Versus a generation ago – let us say 30 years – the market dynamics of traders who buy and sell wine have been far from static.
The traditional Beaune-based merchants, or the ‘Maisons’ remain the focus of commentators but they have much more competition today, and at all levels too:
- From younger companies who have overtaken them in the bulk market and in some cases in (turnover) size
- From new entrants; smaller ’boutique maisons’ prepared to pay high prices for 1-2 barrel lots
- From new generations of long-term supplier domains who now choose to commercialise more and more wine under their own label
- Pricing dynamics – recent bulk prices that make adding value close to impossible…
Noting that a number of well-known names have already been boosted by outside capital from the US, or other parts of France e.g. Champagne for Bouchard Père and Chanson, how does the ‘market landscape’ now look, and how are the traditional Burgundian merchants positioning themselves, moving forward.
1. Our baseline
The Beaune-based FNEB (Fédération des négociants-éleveurs de Grande Bourgogne) represents about 60 merchant companies in Burgundy – mainly the larger ones – though these members of the FNEB see only 50% of their activity from Burgundy/Beaujolais. The actual number of merchants is very volatile; many are created by domaines who are either looking for raw materials as they are wishing to expand, or in recent years to make up for short harvests. There are about 400 ‘entities’ with négoce licenses registered in the Côte d’Or, but at least 150 are very tiny or even dormant – 60 companies or so have a turnover of more than 2 million Euros, about 30 of which are in the range of 1-2 million Euros of turnover – the rest would be below that level. It’s not necessary for those with a merchant license to join the FNEB, but, for example, the latest names that have chosen to do so are François Carillon and the Château de Pommard.
In terms of company size, you might be surprised that many well-known names don’t make the top 5 or 6 list:
- Louis Jadot
- Louis Latour
- Albert Bichot / Bejot
The latter two are too close to call, though interestingly Patriarche, in second place, is the biggest table wine supplier in France – though of-course much of that is not wine from Burgundy.
When we think of ‘super-dynamic’ merchants, it’s not just Nicolas Potel in the 1990s and then re-inventing himself again in the 2000s, there’s a host of others such as Benjamin Leroux, Pascal Marchand, Olivier Bernstein and Lucien Lemoine and of-course more.
I discussed the current market drivers for merchant companies with Pierre Gernelle, Directeur Général of the FNEB:
Our starting point is that greater burgundy wine is cultivated across 28,283 hectares of vines (an average of the last 5 years) and accounts for 6.3% of the AOC wine produced in France – from France’s registered total of 447,000 hectares. This accounts for roughly 185 million bottles of ‘burgundy’ which are commercialized by 17 co-operatives, 300 négociants and 3,900 vignerons in the region.
The FNEB estimate that about 50% of the Burgundy harvests are merchanted, so equally about 50% of all bottled burgundies, are négoce bottles.
It’s clear that the owners of the land and grape producers have more power than before. 25 years ago the number of merchant entities was closer to 200, and they were much more in our classic/traditional expression (expectation?) of a ‘Beaune merchant.’ Pure négoce, i.e. buying and selling over the phone hardly exists today, it is mainly courtiers that now do this work, indeed, there’s only one substantial company left that buys large quantities of bulk wine, only to bottle and label – Tresch-Clerget of Beaune. Tresch who had a turnover of €59 million in 2013 were themselves sold earlier this year to the much larger Alsacienne company, Grands Chais de France.
2. Some strategic perspectives
The market conditions were, for a long time, rather comfortable for the big merchants, but today there are many more grape buyers, and with a range of strategies too, which makes the situation much more fluid. One potential criticism that could be lain at the door of the new small merchants, is that despite their dynamism and agility, many don’t seem to have a long-term view – something that has characterized the old network of companies as they attempted to flatten-out pricing to insulate the end market from big changes in their bulk pricing – of-course that’s price changes in both directions – some they win, some they lose!
Of-course bulk pricing has been one of the biggest concerns in Burgundy in the last few vintages. Pierre Gernelle notes that “Everyone expected, that with higher 2014 yields (mainly), that bulk pricing would stabilize – which was indeed the case for regional appellations, but not for villages and grand crus. It is the competition for grapes, combined with strong market demand that’s driving this pricing direction.”
