Differing grape expectations 
 

There are similarities between Bordeaux and the Cape when it comes to the bigtime and smalltime producers

From The Weekender, 21 June 2008

It is not customary to talk about the poverty-stricken existence of wine farmers, though the past few years have seen some acknowledgment of the plight of the Cape’s grape growers. What is not widely known is this situation is mirrored in Bordeaux, where the gap between the big names and small producers continues to grow.

The great châteaux are still making fortunes, despite the international slowdown and the overly powerful euro. Much of the 2007 vintage has been snapped up “en primeur” — as wine futures. Some of the estates disposed of their entire offering in less than a day. Neither 2006 nor 2007 are great vintages, though the latter seems better than the lukewarm review it received on release. Still, they are hardly trading at a dramatic discount to the superb 2005s, which means the top Bordeaux châteaux are doing very well from relatively ordinary harvests.

The same, sadly, is not true of the bulk wine producers. The basic price of Bordeaux wine has not moved in about 20 years, though the input costs have risen substantially. The small landowners of the region are distinctly less well-off than out-of-work blue collar employees since they do not have the same access to the dole. Like many of the Cape’s smalltime growers, they live cheek-by-jowl with the best-known estates whose marketing extravagances they often witness. When you are struggling to sell your wine at R10/l and you see the great châteaux celebrating their sales at over R2000/l (paid now — for delivery in the second half of 2008) resentment must be a natural emotion.

Some of the problem, for the Cape’s growers as much as the Bordelaises, involves route to market. Those of the Cape’s more successful cellars who have managed their business so they can talk directly to their customers admit they have never had it so good. The combination of strong demand and the weakness of the rand is making this year financially the best on record. However, without a vehicle with which to approach consumers directly, the small growers do not share in this added value. The price at which they sell their grapes or bulk wine — in the Cape or in Bordeaux — is less than the cost of producing the crop. It certainly doesn’t meet the true value of the investment.

At least for SA’s growers the drought in Australia has created a useful secondary market. The big Antipodean companies are mopping up large volumes of quite ordinary South African wine for blending into their domestic brands. For the first time in several years Cape grape farmers are at least in a position to play off one buyer against another, edging their transactions up by about 10%, to judge from recent reports. No such lucky break is lurking in the wings to rescue the beleaguered French. In the midst of the extraordinary wealth of the Cru Classé estates is an ocean of poverty.

There are other similarities between Bordeaux and the Western Cape wine business. Both regions manage the sales of their best-known wines on an allocation basis. For the French, the process involves “futures” trades where middlemen — brokers and wholesalers — take up the allocations and pass them on to buyers throughout the fine-wine world.

For the Cape’s top producers the wines are spread between a limited number of fine-wine sellers in the local and export markets. A few use auction arrangements to test the level of demand. All try to convey the sense that the commodity on offer is rare, not easily obtainable and worth acquiring long before it is ready to drink. Most seem successful, even though you can walk into the best wine merchants — in Johannesburg or London — and buy as much as you want of these particular vinous gems, admittedly at a higher price than the original brokerage offer.

Nowadays both seem to make sales to collectors their core activity. The era of focusing on the restaurant trade as the primary avenue of promotion has past. For the Bordeaux producers price alone seems to have driven the decision.

Top international restaurants apply margins of between 300% and 500%. When wines are selling for $50-$200, the on-consumption off-take declines considerably. The really big names — Petrus, Lafite, Mouton — that sell through wine merchants for $500-$1000 a bottle, will always be used for window-dressing on wine lists. But this is not where the volume sales take place. The same is true of the top Cape wines, at least in the domestic market. Except at outlets frequented by foreigners, their best selections offer mainly cosmetic value to local wine lists.

SA’s “First Growths” — like those of Bordeaux — have become adept at marketing rarity. They know who their real buyers are and how to talk to them. Many of the new wave of Cape wine investors are either extremely well connected through the businesses in which their fortunes were made or, like Graff, the jewellers, who now own Delaire, because this has always been their trade.