Decanter magazine has published an article examining the decision by Aussino Cellars, a leading retailer in mainland China that maintains 200 wine stores in 100 cities, to abruptly cancel its annual meeting with the Union de Grands Crus while stating that it intends to stop buying Left Bank and instead will invest in the Right Bank Bordeaux.
Sylvie Cazes, managing director of Pichon Lalande and re-elected the union’s president earlier this year, has responded with calm “We are sorry to hear Aussino doesn’t want to organise the tasting with us this year, but we are committed to China, make at least two trips a year there and would be happy to work with Aussino in the future”. Earlier this month Ms. Cazes published a similarly composed view at Decanter.com on the enduing question of a bubble in the Bordeaux market: “‘Every time there is a new market, tension is created. It happened with America in the 1980s and it happened with Asia…I don’t believe in bubbles – with a bubble you have a great increase, then it bursts. I don’t think this will happen – the market will stabilize itself, and with 2010 we are seeing the start of that regulation.’
For his part, Aussino owner, Robert Shen – listed at no. 17 in the Decanter Power List 2011 (up from 28 in 2010) – considers prices at the top Medoc estates ‘too dangerous”. Grace Cai, Wine Education & Culture Manager at Aussino World Wines, elaborates “The prices of the Grand Cru wines are too high because of the booming wine market in China, and it is very dangerous to keep on promoting them. ‘As our consumers become more and more educated about wine, they will realise that they are buying over-heated brands, and we want to offer them wines with stability”
To this end Aussino has apparently entered into business with high-profile Pomerol growers, J.P. Moueix and Jacques Thienpont of their respective estates, Petrus and Le Pin, with immediate effect. Their stated aim, alongside known brands, to develop own brands for the China market.
More than price
Independent of such reciprocal statements, it is clear that the abrupt departure of such a high profile distribution partner marks a very real statement. This, far from being an isolated case, is in fact, supported by a number of broader indications as to the possible direction of the Chinese market overall. The first and most obvious is the possibility of other Chinese merchants adopting the explicit aims of Aussino, through winding down inventories of those wines in the eye of the price storm, whilst simultaneously taking control of production of wines for which it clearly sees or anticipates demand. Recent history shows there are already precedents here.
The most notable example is to be seen in the widely reported February 2011 acquisition of Lalande-de-Pomerol estate, Chateau de Viaud, by COFCO, an argi-business conglomerate supported by the Chinese government. Its stated aim ”… a strategy for constructing a complete chain from production to consumption to guard against forgeries and to reassure our clients” – guarding against forgeries was also specifically highlighted by Ms. Cai during her discourse on the matter.
How should one interpret this?
Well, as ever, there is a short-term and long-term view. Looking at the short term, we are seeing the kind of price spike that comes with expansion in demand. This occurred when the US market first opened up in the 1950s, followed by its use of futures in the early 1970s (yes, they did pioneer it before the British took it up as en primeur a few years later) and, the consolidation of the US as a major player from the 1982 vintage on. The immediate effect of which, as early as the ‘ 50s, was the appreciation of prices for First Growths by 50%. Buyers began to look for value, the same will happen now.
As far as it goes, then, the Aussino move could be seen as a simple sign of the maturing of a new market – one where appetite for Bordeaux has been in evidence for at least 5 years and will continue to be so – that now also becomes interested in other wines outside of the initial 10-15 icon wines. That is a healthy development where the love for Bordeaux goes hand-in-hand with a greater awareness of price and value.
Importantly, to the Chinese-Asian buyer, this value may well appear to also exist in entirely different regions. A certain rise in demand for the sought-after wines of Italy has been in evidence among traders of late. When one considers the enduring and influential popularity of Italian cuisine, it would be expected to continue. You only have to consider that the most investable Italian estates offer 6-packs for sub-£1, 000, as opposed to average 12-pack prices of +£8, 000 for First Growths, to understand their allure.
Nevertheless, with regards to development within Bordeaux itself, it is the longer-term that offers perhaps the most significant and intriguing considerations. The Chinese have yet to embrace en primeur and in other areas have successfully bid to take control of production themselves – Chateau de Viaud is the seventh acquisition by a Chinese proprietor since 2008 and in all cases production was re-directed in its entirety to China.
Perhaps most intriguing of all though, the role of Robert Parker as market maker is increasingly being questioned. We have already seen the emergence of ‘Chinese brands’, and indeed off-vintages thereof (2002, 2006, 2007), outperforming their Parker scores to initiate an apparent, albeit evolving, Asian consensus within the 1855 Classification. Indeed, Parker has recently broken with tradition (in an apparent attempt to affect pricing policy?) stating “I hate to see the image [of Bordeaux being great] damaged by the fact people tend to think it’s too expensive,’ he is quoted as saying. ‘Bordeaux is focused too much on the wealthy Asian market”.
There is, perhaps, more than a passing resemblance between this and the pricing out of the British and other European markets in favour of wealthy Americans in the 1980s. The ball, it would appear, is firmly on the other foot. Today, it is the Chinese businessman who is profiling as the single most important market maker and indicator of future prices.
There is, somewhat descreet, speculation within the trade that a certain degree of direct selling is occurring at top chateaux, nominally wedded to La Place. La Place, the local term for the traditional system of distribution, whereby top wines and lesser-known ones, reach the open market through an historic and exclusive chain of chateaux, courtiers au vin (grape brokers) and négociants (wine merchants and brokers). An opaque system and one open to price manipulation through the holding back of wine in function of demand and policy, therefore providing an entirely notional indicator of supply. Until very recently, the prevailing wisdom was that small chateaux with strong brand awareness (and alternative distribution channels) may not need it – witness Chateau de Viaud – but the top Medoc estates certainly do. One only has to consider that such chateaux typically have between 15, – 20,000 cases to sell in any given vintage; no other system is capable of moving that much high-priced wine in a matter of hours. Whereas direct sales by sought-after chateaux will likely remain an area of speculation for some time yet, another form of direct distribution may well be just around the corner. The acquisition of Chateau de Viaud has apparently more than just value at its heart. As a proprietor, chateaux owners are in fact entitled to and able to access significant volumes of wine, something that chateaux have largely left to the négociants.
In his signing ceremony speech, Chi Jingtao, Vice chairman of COFCO, stated the company’s intention to distribute classed growth, in this case through S.A.S. Majorlaine, a négociant house owned by Philippe Raoux, the previous owner of de Viaud. Majorlaine, est. 1920, has to date, specialised in supplying branded wines from petit chateaux to private clients in France, only exporting around 5% of its production. COFCO, in partnership with the négociant, now wishes to further use develop a new wine brand for the China market.
Historically, the emergence of new markets entailed, what in fact amounted to the deepening of traditional practice; the control of supply and demand by La Place together with significant influence by, typically London-based, British merchants. The latter having built up a privileged position based on important allocations through, quite literally, centuries of trade and promotion of Bordeaux wines. Indeed, most Hong Kong merchants are today branches of those same London merchants. The Chinese, so courted by both La Place and London merchants, may have determined that, as the most important consumer market, they are going to have a say in this.