The Luxury of Distribution

Spot the odd man out: Château Latour, McDonalds, Nespresso and Hermes. All of these are luxuries (yes, even the burgers and the coffee if you use the dictionary definition of luxury as something that is "inessential but conducive to pleasure"), but three of the brand owners share a philosophy of how and where they like to distribute their products that is alien to the fourth. If you want to buy some more prettily-coloured pods for your shiny Nespresso machine, the only place you are going to get them is directly from the Nespresso shop or from their website. The same applies to McDonalds - a Big Mac can only be found beneath the golden arches - and it is true of most of the more premium items that carry the iconic Hermes logo. The perfumes may be on offer in Duty Free shops across the globe, but you're hard put to it to find the scarves, bags and belts outside the brand's own shops. Over 75% of Hermes's turnover is rung through Hermes tills.

Château Latour, like almost every other super-premium chateau in Bordeaux effectively prefers to distance itself from the end-user. The initial sale might be to a merchant known to the producer, but from there on, the wine is likely to make its own way, quite possibly across oceans and time zones, before it finally settles in the cellar of the person who is eventually going to drink it. Hermes knows who is wearing its scarves; the chateaux have little idea or apparent interest in learning who is sipping their wines or where they are doing so.

What makes this picture interesting is the fact that Château Latour belongs to a company with a highly sophisticated understanding of how to handle luxury goods, as can be seen from a glance at this 2008 report prepared for Latour’s stablemate Chanel on the dangers of internet distribution.

Of course, for many observers, Latour is not a luxury good, it’s a wine and as such has to be distributed as such – by superior folk called wine people. But just consider the way wine sales developed in Japan: through department stores. And look at the way premium wine is often used throughout Asia: as a gift.

Chateau Latour is no longer being sold through the mad system of en primeur. Apparently, it will continue to be distributed through the arcane system of la Place de Bordeaux, but even if this is the case, I’ll bet that a significant and growing proportion will follow other paths. Just as I’ll bet that one or two other big names, possibly in Sauternes and St Emilion, will join Latour in turning their backs on en primeur.

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RIP EP? Latour leaves En Primeur

Once there was a sad little boy with a football but no one to play with. So, he went to the park with his ball and started kicking it around for a little while. Soon enough, a few other boys joined him and they all began to play a casual game. Some of the bigger kids sometimes behaved as though it was their ball, but the boy didn’t mind too much because, he got to have the first kick.

A bit later, a keen American kid arrived and suggested a few rules he had made up that thought would make the game a little better. The boy was not entirely certain about this because the American seemed to have taken over the role of first kicker, but he’d also brought some really keen soccer players to the park, so the boy happily let him play.

Then one day, the boy’s dad came along and watched the game and noticed that the boy didn’t seem to be get his foot to the ball very often at all. Why, he asked his son, don’t we take the ball home and start a new game in our garden? We can invite your friends and make our own rules. And we can tell anyone who doesn’t like them to go and play somewhere else.

We are so used to En Primeur that we forget that it is a relatively modern construct. It was only really introduced in the 1960s. Before that, wine was sold by the even more lunatic system of “Sur Souche” – on the vine, during the growing season. Then came 1961, a surprisingly small vintage of surprisingly high quality. The chateaux who had done their deals with the merchants during the summer realised that they could have made much more money by waiting to fix the price until the wine was in the barrel.

Both En Primeur and Sur Souche were solutions to a cashflow problem at a time when even the top chateaux were barely profitable. Today, the picture has changed. The first rank of wines are sold for hundreds of euros per bottle; the cost of their production cannot exceed €10-15. This is – or should be – a highly profitable business for the producer, if not necessarily for those who subsequently trade in the wine.

Cashflow is still a concern, as it is for other businesses, but far less than it was when the chateau owners desperately waited for payment from the merchants simply in order to be able to pay their vineyard workers. In other words, for many producers En Primeur is a solution to yesterday’s problem.

But there is another reason to question its survival. One of the worst-kept secrets in Bordeaux is the volumes of 2010 wine that were “bought” by Chinese who have failed to follow through. That wine, to which the chateaux and negociants had effectively said goodbye, has torn up its travel tickets and its Chinese visa and is now freely available for purchase. In other words, on occasions like this, En Primeur no longer works. And in vintages like 2011, it certainly won’t work for any but the top 50-100 estates.

Supporters of En Primeur will claim that it has survived for a very long time and, for that reason alone, will continue to do so. But that is rather like saying that handwritten letters and printed novels can survive the arrival of email and e-books intact. Some will; most won’t. Distribution has changed. Buyers from emerging countries are not bound to play by the old rules (it is said that the Chinese don’t like buying a pig in a poke, or not unless there is a very strong likelihood of there being a high profit to be made from doing so).

Others look at exchange rates. What if the relationship between the euro and the dollar, pound and yuan changes dramatically over the next 12 months? This – hardly unthinkable – suggestion could make discussions over an En Primeur price cut of 40, 50 or 60% seem entirely academic.

Back at the boy's house, he was enjoying the freedom to decide when a game would start and the rules that would apply. There were fewer players, of course, and every now and then he could hear the grumbles from the park from his old friends, but he looked at the ball and remembered whose it was...

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