As will be seen when discussing with any merchant, control of the most basic raw material is today their priority – this is the primary strategic driver for those producing wines with Côte d’Or appellations, and for at least the last 10 years too. Frankly for the household name ‘Maisons’ a base level of quality is now only the pre-requisite to do business – it’s still no guarantee of sales – as Jean-François Curie (CEO of Boisset La Famille des Grands Vins) puts it “Branding is very much a two-edged sword: you can’t have a great Chablis and a poor Meursault – because it’s your name that counts.” That in mind, whenever possible, everyone would wish to buy grapes rather than must or part-finished wine, if only for the extra level of ‘control’ that this brings. This is also borne out by the statistics of the FNEB: 2015 could be the first vintage where more grapes and must are transacted through the traders than fermented wine – those numbers were very close in 2014, but ‘wine/part-finished wine’ just won the day. That’s in ‘total burgundy’ – but in the Côte d’Or, regional appellations still transact more fermented/bulk wine – yet the direction is the same – everyone wants to start with grapes. Starting with grapes is pretty much the model of Champagne where 90% of transactions involve grapes/must – Burgundy is not so slowly moving in this direction – and it could be the norm in another 10 years.
The strategy for smaller Maisons, is to be more dynamic, both in their grape dealings and in the end markets where they are less ‘tied’ to long-term distribution contracts – it’s not unusual that an established Maison has had the same distribution contacts in a particular market for multiple generations. The successful smaller Maison typically offsets the ‘security of grape supply’ aspect by being willing to pay much more for small lots of ‘in-demand’ appellations, but their product and marketing must be sufficient to add value such that their average price maybe at least 50% higher in the sales market than established Maisons – because sometimes they have paid 50% more for their raw materials – sometimes, much more. Still, this is not a bad model – there is a finite number of bottles of Bonnes-Mares that can be produced, so would you rather earn 40% margin on an €100 bottle or the same 40% on a €150 bottle? But we should be in no doubt that this approach is contributing to driving higher grape prices (the market price is an average of all transactions) and those who are successfully exploiting this niche will inevitably themselves face more competition. And what does the rise of the dynamic/boutique/micro-négoce Maison mean to the old, established cadre of Maisons? Talking to one executive “One Mounir brings colour to the market and adds interest – this is absolutely not a problem for us, indeed I think it’s great. But 20 or more Mounirs and then we will start to face problems…”
In terms of strategy, there’s an important driver for growth in the last years shouldn’t be overlooked, and that’s crémant – this product has moved from something of a niche label to almost 10% of burgundian production with now about 150,000 hectolitres produced – it is the biggest driver of turnover growth (usually classified as a ‘success’) in the last years. There remain artisanal, medium-sized crémant producers, but the top 5 producers by volume probably account for 80% of production today and they are still growing strongly.
I discussed current approaches with a number of larger producers, the synopsis of each discussion is linked in the following list. I have avoided the urge to summarise and then summarise again, because despite the range of portfolio approaches used by these companies, the pure burgundy wine approaches of these large organisations essentially boils down to the same thing for each – maximising the quality of the finished product by expanding their scope of raw material control and security of supply:
Maison Jean-Claude Boisset
Jean-François Curie, CEO of Boisset La Famille des Grands Vins is well-travelled, having worked twice a Boisset and also Joseph Drouhin too. Over a wide-ranging discussion I’ve tried below to distill the emphasis of the approach of the largest wine company in Burgundy.
Bigger is not always the ambition, but better yes…
- In terms of business evolution in the last 20-25 years, the biggest move is to the quality end of the spectrum in almost all aspects of the business and a much higher emphasis on wine making – in tandem the move from pure trading/blending to winemaking. Nowadays JC Boisset is also one of the biggest owners of vines, but the first step was to start buying grapes rather than buying bulk wine or must. As an example JC Boisset’s J.Moreau et Fils brand is the largest ‘Chablis crusher’ – 15,000 hectolitres worth. In the 1980s this was a big brand for Allied-Domecq, but they dealt only in bulk wines – this doesn’t work anymore. Of-course, access to capital is also a driver for change – in the old days, many producers could hardly afford to replace their worn barrels.
- The brands associated with JC Boisset all have their own wineries because grape access is everything.
