All the top Bordeaux wine producers sell their wines En Priemur. That means the wines are sold in barrel, several months after the harvest and long before the wines are available in bottle. This system has been in place in Bordeaux since the early 1600′s. The negociant system is a good part of the reason Bordeaux became the world’s most important and collectible wine region.
The Dutch were indispensable in the creation of Bordeaux. Aside from draining the swamps, they were some of the first negociants. The negociants were directly responsible for the increase in production and exportation of Bordeaux wine.
At first, Bordeaux wines were sold with only the name Bordeaux on the bottles. By the late 1600′s specific regions and brands began developing allowing discerning consumers to chose which Bordeaux vineyard, or appellation they preferred. Haut Brion, Margaux, Lafite and Latour were the first brands to develop name recognition. Slowly, buyers started to look for wines from specific communes. Once they began to recognize, or appreciate the differences, what we know of today as the Second Growths were next brands to gain a following. For all this to happen, the need for negociants and courtiers, was born.
The earliest negociants dates back to 1620, with the Dutch firm, Beyerman. This quickly expanded in the early 1700′s with the founding of firms that remain in business today with more than 350 years of experience in the business, Nathaniel Johnston, Schroder and Schyler and the Lawtons. In the early 18th century, the owners of the chateau tended the vineyard, made the wine and placed it in barrel. The negociants handled the rest of the job from bottling, to sales and distribution. Keep in mind, the chateau owners were all wealthy and many were members of the royal family. The thought of having to personally sell their production could have been viewed as unseemly at the time. Hiring someone to take care of the mundane commercial aspect of a wine producing chateau was exactly what they needed.
There was perhaps an even more important need for the negociant system, making wine, maintaining the chateau and vineyards in good shape was an extremely costly undertaking. The system where the negociants agreed to buy the wine in advance of bottling and sales provided instant funding allowing the owners to maintain the vineyards and wine making operations going. The most powerful negociants soon became the unofficial bank for the chateau owners.
The Bordeaux system remains unique. Because the top chateaux only sell their wine to the negociants, Bordeaux became the only wine producing area without any need for direct customer interaction with the chateau and the owners. Because there was no wine to buy, there was no need to meet the ordinary wine drinkers. The royal owners discovered another method allowing them to run a commercial enterprise while avoiding contact with the masses. That is another reason the negociant system flourished.
The creation of the 1855 Classification might have started out as a simple request from the French government. But quickly, it became the best marketing tool the world has ever seen! The purpose of the classification was to promote Bordeaux wine and inform consumers which wines were the best to buy, and guide them as to how much to pay. To do this, something simple needed to be created. Thus, the 1855 Classification was born!
How did the 1855 Classification come about? Similar to the World Fair’s we hold today, The Exposition Universelle de Paris was the perfect opportunity for France to place on display the best of everything it had to offer for the entire world to see, including wine of course. This was what Napoléon III wanted to accomplish in 1855. The Gironde Chamber of Commerce ordered an official classification to promote the now famous wines of the Bordeaux appellation. Even in those early days, Bordeaux was considered the world’s most important wine region. The Chamber of Commerce requested that the Wine Brokers Union (negociants) of Bordeaux develop the classification system we all know today. By putting together a group of known negociants and brokers, their efforts morphed into what we now refer to as the official 1855 Classification of the Medoc. For more detailed information on the official 1855 Bordeaux wine classification: List of 1855 Classifications
Bordeaux came up with a ranking of the wines in five, unique classes for the red wines and called them Growths; First Growth, Second Growth, Second Growth, Third Growth, Fourth Growth and Fifth Growth. The wines included were all from Medoc, except for the already legendary Chateau Haut-Brion from Graves, which had to be included, due to its world wide fame. In Sauternes and Barsac, the sweet white Bordeaux wines were also included, but with only two classes. Chateau d’Yquem was given a special class all to themselves, “First Great Growth, Premier Cru Superieur,” that is the equivalent to the best of all the First Growths.
The 1855 classification allowed the wealthy to easily purchase the best wines in the world and it also informed their guests how special they were, when one of those bottles were opened during dinner.
