Why the Chinese wine market is like Wi-Fi, TomTom and a precocious teenager

Bordeaux bottles on poster at the Chengdu Wine Fair 2013

"China isn't easy"; "It's a tough market..."; "Taking a long time to get really going"; "China hasn't developed a wine culture yet..."

Over the last few weeks, in France, the US and at ProWein and the Chengdu wine exhibition, I have heard a number of these comments from frustrated foreigners who are finding the route to oriental prosperity less of a silk road than one pitted with potholes.

I feel their pain. It took a long time to finalise distribution of our own le Grand Noir wines, there have been complications and sales have not lived up to hopes/ expectations/ importer's promises.

But, to take a more level-headed, philosophical view, I now think that we westerners are viewing the Chinese wine market in pretty much the way that I view my GPS/SatNav and Wi-Fi. I get really frustrated when the little Garmin unit in my car and the inhuman voice with the execrable French accent gets it wrong and fails to take me to the desired address by the most direct route. I get similarly, hair-tearingly annoyed when my iPhone or laptop cannot get or hold a signal.

When I have these tantrums, I am behaving like a spoiled child (or B-list celebrity) who wants it all and wants it right now. How long do you think we've had GPS?

Read this from the TomTom website:

Our first stand-alone portable navigation device (PND), the TomTom GO, was introduced in March 2004 and marked a turning point in TomTom's story. The TomTom GO met a need for a portable fit-for-purpose navigation device that was simple to use, affordable and worked better than any other navigation solution on the market. The TomTom GO effectively defined a new category of consumer electronics; the PND.

As demand grew, TomTom underwent a phase of extremely rapid growth with 250,000 PNDs sold in 2004 rising to 1.7 million in 2005

2005, incidentally, was the year Garmin launched its StreetPilot i-Series.

And how long have we had Wi-Fi?

In August 1999, six companies—Intersil, 3Com, Nokia, Aironet (since purchased by Cisco), Symbol and Lucent (which has since spun off its components division to form Agere Systems)—got together to create the Wireless Ethernet Compatibility Alliance (WECA).... Branding consultants suggested a number of names, including “FlankSpeed” and “DragonFly”. But the clear winner was “Wi-Fi”. It sounded a bit like hi-fi, and consumers were used to the idea that a CD player from one company would work with an amplifier from another. So Wi-Fi it was. (The idea that this stood for “wireless fidelity” was dreamed up later.)

The technology had been standardised; it had a name; now Wi-Fi needed a market champion, and it found one in Apple, a computer-maker renowned for innovation. The company told Lucent that, if it could make an adapter for under $100, Apple would incorporate a Wi-Fi slot into all its laptops. Lucent delivered, and in July 1999 Apple introduced Wi-Fi as an option on its new iBook computers, under the brand name AirPort. “And that completely changed the map for wireless networking,” says Greg Raleigh of Airgo, a wireless start-up based in Palo Alto, California. Other computer-makers quickly followed suit. Wi-Fi caught on with consumers just as corporate technology spending dried up in 2001A rose by any other name...

(from the Economist Technology Quarterly Report 2004)

Getting frustrated with GPS and Wi-Fi is a bit like being annoyed that a precocious teenager doesn't have all the knowledge and skills of a mature adult.

Which brings me back to China. This is a very, very young market: in 2003, wine consumption was just 0.2 litres per person. Today the figure is 1.9 litres, and it is estimated that some 170m Chinese now drink wine, at least occasionally. 

Compare this with the US. Only 100m Americans are currently classified as wine drinkers: 44% of the 253m adult population. The 2012 Wine Market Council report that includes this information also reveals that 25% of the US population is responsible for 84% of all wine consumption. In other words, three and a half decades after the Judgment of Paris tastings and after the expenditure of countless millions of dollars by generic bodies and producers from across the globe, not forgetting the entire US wine industry, 56% of Americans still drink no wine at all, and a further 19% consume very little of it. 

If that's all we've been able to achieve in the US, maybe it's a little premature to be getting impatient with China.

The history of Bordeaux en primeur

Following up my post on Madness in Bordeaux...

I hesitate to give a Bordelais negociant a history lesson, but when Patrick Bernard of Millesima suggests that 

"For over two centuries, the Bordeaux Grands Crus Classés sell their harvest en primeur, in springtime, to the Bordeaux Negociants."

