Wednesday, February 18, 2009

Wine consumption

The past and current conditions, as well as Jean-Luc’s sales projections for the 2008 vintage based on the state of the economy keep me perplex.
Wine should be considered again as a simple consumable good as these sorts of products are not sensitive to market volatility.
Consumer goods don’t necessarily mean lesser quality of “bad” product.

In 2006, during the sale of the wines from the cellar of Paris Hotel de Ville (Town Hall), a journalist asked me what I thought about the sale.
My answer was that we were not anymore in the domain of consumer good but speculation.,,3345024,00-grands-crus-paris-sont-partis-prix-.html (in French)
At that time, many people predicted that “new” consumers were going to empty France’s wine stock without taking in consideration the hidden influence of international finance, who, in a few months, has poured billions (for in finance, anything under 9 zeros doesn’t count).
Imagine that the sales of “fine wines” in France represents 1 billion, so you can guess the size of the damage it can create. This corresponds to 400 chateaux selling 2,500,000 bottles.
On the other hand, it only represents a drop for the international financial system.
This question was brought up to Christian Moueix during a semi-private lunch in June 2007. However, the subject was hushed up for it was not in fashion at that time. The notion that a rich Russian or Asian were capable of pulling out $100 bills from their wallets to buy an exceptional bottle was commonly accepted.
I have been married to a woman from Singapore for 24 years (I often travelled to Singapore). While they certainly don’t refuse a good glass of wine, it’ll take a great deal of effort to convince them to spend considerable sums of money, representing hours of work, to drink some of the best French nectars!...
Except as a way to show-off in high society circles.

I told you Jean-Luc, that you, famous property owners, travel abroad incognito and spend time observing wine consumption. The information provided by wine merchants is biased for the allocation system favors people who tell nice stories to property owners…
I understand why; it makes them feel good about themselves and flatters their ego!

This doesn’t take away from the considerable effort made by chateaux to produce very high quality wines. However it is in the sales approach that mentalities need to change. The customer is not just a sucker. I recommend to read an article published in the Revue du Vin de France showing the cost of producing regular wines and grand crus. Clients do accept that intermediaries are allowed to earn a living for their work as long as it corresponds to a realistic margin and work accomplished (consulting, logistics, etc.)

I recently used to spend time with an epicurean, part time economist and part time professor of marketing in a university, who told me how distraught he was to learn that only a few people make good money in the wine industry (all product included) and that an Australian marketing research center is working on this issue. Even if I didn’t yet take the time to explore deeper this subject, it is obvious that the emotional part of wine is so strong that getting involved in it attracts rich retirees or financiers from every side, who want a bit if greenery or “red”… and where profitability is accessory. This disturbs the whole profession’s profitability figures. The lower price segment does generate more profit (at least for retailers) because they don’t have to deal with emotional issues as in sophisticated wines. In order to preserve the commerce of wine as well as the production sector, it is urgent to show a “reasonable” margin and that moneys earned from an activity in the wine industry corresponds to actual work done and not speculation. Offer and consumer demand as well as wine press will sort out the price issue. Today, a bank can give you a mortgage with x% interest rate and tell you that it’s margin of y% is variable depending on various criteria. One can understand Bordeaux market or any other form of distribution, however they will never accept a lack of clarity in the way it operates. Your blog does help to clarify, even if we don’t share the same view but it should, from time to time, raise pertinent questions.

Don’t worry, Bordeaux consumers will always exist, they love the sort of wines that only Bordeaux can produce, but please, have a bit of respect for the end customer.
At the end of the day and in a few years, the whole industry will be the winner. Even though the same game comes back every 5-7 years, consumers thrive for more consistence regarding distribution.

1 comment:

Andy said...

Thanks for sharing information.....