their branded products to the U.S. is evident: There are many such vins de marque sold in France, but nearly all are unavailable on the American market. Castel is a substantial beverage company with sales of 630 million bottles in 2012, according to French newspaper Le Monde (June 2013). They are a serious player in France with Malesan, a leader in supermarkets, as well as other proprietary products such as Batiste de Vignac and Blaissac. Their Bordeaux brands have no presence in the U.S. In October 2013, Castel was chosen the “most popular” wine and spirits brand in China (groupe-castel.com). Other shippers, among them Kressmann, Dourthe, Ginestet and Yvon Mau, market branded Bordeaux not sold in the U.S. Cordier, once well-known to the American market, does not offer any of their branded products such as Collection Privée. All of these brands tend to offer a generic red, dry white and rosé. Michel Lynch, developed by Jean-Michel Cazes of Château Lynch-Bages fame, has just a handful of listings on Wine Searcher in the U.S. This label extends to a Réserve Graves (white) and Médoc. More visible if still limited in distribution are the Réserve Spéciale offerings of Domaines Baron de Rothschild (Lafite), which include a Médoc and Pauillac in addition to the standard white and red. The wines present a modern profile yet also convey the region’s identity.
The U.S. trade itself seems to have had serious doubts about a branded approach by Bordeaux for a while. Quoted in Wine Business International (February 2008), Bill Deutsch of W J Deutsch & Co., who guided Yellow Tail to the top position among U.S. imports and built Georges Duboeuf into the leading French label, said bluntly: “A Bordeaux brand will never happen…You could never sell 100,000 cases in the U.S. for the simple reason that Bordeaux doesn’t make the kind of wine that large numbers of people want to drink.” He continued, saying that Bordeaux is “too acidic, too tannic, too lean for majority tastes.”
“A Bordeaux brand will never happen…You could never sell 100,000 cases in the U.S. for the simple reason that Bordeaux doesn’t make the kind of wine that large numbers of people want to drink.”
While this depiction may still be true of many generic reds, there are others which are softer and fuller—more in tune with the American palate than in the past. The red wines of Bordeaux have shown a distinct evolution in the direction of higher alcohol together with riper fruit and tannins. The changes are due largely to benign effects of climate change, a better understanding of polyphenolic maturity, and sorting to remove under-ripe or rotten grapes. Cold-fermented dry whites based mainly on Sauvignon Blanc and Semillon consistently deliver clean, expressive fruit qualities. Nature and technology have helped Bordeaux at all levels.
The 2008/09 European Union legislation allowing grape names to appear on front labels of wines of controlled appellations could serve to enhance trial of branded products by American drinkers. Printing “60 percent Merlot/30 percent Cabernet Sauvignon/10 percent Cabernet Franc” in direct conjunction with the product name and appellation could deliver tangible sales results. In 2013, Mouton-Cadet launched a Bordeaux AOP with “Sauvignon Blanc” prominently displayed on a strip below the front label. Maison Sichel’s Sirius wines now bear grape names in large letters below “Bordeaux.”
Varietal identification is the single most important trigger for U.S. consumers; conversely, French appellations can be mystifying and unpronounceable. It is also significant that tastes are evolving: The American consumer seems receptive to inventive new wines with proprietary names. The labels driving today’s trends sometimes seem implausible, even risky. Of particular relevance, blended dry reds show growth of nearly 15% in 2013, matching Moscato (Nielsen, 52 weeks ending 11/9/13). This plays into the core competence of Bordeaux.
“There is an opportunity,” observes Martin Sinkoff of Frederick Wildman & Sons, “for Bordeaux brands with alternative packaging and innovative non-traditional design.” One such project by sommelier Richard Betts, Saint Glinglin, uses the image of a flying pig. With an artisanal twist on branded thinking, the three-wine range includes a basic Bordeaux Sauvignon, Côtes de Bordeaux, and a Saint-Emilion around $35 retail. “Bordeaux,” Betts remarks, “has always had a seldom spoken tension between terroir and brand.” Importer Johnnes markets a regional red and white under his Petit Chapeau label, saying the strength stems from “the wines’ value and low cost.” However, neither Betts nor Johnnes indicate they have plans at this time to extend their branded ranges. These inventive examples, while modest in scale compared to mainstream brands, could show the way for shippers who wish to balance a highly fragmented offer with proprietary wines offering a larger, more stable franchise. To that end, the process must start with products which are in tune with consumer preferences.
Consumer, Not Producer Focus
A work by Emmanuelle Rouzet and Gérard Séguin entitled Le marketing du vin (Dunod, Paris, 2012) argues forcefully for a new approach by the French wine industry. It is no longer viable to pursue a production-driven model relying on the notion of “one wine for all.” Rather, French producers must ask themselves, “which consumers, for which wines?” This is a credo powerful New World marketers—the ones who have gained at the expense of Bordeaux—have put in practice for some time. General Motors was forced to reinvent their product line to connect with consumers who had turned to foreign carmakers—not an easy undertaking, and quite costly, but survival was at issue.
If Bordeaux is to grow its share and volume, the region will have to study and heed drinkers in markets of opportunity such as the U.S. Until Bordeaux addresses structural issues, substantial investments in generic promotional activities are unlikely to yield commensurate returns. Whatever the region’s response to new realities at home and abroad, every course of action including the status quo involves risks and costs. Which strategies, however, promise the greatest potential benefits for this iconic wine region?
by Roger C. Bohmrich MW
Roger C. Bohmrich has enjoyed a long career in the wine trade, and he is currently an educator, speaker and consultant. Most recently, he set up and managed a retail entity affiliated with a Bordeaux-based merchant. Previously, he was a senior executive of a well-known importer. Bohmrich is one of the first Americans to earn the Master of Wine qualification. His website is www.vintrinsic.com.