I don't think he's being strictly accurate. The modern en primeur system (based on selling wine in barrel in the spring following the harvest), far from being 200 years old is actually roughly a quarter as old as that. Until the 1961 vintage, the chateaux mostly sold their wine sur souche - while it was still on the vine, prior to the harvest. It was the surprisingly small volume of that great vintage that shifted the transaction until after the grapes had been picked. There may have been some spring, post-harvest transactions, but I understand these to have been the exception to the rule, especially in days when the wine was routinely bottled by the negociants.

Maybe M Bernard would like us to return to the sur souche tradition. After all, it has much deeper foundations in Bordeaux history...

It's a mad, mad, mad world (in Bordeaux)

"What Latour did last year was madness"

I'm not sure what qualifications Patrick Bernard, founder of Bordeaux negociants Millésima may have to diagnose mental illness, but I'm not rushing to recommend him as a psychiatrist. 

Let's analyse precisely what Latour did in fact do last year.

It - it the form of director Frederic Engerer - decided to stop selling his wine when it is unready to be properly assessed or drunk, in favour of selling it when it is - in his opinion - properly marketable.

He also chose to withdraw his wine from the hysteria of a few weeks when the entire wine world turns its attention to the opinions of a handful of experts who frequently disagree on the merits of the - frequently unrepresentative samples - they are tasting.

Stated bluntly, if anyone is looking for an illustration of madness, it is to be found in the pricing - embraced by Millésima and others - of 2010 Bordeaux en primeur, and the very existence of a 2011 en primeur campaign.

Latour has just released its 1995 grand vin and 2005 Forts de Latour. Simon Staples of Berry Bros has revealed that Asian buyers have snapped up his entire allocation of these wines.

So, Latour has sold its wine; Berry's has satisfied its clients; those clients have made far more sensible purchases than they would if they had bought 2010 en primeur. 

Millésima, however, have refused to offer the mature wine.

That's their prerogative: to express Gallic grumpiness. Some might even call it commercial madness, but I wouldn't go that far. After all, I don't have the requisite qualifications.

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The Millesima response

Millesima doesn’t boycott the Chateau Latour

by Millesima on 22 MARCH 2013 in ANNOUNCEMENTS, EN PRIMEUR

Right to reply – “Millesima doesn’t boycott the Chateau Latour”

Context : Millesima could read in the press and on social networks since Wednesday – after the announcement on the 20th of March in Bordeaux by our CEO – founder Patrick Bernard – that the article titled “Millesima boycott Chateau Latour” was the origin of quite some reactions (perhaps even  misunderstandings) from the readers, either if they are professionals in wine, spirits or just wine lovers.

 This is the reason why Patrick Bernard  wishes to put things in their context, in order to avoid more misunderstandings.

Patrick Bernard : “Millesima boycotts Latour!” does not seem to express faithfully at all what I have announced yesterday by the end of the Primeurs 2011 Panorama Tasting in our own cellars.

My announcement was as follows:

- For over two centuries, the Bordeaux Grands Crus Classés sell their harvest en primeur, in springtime, to the Bordeaux Negociants.

- Château Latour has decided, from the 2012 vintage, not to sell its wines en primeurs to the negociants anymore (but once they are bottled, much later on, and this week the offer concerned the Latour 1995)

Millesima, willing to see the Bordeaux traditions enduring refused the offered allocations, not only regarding the Latour but the Forts de Latour as well.

Given the allocation system currently in use in Bordeaux, Millesima knew it was to be condemned not to be offered any Château Latour for the coming vintages.

On the other hand, as soon as the Château Latour sells its wines en primeur back again, Millesima will be delighted to start buying and marketing their wines again.

In no way our position can be considered as a boycott, but as a refusal to see bicentenary traditions being scorned.  (My highlighting. RJ)

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My response to the Millesima response

I'm sorry, M Bernard, but maybe we have a linguistic issue.

I'll leave it to readers to decide whether stopping buying and marketing Latour until it starts selling wine en primeur again fits within the Oxford dictionary definition of "boycott" below.

