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Raising the price of a wine is not enough to make it a "luxury wine". Chateaux should also add a strong support to reach their ambitions. To my knowledge, I do not know any area in the luxury industry, except wine (excluding champagne), which strongly raises its prices but does not add any significant support to its brand. If the bottles of those famous chateaux are sold en Primeur at record prices, they will then have to go through the whole process (including all the considerations about margins) to reach the tables of wine lovers who will finally say to the sommelier: I want that bottle. With prices as high as those announced in recent days, this process is likely to become longer and longer. And some bottles may never find consumers... An exclusive VitaBella Luxury Wine Report analyzes three possible types of crisis and some measures chateaux should consider now.
"Bordeaux guru" Robert Parker recently said "it would be a mistake" to increase prices again. "If they come higher than 2009, we're going to have a big, big crisis" he said. He recommended to sell the 2010 vintage 10 to 20 percent lower than the 2009 vintage. He also said he was sad to see in his country, with a "weak dollar", the loss of market share for Bordeaux wines on restaurant menus and in wine shops as the prices seem too high."Bordeaux is the epicenter of the best wines in the world and I hate to see the image damaged by the fact people tend to think it's too expensive"."Bordeaux is focused too much on the wealthy Asian market" Parker said. "Despite the fact that China has so many wealthy people, it's a very dangerous game if they raise prices, because the world economy is very, very fragile."
How could we analyze this situation?
1) "The emergence of a bubble" : Will an increase in the price of 2010s lead to the emergence of a bubble or are we already "in the bubble"? In fact, in my own experience, when I start reading articles from experts who explain the emergence of a bubble, this usually means that the existing bubble will burst very soon... My personal view is that we are already in the bubble Robert Parker is talking about. This bubble developped over the last few years with the strong price increases and with the speculation on some big names (Lafite Rothschild...). In fact, I believe the emergence of the bubble is not in front of us, but behind us.
2) "If they come higher than 2009, we're going to have a big, big crisis." Crisis, but what crisis ? Three types of crisis could be defined:
- The crisis of the "mid-range price" wines: Unfortunately as we can see in many industries, the mid-range market is suffering terribly. Many Chateaux, which are part of this mid-range market, have increased their prices dramatically. The crisis described by Robert Parker will have a direct impact on those wines. Regarding the few top wines, adding 100 euros to the final price won't make any difference.- The "transition" crisis : The world of wine is changing with an increasing volatility and uncertainty on this market. Chateaux must adapt. There will be turbulence as in any industry that is experiencing significant changes in its own environment. If, on one hand, there has never been so much uncertainty, on the other hand there has never been so many opportunities. New markets open and they are buoyant. Faced by this apparent paradox, top chateaux must now consider that uncertainty is a constant and will have to change how they plan for the future. Change is a continuous challenge in the corporate world. Top Bordeaux wines are now experiencing the same and should prepare for turbulences. Financial markets have seen a tremendous increase in volatility over the last 20 years. It will now happen for top Bordeaux wines. What did financial markets do? They adapted to volatility. Top Bordeaux wines will have to do the same and adapt to this new environment.
- The "counterfeit wine" crisis: With soaring prices, counterfeit art has been around for centuries. With the rising prices of wines in the 70s, counterfeiting has grown. The recent price boom may lead to an explosion of fakes. And like in art, the ones which will be mostly impacted will have all the ingredients to appeal to counterfeiters: volume, international recognition, rated among the highest. And like in art (art counterfeiting generates an illicit trade valued at about € 6 billion per year), fake wines will be increasingly difficult to detect. Think about it: over half of the art deco furniture (sold at high prices) in circulation could be false...
3) Some ideas to be successful in this new environment
- Lowering prices as would recommend Parker with a drop of 10% to 20%? It is actually too late. And if, in fact, we are facing a big, big crisis, I would have some doubts about the significant impact that a reduction from 10 to 20% on the 2010 En Primeur prices could have.- Thinking beyond scores and supporting the brand like champagne houses have done for 30 years. At these price levels (unheard of in Bordeaux), only referring to the score of a renowned expert is not enough to explain the price of a wine. It is a fact that a great score confirms the exceptional quality of the wine according to the expert's point of view. But at the price levels achieved in recent days, the wine lover expects something else that is still rarely proposed today. Champagne houses are doing this very well and great champagne can be sold at high prices (with a high volume) through an effective marketing and communication approach.
- Acquire new competencies : The world we live in today is more volatile than ever. What the future will bring appears to be anybody's guess. In fact, the future is taking shape around us and by taking a closer look at the changes in action today, we can predict what the world of tomorrow will be like. Top chateaux must have a look at the forces that are dramatically reshaping the world of luxury wines and consider what to plan ahead to reinforce their positions globally and build stronger brands. Mastering global communication and brand marketing is part of the skills they need to gain if they want to adapt to this new volatile environment.
(More wine news on www.vitabella.fr) (This is an executive summary from an exclusive VitaBella Luxury Wine report - From Guillaume Jourdan)
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