The fabulous Love Story between Wine and China

(More wine news on www.vitabella.fr). On June 19, a Maotai bottle (the traditional chinese wine) produced in 1959 sold for 1.03 million yuan (around $150,000) during a wine auction. At the same time, Lafite Rothschild was announcing its historical most expensive En Primeur Price for the 2009' vintage and, among explanations, comments were that this price was fuelled by a strong demand from the chinese market. In fact, China often comes back as a major subject when talking about wine in general because this country shows strong capabilities on the production side, the investment side and the consumption side at the same time.

- On the consumption side, most has been written about realities and potential. On the high-end market, the strong demand on Chateau Lafite Rothschild and its wide range of wines with the "five arrows" logo shows the power of this market.

- On the investment side, Chinese wine companies are interested in expanding their wine portfolio. They intend to sell more in China but also to produce more in some other parts of the world where harvest seasons are different from China. The last rumor came recently when, immediately right after Foster's announced the split of its wine and beer operations, the Shanghai-based Bright Food company was considered as eyeing the Hunter Valley operations focused on the Rosemount brand. On its part, the sino-French listed Dynasty Fine Wine Group announced at Vinexpo Hong Kong they may buy vineyards in Australia, New Zealand, Chile and France. Over the next few years, Chinese companies will invest more and more in the global wine industry.

- On the production side, the objectives of chinese wine companies could be summarized by a comment recently made by Bai Zhisheng, chairman of Dynasty Fine Wine Group, in an interview to Bloomberg: "I want the best quality of the old world vintages and the production scale of the new world wines." Chinese companies develop their own production (Chinese wine production is about 1 million metric tons a year) and at the same time want to go up-market. Visitors in China can not ignore about Great Wall or premium brands Château Junding, Changyu, Dynasty and Dragon Seal. But there are many other brands now focusing on high quality such as Silver Heights produced by the female winemaker Emma Gao up in the Helan Mountain region of Ningxia province. Or Grace Vineyard, a successful producer of Chinese red and white wine based in Shanxi province. In fact, quality is improving dramatically and these wines are showing to the world that delicious wines are produced in China. And this is not a coincidence if the successful wine producer Torres decided to include these two chinese estates in their distribution network throughout China....(More wine news on www.vitabella.fr)

Are 2009' Bordeaux First Growths overpriced?

(This editorial is the executive summary of an exclusive VitaBella report)(More wine news on www.vitabella.fr).

Chateau Lafite Rothschild and Chateau Mouton Rothschild announced their 2009 primeur prices to negociants: €450 per bottle. Then negociants will add their margins before selling to wine merchants who will also add margins. In fact as negociants did not get a lot of wine in the first tranche of their 2009 en primeur (the amount of wine released in a tranche is a fraction of the actual production), they have to wait for the second and maybe the third tranche (prices will increase at each level) and then the price of €450 per bottle will be an old story. Already at this level of €450, Lafite is up by more than 300% compared to last year and around 50% compared to 2005' En Primeur price. Lafite not only repositioned itself in terms of price but also in terms of leadership, being the first with Mouton Rothschild among first growths to announce its EP price. If We often read and hear that the chinese market is sending prices to the roof, we may wonder if these 2009' Bordeaux First Growths are not overpriced and if chateaux are not creating a speculative bubble that will soon explode. In fact, another conclusion could be that first growths are not overpriced but that some other Bordeaux wines truly are as the luxury wines' market is facing a new environment. In the VitaBella report entitled "Are 2009' Bordeaux First Growths overpriced?", some examples of overpriced 2009' En primeur Bordeaux wines are given and some details are highlighting the facts that 2009 First growths may not be overpriced but some other En Primeur Chateaux Prices may be much too high. This report actually mentions three important points:
- The first growths are a strictly limited number of chateaux which produce long ageing wines with a unique taste. Every wine lover in the world dreams about having, one day, the experience of tasting one of them. In this wine lovers' community which expands globally, some people are ready to get this experience at a high price or at any price... So if the question is "Who will drink these highly-priced bottles?", the answer would be "Some of us and certainly a new clientele compared to the one who bought first growths over the last 20 years ago".
- Demand is changing: First, for price reasons, French Hypermarkets are not buying 2009s as heavily as they did in the past. This has a minor down effect on the speculation bubble on first growths but may impact strongly other Bordeaux wines which decided to increase dramatically their prices in 2009. Secondly, the market is pickier: the economy is still convalescent and the reputation for conservatism of first growths helps as buyers move away from the "showy" wines of upstart brands.Thirdly, a new clientele is coming in with a "Flying to quality" approach which makes the prices for 2009 first growths very high. This did not happen for 2007 and 2008 as "quality standards" were not met according to this new clientele.
- The impact of the increased liquidity on the secondary market is strong on the prices of First Growths Bordeaux wines.For sure, investors are attracted by good returns but liquidity is a major indicator they consider in their investment decision process. And over the last few years, the secondary market has never been as liquid as it is (transparency also increased thanks to a better and faster information). Recent wine auctions and new online trading platforms (such as the coming platform Berry Bros’ BBX, the Berrys’ Broking Exchange launching in July) are also showing positive signs to buyers of en primeurs first growths. But investors will mainly focus on the top wines which are regularly traded and not at other Bordeaux wines. Even if these wines got excellent scores and were priced at a very high price at an early stage of their life which we call En Primeur...