• withdraw from commercial or social relations with (a country, organization, or person) as a punishment or protest:we will boycott all banks which take part in the loans scheme
• refuse to buy or handle (goods) as a punishment or protest:an advert urges consumers to boycott the firm’s coffee
• refuse to cooperate with or participate in (a policy or event):most parties indicated that they would boycott the election
  

Because You're Worth It

A slightly amended version of a piece that originally appeared on Timatkin.com

Two strangers, a man and woman meet at a cocktail party. The man turns to the woman and says, I've got a hypothetical question for you.

The woman, whose curiosity has been piqued, says "OK ask away..."

"If a reasonable-looking man you don't know were to offer you a million dollars to go to bed with him, would you do it?"

The woman thinks for a long moment and finally, with some hesitation, answers "I guess I would... for a million dollars.

"The man smiles and says "Then will you sleep with me for $25?"The woman, with a shocked expression, screams,"Of course I won't. What do you think I am!"

To which he calmly replies, "We've already determined precisely what you are, now we're just haggling over the price."

£100 per person for a Michelin-star quality meal - Yes_ / No_

£100 for a watch - Yes_ / No_

£100 to see the Rolling Stones/Bowie/Domingo/Prince/Dylan/Yo Yo Ma (or your favourite musician) - Yes_ / No_

£100 to get your hair cut - Yes_ / No_

£100 for a bottle of wine to drink at home - Yes_ / No_

£100 for a handbag - Yes_ / No_

£100 for 500g of Fortnum & Mason Jamaican Blue Mountain coffee - Yes_ / No_

If you answered "no" to all 10 questions, congratulations, you are a highly rational person. Most of these options are simply unnecessary expenditures, and all cost more than anyone actually needs to spend on them. You are also quite probably the kind of person I really wouldn't want to go on holiday with.

If you answered "yes" to at at least one, I know precisely what you are too: you're an irrational consumer, someone who, for whatever reason, is prepared to dig deeper into their wallet than is truly necessary. Now we're just haggling over the price. It doesn't matter whether your irrational expenditure is explained by a particular interest or passion (for wine, coffee, sport or music for example), or out of concern with the way other people see you: in either case, you are an essential part of the capitalist system. (Of course, it's possible that you may have simply said yes to all of them because you're obscenely rich, but in my experience even the mega-wealthy have hierarchies of expenditure).

So let's get back to the haggling. Ask a few other people to answer the same questions and compare their responses to yours. Where do you differ? Then, take another cool-headed look at the options. What's the maximum price you'd pay for the options to which you said "no"? And how far off the £100 is that figure? What about the options to which you said yes? How much more than £100 would you pay for a watch, for example? And which, if any, of the expenditures struck you as "ridiculous"?

That was the word a friend of mine - whom I'll call Jean-Pierre - used when I asked whether he could imagine selling a bottle of his Southern French wine for £100. Of course not, he responded. The £20 he's asking for it is quite enough - despite the unprofitable state of his business. Even £50 would be silly. Explain "silly", I responded. Because the wine's not good enough? Or simply because no-one would pay that much for it? It's just not worth £100 he said. Ok, I hit back, Is it worth less than Ch d'Esclans Rosé which is produced in the same region and sells for, yes you guessed, £100?

No rosé - apart, maybe, from Champagne is worth £100, he said, falling into my trap. "Worth" I replied, is an absolutely subjective term, whether you are talking about shares or gold or your home whose value can go up and down from one day to the next, or options like the ones above. I don't, as it happens, spend £100 on a haircut (as some people may have noticed), so I was interested to read that, in 2008, The Sultan of Brunei apparently splashed out $34,000 on having his locks trimmed. He flew in Ken Modestou the resident hairdresser from London's Dorchester Hotel. To attend to him at his palace. The 14,000 mile round trip in a private suite on Singapore Airlines reportedly accounted for much of the difference between that particular short-back-and-sides and one he might have had from the same barber at the Dorchester for the standard price of around $43. Presumably, for the Sultan - whose own fortune in 2010 was estimated at $20bn - it was "worth" it.

Ok, $24,000 is undeniably a ridiculous price for a haircut. But what about $500,000 for a watch? For the Richard Mille ROM027, as worn by Rafael Nadal, to be precise. Only 50 of these were made, but all sold out, with a further 100 would-be buyers apparently going unsatisfied. "There were a lot of people screaming because not everybody could get a watch. Demand is higher than what we can produce." Mille said, claiming that the production run was limited to 50 because the watches were so difficult to make.