- Working with partner growers has changed very much in terms of the commitments on both sides; it’s not now just a price for x years, there are vineyard management aspects, pruning aspects, picking dates et-cetera. JC Boisset cover virtually all levels of wine, and there is always an emphasis on resources, the time and money expended for 1000 hectolitres of Mâcon is as much as for 2 barrels of Clos de la Roche. Since 2002 JC Boisset created the new job title ‘viniculturist’ which Jean-François describes as creating the ‘grape environment’ not just wine making. Before there was the chef de cave but now there are many more dimensions to the role, though usually a base in enology is mandatory.
- Also on the distribution side we like to think that we are also brand owners, not just name owners. We need to add value, and always try to improve our distribution and communication – whilst always considering our many markets – for instance restaurants, web merchants – we can’t work with just an old-style network, it’s essential that we really know more about where our bottles end up. The mission to sell is not enough, where?, what price? Et-cetera. Selling is no-longer about selling containers of x to market y, so both ends of the business have changed and for both on-trade and off-trade. Even in France – the biggest market – has a much more complex set of routes to market than before.
- We like to think that we can do things better than others, but size also matters – for instance next week we will have a sales meeting with 35 people, covering the spectrum of routes to market, and certainly that is bigger than most companies, but we also need the critical mass to afford it.
- Crémant developed for us in the late 1990s and more by happenstance rather than strategy – at least to start with – now it’s clearly a strategic division. Crémant is really additive to volume, value, profit and image. Long-term contracts, commitments, and the inbuilt rewards for supplier are really the model for the new merchant approach.
- New startups companies buying small amounts even have some impact on companies like JC Boisset but there are also synergies where Boisset can cherry pick; an example might be a Hautes Côtes producer with 30 hectares that are hard to sell, but with a couple of ouvrées of Echézeaux that are easy to sell – JC Boisset can offer the deal for both, the bulk possibly going to crémant. Call it leverage…
- Pricing! Some growers are now preferring to live as land-owners – the worth of their vines means that they can live that way and have no work issues, as others (like us) do all the work. Like everyone we start every day looking for new vignerons and wines, this competition and short harvests drives competition for grapes, and more demand has a big impact on the pricing dynamics. The wine in the bottle is usually what you are expecting today, there is nowadays very little cheating. There’s almost no difference in the end price of our wines whether the raw materials were grapes or must, but at least 20% difference when buying them. Unfortunately I see no real change in upward price trend for grand cru wines, though at lower levels – villages wines for instance – there is a price-point for those which is difficult to overcome. We must never forget that there are improved wines being made everywhere and today’s own-label bottles in supermarkets are usually better quality than the rejected stuff from many larger négoce. I think it’s important for Burgundy that the people who make and sell the wines are always the same people who have to face their long time buyers, each year, over prices. That’s not the same in other wine-producing regions. For us it’s about enrichment, we want our producers to do better and better. You have to be optimistic to continue, to push (hopefully!) for the extra value – sometimes we even ask ourselves ‘is this wine too good’ when we can’t get a better price…
Maison Albert Bichot
From our list of largest négoce, Albert Bichot is virtually the only ‘old’ Maison that is totally self funded whilst remaining concentrated totally (almost!) on ‘greater Burgundy.’* I discussed the same drivers and challenges with Albéric Bichot, and here is a summary of his thoughts – not he didn’t speak less than Jean-François Curie, I just chose not to include essentially the same approaches:
*Louis Latour is similar but has a much higher impact on turnover from their redoubtable Chardonnay Grand Ardeche.
- The plan of our Maison is not to grow for the sake of it. We would rather choose to finance everything ourselves and stay family owned. Bichot remains independent, in good shape, and is 95% focused on wines of the ‘grand Bourgogne.’ The 5% is a ‘little bit’ of distributed Rhône wine.
- In the last 20 years the biggest change has been our move from bulk purchases to buying the grapes – it’s not a question of trust, rather we want to do it our own way, even to the extent of picking the grapes ourselves.
- Although Bichot own the domaine Long-Depaquit in Chablis (and by extension the brand) they also buy each year almost the equivalent volume of Chablis as Long-Depaquit’s harvest. With the recent acquisition of Pascal Bouchard’s merchant business, they now have a capacity in Chablis of 150 hectares, so one of their biggest challenges is to maximise the usage of those assets.
- It’s impossible for us to lead all events, we have to follow the market but hopefully setting our own trends along the way – in the end, what’s important is what’s in the glass.