LVMH and Cheval Blanc...Welcome to the new world of luxury wines' brand extension

(Find some more news on www.vitabella.fr). LVMH, the luxury goods company, recently announced they would enter the five-star hotel management business, initially through a partnership with Egypt's Orascom Development Holdings, to build two resorts in the Middle East. These first two hotels are scheduled to open in 2012 in Egypt and Oman. The hotels will be branded Cheval Blanc, after the Michelin-starred resort based in Courchevel opened in 2006 by Group Arnault. The hotels will also showcase some of LVMH's other brands - the Cheval Blanc resort already has Louis Vuitton and Dior shopping outlets as well as a Givenchy spa.
Even if a number of fashion and luxury brands have already diversified into hotels (Armani, Bulgari, Versace...), this is the first time the name of a luxury wine is put upfront as a hotel brand. In fact, LVMH is showing to the major actors in the luxury wine business that brand extension has to be integrated to the full strategy of a major estate. And as LVMH explained, it is a "natural extension of activities in luxury hospitality". For sure, not all estates will be able to enter the luxury hotel business. But as LVMH is doing, estates should consider, at first, opportunities which will commit no capital expenditures and have no management risk. In fact, there are plenty of opportunities and we will discover them over the next few years. But Luxury wine estates should get prepared now if they want to be successful in this brand extension strategy.(Find some more news on www.vitabella.fr).

Hermes and its new brand « Shang Xia »: a good lesson for luxury wines

(Find some more news on www.vitabella.fr). Hermes launches a new brand, called Shang Xia (meaning “topsy-turvy” in Mandarin), in the lucrative Chinese market. Shang Xia will include ready-to-wear and decorative arts inspired by Chinese culture and traditions of craftsmanship. They will be made using Chinese raw materials and artisanal know-how, Hermes said. Shang Xia’s creative director is Qiong-Er Jiang, daughter of a noted Chinese architect. The new brand will be tailored for the Chinese market where Hermes lags behind its competitors. The brand will also be distributed in Paris in one of the large department store. As some would think at first, this move is not a matter of producing and offering cheaper products to the chinese markets. China's tradition is anchored into a long history of talented artists who are appreciated by the entire nation. In fact, these artists are part of the education of children at school and this art culture is deep in their roots. For centuries, it shaped their way of seeing differently the world and, among it, the luxury world. Hermes demonstrates its strength in taking the high risk of going into that direction and being the first in the luxury sector to do so (in fact, Tang is another luxury brand which could be comparable). Hermes shows that it understood the chinese market should be marketed with its specific language (so a specific chinese name for the new brand), specific culture (so a specific range of products with a chinese creative director)...Hermes does not adapt to a specific country. Hermes creates a chinese brand. Hermes does not intend to create a low cost brand in China. They create a luxury brand in China. Shang Xia is not a brand for the chinese market. ShangXia is a brand for the chinese community based all over the world.

How is it related to the luxury wine business? For luxury wines, selling globally is essential and having your wine brand marketed internationally is key. This is the Global approach. In the wine business, the "Glocal" approach (global and local) is impossible as it is difficult to replicate your soil, your estate and all the rest in any other place in the world. But the "Shang Xia" approach is possible. We already saw it, over the last 20 years, with the acquisitions of estates or with the entire creations of estates by "old world" wineries in order to have their own production of "New World" wines. But it was a false "Shang Xia" approach as most of the time only "non autochtonuous" grapes were planted to try to replicate what was done in the Old World. "False" does not mean these wines are bad (some of them get excellent scores from renowned international experts) but "false" means that the cultural local approach was not fully completed as, most of the time, wineries did not care much about autochtonuous grapes or specific local winemaking techniques. Being in the luxury sector obliges to respect some cultural codes but also to set trends. Using autochtonuous grapes, something wine experts are considering more and more now when they try to discover fine wines, and making a wine with a typical and unique great taste could be the "Shang Xia" approach for luxury wines. In this approach, most of the time wineries would consider the help of local winemakers with a strong knowledge of a specific autochtonuous grape (as Gulfi did in Sicily with Salvo Foti, the world renowned winemaker for Nero d'Avola). It will need a long education to make this approach famous among a large public but already wine lovers know about it. Pinotage and a luxury wine in South Africa? Kanoncop is going that way. Nerello Mascalese on Etna? Great wines show the potential. The "Shang Xia" approach is already making progress in the world of fine wines. (Find some more news on www.vitabella.fr).