Ok, dear reader, now it's your turn to answer a few questions.

Would you pay...

£100 to watch a team you care about in a really big match - Yes_ / No_

£100 for a shirt - Yes_ / No_

£100 for a couple of pillow cases - Yes_ / No_

£100 for 500g of Fortnum & Mason Jamaican Blue Mountain coffee - Yes_ / No_

If you answered "no" to all 10 questions, congratulations, you are a highly rational person. Most of these options are simply unnecessary expenditures, and all cost more than anyone actually needs to spend on them. You are also quite probably the kind of person I really wouldn't want to go on holiday with.

If you answered "yes" to at at least one, I know precisely what you are too: you're an irrational consumer, someone who, for whatever reason, is prepared to dig deeper into their wallet than is truly necessary. Now we're just haggling over the price. It doesn't matter whether your irrational expenditure is explained by a particular interest or passion (for wine, coffee, sport or music for example), or out of concern with the way other people see you: in either case, you are an essential part of the capitalist system. (Of course, it's possible that you may have simply said yes to all of them because you're obscenely rich, but in my experience even the mega-wealthy have hierarchies of expenditure).

So let's get back to the haggling. Ask a few other people to answer the same questions and compare their responses to yours. Where do you differ? Then, take another cool-headed look at the options. What's the maximum price you'd pay for the options to which you said "no"? And how far off the £100 is that figure? What about the options to which you said yes? How much more than £100 would you pay for a watch, for example? And which, if any, of the expenditures struck you as "ridiculous"?

That was the word a friend of mine - whom I'll call Jean-Pierre - used when I asked whether he could imagine selling a bottle of his Southern French wine for £100. Of course not, he responded. The £20 he's asking for it is quite enough - despite the unprofitable state of his business. Even £50 would be silly. Explain "silly", I responded. Because the wine's not good enough? Or simply because no-one would pay that much for it? It's just not worth £100 he said. Ok, I hit back, Is it worth less than Ch d'Esclans Rosé which is produced in the same region and sells for, yes you guessed, £100?I don't know how much it can possibly cost to manufacture a watch. I do know that it is almost impossible to spend over $25 on making a bottle of wine, and pretty damn difficult to run up a bill of over $15. Which raises interesting questions about the 370 Napa Cabernets listed on Wine-Searcher at $100 or more per 75cl bottle.

So back to Jean-Pierre. What if he were to cross the mental and philosophical rubicon and produce just one barrel of £100 wine? Well, firstly, he'd have to take a good look at how much better he could make it than the £20 stuff he's currently producing; if you're charging Rolls Royce prices, you have to offer Rolls Royce quality. On the other hand, with the extra margin he's making, J-P can stop cutting even the smallest of corners. In a blog post evocatively titled Why People Want to Pay You More Peter Shallard describes how a photo lab owner (aka the place you had to go in the days when cameras used film) one day doubled his rates. His customers were, unsurprisingly, furious. Half immediately took their custom elsewhere; the rest shrugged, realized they had been getting their photos too cheaply... and swallowed the increase.

Overnight, the lab-owner had nearly halved his operational overheads while maintaining all of his revenue. He then spent the extra profit (and time!) tarting up his shop to attract new, wealthier customers.

J-P would have to do some serious benchmarking of his wine against others selling at high prices, and possibly accept that his new £100 wines might not actually be as close to his personal taste as the wine he's currently making. I know of at least one producer who matter-of-factly acknowledges that they rarely drink their super-premium Parker 90+ point wine. Not that they dislike it, but that, like a chef's foie gras dish that is popular with his customers but rarely eaten by its creator, it may be more of an occasional pleasure. A Rolls Royce may not be the ideal vehicle to use for a trip to the supermarket or garden centre.

By the same token, J-P will have to understand that, in the case of those super-premium wines at least, he may have to part company with some of the people who are buying his wines today. J-P already had some experience of this when he raised the prices of his wines from their previous €10. Some of his best friends and family no longer buy his wines.