- Re pricing, the top grand crus and 1ers are markets in their own right, and do their own thing, though I’m still full of hope that we are never considered arrogant in pricing terms, unlike the producers in some other places.
Maison Michel Picard
Not quite in our ‘top 6’ list, but getting very close is this relatively young Chassagne-based Maison. They are already quite well-known to Burgundy Report readers from their (domaine) brand Au Pied de Mont Chauve in Chassagne-Montrachet. I find them very interesting because they have a very different portfolio approach to their Burgundian competitors – here spirits predominate. I discussed their approach with Francine Picard:
- In 1951 Louis Félix Picard was able to buy a vineyard of 2 hectares in Chagny. Son Michel took over the small family company in the early 1970s. So a Burgundy family, but opportunities came their way in the Rhône and the Loire so growth was entrepreneurial.
- Although the company name is Picard Vin et Spiritueux, 60 % of the turnover is actually spirits, and it is the profitability of this spirits business that currently aids the investment in vines. Michel Picard met Jules Girard who was selling his artisanal distillery – “It wasnt planned but ‘bingo – let’s do it!’” Later was added Fischer in Alsace, all very artisanal with a good range of eau de vie et-cetera. Growth was good – a little more industrial but with a certain ‘savoir faire.’ Then came the Scottish foray with Glen Morangie. Between the pastis and whisky, Picard are number 1 in the grand distribution (supermarkets) of France.
- Already 130 hectares of vines from Mercurey to Corton are owned, and the search for acquisitions is ever-present, ‘but when prices are too high, we simply say no’ – unsurprisingly it’s not really the priority of the company because spirits currently grow much faster. “You can double your spirits sales as it’s quite industrial, but you can’t double your yields from a vineyard in Chassagne – particularly difficult in the last few vintages with their low yields.” In the 40% of the company that is ‘vin’ there are many contributions from outside Burgundy, indeed despite owning 130 hectares, burgundy wine is not the major contributor. All wines are made in the location of their birth, but vines come only from France.
The key is the vines and it’s important never to get far from that. Farming is the least appreciated job, but it’s the base of everything.
This fast growing company is a blend of domaine, négoce and commodities (unlabeled bottles). There are some roots to the company from the 1890s, but the real start is from when Vincent Sauvestre took over a small négoce from his family in 1988. Since that time there has been a blend of organic growth and the external acquisitions; Protheau was the first and Domaine du Clos Chapitre in the Beaujolais was the last such that there are 260 hectares of owned vines in Burgundy and another 270 hectares in southern France. The on-trade market in France is the core of their business, and half of all the firm’s employees are actually working in and with the vines. I summarise my discussion with Vincent below:
- The market has seen lots of changes, there are many more, smaller, but prestigious Maisons, but there are also the more industrial producers too. Sourcing and sourcing quality is certainly made more difficult by people coming and buying up small parcels at 4x the going rate, but I don’t see small Maisons ‘overpaying’ for barrels of wine as the biggest problem – there’s a place for everyone – but it’s a complication during the lower supply vintages.
- The finance is often very complicated, we must find a balance between financing our operations and delivering sufficient income. Here for instance we’re looking to tender to retailers, airlines and various outlets that require a certain volume to service. In such circumstances we attach the highest importance to controlling our own vines in order to secure our grape supply. But security is important for both sides of the transaction, it is about confidence for both partners – buyers and sellers – over the quality and pricing.
- The key is the vines and it’s important never to get far from that. Farming is the least appreciated job, but it’s the base of everything. Even the co-operatives are working hard to secure their base of suppliers now. We have to be opportunistic but that’s not our biggest focus. There are both buyers’ and sellers’ vintages, but in the end, security is everything.
- All our opportunities to grow our base of fruit supply will taken, and that’s all opportunities from Chablis to Beaujolais, it also brings a different legitimacy to the business. Reinvesting to improve the level of quality is key to justifying our brands and further underpins our operation. The acquisition of important brands has also allowed us to trade-up with a portfolio of not just brands but also ‘marques’ whilst all the time leveraging a single logistics and operation for a number of brands.
- Whether selling B2B (trade) or B2C (end customers), it’s our multiple approaches and adaptations that makes Béjot different, but in the end we want to remain Bourguignon.