Château Gruaud Larose, first Second Growth to offer its 2009 as futures

(Find some more news on www.vitabella.fr). There is always some suspens around the announcement of top Bordeaux wines' futures. Sometimes this suspens is unbearable for wine merchants and collectors. This was the case in the past for great vintages and it certainly is the case for 2009, a vintage many wine experts rated as the best vintage ever. This suspens makes the waiting time even longer and many stories are told during that period, including that one: prices for top Châteaux will be insane. Consequently, the great vintage and the strong demand particularly from China have brought a lot of attention internationally on the futures prices of these Châteaux. Finally Château Gruaud Larose was the first Second growth to announce 2009 Futures yesterday. For a Second Cru Classé from the Saint Julien appellation, the price of £35.95 exc VAT per bottle which is proposed by a UK wine merchant on internet seems fair. And not insane as it was expected. Sold below $50 as futures, this proposal for a second growth seems attractive, and more particularly for a wine which “is the finest Gruaud Larose since the 1990" according to Robert Parker and which should "last for 30-40".With a 94-97 score in Wine Spectator, this "big wine" seems a good opportunity for wine lovers. Will this announcement from Château Gruaud Larose give a clear indication for the whole market of 2009 top Bordeaux Futures? Yes and this clear indication is that everything is unclear...Thinking about En Primeur prices reminds us of the definition given by most experts of the quality of this 09 vintage: heterogeneity. 2009 Futures Prices like quality will be heterogeneous. And this is a fact now, 2009 Château Gruaud Larose EP price (a mere 12% increase compared to 2005 future for this wine) shows that some châteaux at top level will stay reasonable. Now let's see first growths which should release their futures over the month. And let's see how speculation could impact some of these wines which, without having announced yet EP prices, are already proposed by some wine merchants to collectors... (Find some more news on www.vitabella.fr).

Romanee Conti, a luxury wine in a vineyard comparable to rare tea plantations in China...

(Find some more news on www.vitabella.fr). Most of the wine lovers have heard recently about a frightening story in Burgundy at the world-renowned Domaine de la Romanee Conti. Aubert de Villaine, co-director of the Domaine, received a few months ago a letter which threatened to poison all the vines of his vineyards if he did not respond positively to a blackmail scheme. At a retail price of over Eur 8,000 for a bottle of DRC's Romanée-Conti (only 4.4 acres), the extortionist decided to focus on a specific estate which is highly regarded internationally. Even if the man was arrested, this story makes security issues for luxury wines a new topic to investigate. In China, the same kind of issue has been adressed in a specific domain: rare tea trees. Far from the lovely villages in Burgundy, luxury tea producers took a measure in order to protect their unique expensive production: hire guards.In the Wuyi Shan chain of mountains, located in the northern part of the Fujian province, is a natural reserve with pure water, deep hills and some unique tea plantations. The "yan cha", as they called it in Chinese, is a wulong variety planted on extremely steep hills. In these beautiful mountains, you can still find specific tea plants from the best "grands crus". Da Hong Pao, Tie Luo Han or Shui Jing Gui are some names that come to mind and which are still alive in this place. Protected by guards, night and day, this small reserve of first generation tea plants only produce a few hundreds of grams sold at extremely high price. Rare, expensive like Domaine de la Romanee Conti is. But protected 24 hours a day, unlike Romanée Conti...(Find some more news on www.vitabella.fr).

Acker Merrall’s luxury wine auction or the new battle between First Growth Bordeaux in China

(Find some more news on www.vitabella.fr). On last 28 & 29 May, “The Imperial Cellar” (owned by entrepreneur Eric Greenberg) sale achieved a record HK$152 million at Hong Kong auction. Top lot of Henri Jayer Vosne Romanée Cros Parantoux 1999 set a New World Auction record. But even more important, a new world record was set for a Château Margaux lot sold at auction. At a time when Château Lafite Rothschild is taking a big slice of the chinese cake, it is very important for Château Margaux to make this kind of appearance in order to develop brand image and increase market share in China. After a few years of craziness on Lafite, First Growth Bordeaux are now aware of the huge potential of the chinese market and understand they should develop brand awareness by attracting chinese eyeballs. This game is particularly attractive if you consider how successful Lafite is today in China, Hong Kong and Macau: Château Lafite Rothschild's sales should be added to some other wines such as Carruades de Lafite and other wines branded under the same logo. In order to achieve its goal, Château Margaux needs to develop a communication strategy, promote its luxury brand wine in China and also, among others, introduce Pavillon Rouge (second wine). In this strategy, having Château Margaux wines at the largest ever wine auction to be held in Asia and the second biggest wine auction of all time worldwide was essential. In fact, this auction was a unique occasion for Château Margaux to get the attention of Asia’s most serious wine collectors and bidders from around the world. So in addition to the "Imperial Cellar" sale, five unique lots consigned directly by Château Margaux, were sold with net proceeds being donated to the Great Wall Society of China to assist with the preservation of this United Nations Cultural World Heritage site. And this superlot of 360 bottles (1979-2007) from Château Margaux Private Cellar has set a New World Auction Record for any Château Margaux lot ever sold anywhere in the world. Now let's see if Château Margaux will be as successful as Lafite is in China within a few years...(Find some more news on www.vitabella.fr).