However... he'll discover that the makers of super-premium products enjoy another, perhaps surprising, side-benefit. People who pay high prices tend to be a lot more loyal than the bargain-seekers. Just take a look in the cupboards of women who carry Louis Vuitton handbags or wear Louboutin shoes - and I'll bet that you'll find lots of other products with those same brand names. And, as the photo-lab owner discovered, and LVMH annual results reveal, high-payers are good for the bottom line.

When thinking about "ridiculous" prices, J-P might like to consider a few Champagnes. Setting aside Cattier's blingy gold-plated Armand de Brignac non vintage.

And LVMH's Clos' d'Ambonnay £1,000+ Clos d'Ambonnay.

He could look at the relatively mainstream Laurent Perrier Rosé.

Now, I don't happen to think that this is one of the best pink wines in Champagne and a price tag of £52 at Tesco might justify some people's use of "ridiculous". But there's no shortage of buyers for this iconically packaged fizz, either for £50-60 in a shop or £100 in a restaurant. It may not be "worth" that price to me, but it's evidently perfectly good value to the people who buy it.

Offering genuinely good value can, however, go unrewarded. Charles Heidsieck has been one of my favourite Champagne brands for many years, and one that I and others applauded for launching its innovative Mis-en-Cave individual non-vintage cuvées and for its affordability. 

Highly-praised, fairly priced, frequently-award-winning Champagne... What could be wrong with that? Only the fact that it was hard to sell, and was fundamentally unprofitable. Far too much ended up being served by airlines, who are not known for their readiness to pay top prices. Finally, in 2011, its owners, Remy Cointreau gave up and sold the brand to a clothing company.

Old and new...

Today, Charles Heidsieck has been rebranded and repackaged and it is being
"repositioned" - in other words, its price will rise to set it in line with brands like Bollinger. The quality may be marginally improved as well, though I don't recall any of us complaining about what we were getting before. Critics will probably bridle - just as I once would have done - and just as most regularly do - and I used to - at the price of Cloudy Bay.

The correct value of anything is the amount people are prepared to pay for it. Like Tim Atkin, I do a fair amount of public speaking. I've addressed a wide range of audiences for a wide range of fees, some of them - thanks to my agent - far higher than I might ever have imagined being able to command. I try to do my best, irrespective of the money, but over the years, I've learned that, the more people pay, the nicer they are to me and the more appreciative of my efforts... And the same, I guess applies to anyone sitting down to enjoy a glass of £100 rosé.

When I have these conversations with J-P, he sadly looks at me and says "you sound like a clothing advisor to the famous emperor with the new suit of clothes. I used to think of you as the little boy in that story".

To which I have two responses. First, that the story of the naked emperor was just that: a story. In the real world, the little boy's comment would have gone unheard by the courtiers - just like the comments of people who dare to suggest that Damien Hirst doesn't deserve to be one of the richest artists in the world. And secondly, maybe the little boy simply grew up. To be brutal, I'm now happier to see people getting pleasure out of spending their money as out of saving it on half-price bottles in British supermarkets.

Here, for the fun of it, are my answers to those initial questions.

£100 to watch a team you care about in a really big match - Yes. I think it was definitely worth over £100 to watch Fulham beat Spurs last weekend. (Though I couldn't have predicted that result from their previous form).

£100 per person for a Michelin-star quality meal - Yes, up to £150. Then I'm not so sure...

£100 for a watch - Yes, but over £250..? I can imagine going further for something special and old

£100 for a shirt - Yes, but I wouldn't pay £225 for the Paul Smith shirt I used as an illustration above.

£100 to see the Rolling Stones/Bowie/Domingo/Prince/Dylan/Yo Yo Ma (or your favourite musician) - Yes. Friends who saw the Stones in London before Christmas said it was worth any price...

£100 to get your hair cut - No.

£100 for a bottle of wine to drink at home - Yes, but how often would I go over £150. (Talking about buying at that price, rather than drinking a wine whose value has risen there).

£100 for a couple of pillow cases - No, but that is the price the White Company charges for the pillow cases in the picture, and friends who do buy from them love the boxes in which the linen is delivered.

£100 for a handbag - Yes, but where's the ceiling?

£100 for 500g of Fortnum & Mason Jamaican Blue Mountain coffee - No way.

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