The negociant system can be compared to a pre-arranged group of wholesalers who contract to purchase a percentage of a properties harvest every year. The negociants all pay the same price on the same day at close to the same time. In theory, they are supposed to sell the wines to their customers for the same price, with the same markup as well. In the past, negociants were responsible for bottling, labeling and arranging shipping, as well as marketing the wines. Stepping back in time, negociants were also responsible for producing custom blends ordered by customers that could range from assemblages that included various percentages of Syrah from Hermitage, or even blends from different producers. For example, at one point, it was possible to order a barrel of 50% Chateau Latour along with 50% Lafite Rothschild!
This started to change with the advent of Chateau bottling which was heavily promoted by Baron Rothschild at Chateau Mouton Rothschild in 1924. The purpose was to offer a guarantee of quality from the property to consumers. By 1970, the vast majority of Bordeaux chateaux bottled their own wine. In 1969, it became AOC law for all chateaux in St. Emilion to bottle their own wine. In 1972, all the Classified Growths and other top chateau began chateau bottling their entire production, as that became part of AOC law for those appellations as well.
As far as futures go, if you think buying wine before it’s finished and bottled is risky, until the late 60′s, some negociants purchased the crop before the grapes were harvested. The practice of “sur souche,” buying the grapes off the vine stopped in the late 1960′s. The last two major vintages for buying “sur souche” were 1961 and 1969. Both years spelled disaster. In 1961, while the wines are legendary, the crop was so small, most chateaux were not able to deliver the amount of wine purchased. In 1969, what was on target to be a great vintage turned into one of the worst vintages of all time, due to the non stop rains during harvest.
Bordeaux wines are sold on the Place de Bordeaux. It has worked that way for hundreds of years. Will it continue to operate in the same manner? That is the million dollar question. To read about where Bordeaux wine futures are headed, The Future of Bordeaux Futures after the 2010 Campaign
Today, with every chateau bottling their own wine, the negociants are responsible for selling and distributing the wine to a myriad of wholesalers, importers and merchants all over the world. They are important because part of their responsibilites are to help create new markets. Currently, there are more than 400 negociants active in Bordeaux. Each chateau works with a different number of negociants. Some properties work with 5 different negociants, others work with over 100. Of course a few importabt Bordeaux producers, most notably Tertre Roteboeuf in St. Emilion sell direct to merchants and private customers and do not offer their wines for sale to negociants on the place de Bordeaux. Starting with the 2012 vintage, Chateau Latour, the famous First Growth estate ceased to offer their wines as futures. Latour made an officiial announcement that they would hold the wines at the Chateau and offer them for sale when they were ready to drink. However, the wines would still be sold to the trade through the negociant system.
The courtier plays an interesting role. Long before phones, faxes and Emails, the negociants were all located in the city of Bordeaux in what became known as the negociants quarter, located district of Chartrons. Needing to travel by horse or carriage took an entire day. The courtier stepped in and carried messages back and forth between the negociants and the chateaux, helping to arrange an agreement between the two parties. For this role, the courtier earns 2% of the transaction. In today’s world, when communication is instant, some people question if their role is warranted. Money and ego are not the best blend for a successful business transaction. The courtier is able to remain unemotional and help facilitate an increasingly heated and difficult transaction. There are over 120 active courtiers. But the number of courtiers working with the top properties is small. Less than 20 are actively working with the most famous estates.
The system works because it gets the wine into marketplace quickly. Some of its faults are, while it helps the top chateaux that participate in the system, smaller properties are left out and their wines are not available to many consumers. Another fault is the dependence on selling wine from the 1855 classification. Classified wines, especially the First Growths are the heart and soul of the system. Along with the wines of the Medoc, that has traditionally been their core business. Ets Moueix was the first and is the largest negociant focusing on the wines of the Right Bank.
While many consumers think the negociant system causes wines to be more expensive, that’s not true for the majority of the Bordeaux wines. Interestingly, when Michel Rolland took his Pomerol, Le Bon Pasteur from the place and marketed the wine with his own company in 2005, the wine was more expensive than it would have been, had it been offered through negociants. In a few years time, Bon Pasteur returned to the negociant system selling their wine on the Place de Bordeaux.
To many consumers, tranche is a dirty word. It is considered market manipulation. A tranche is a small slice of the production that is designed to test the strength and price of a wine in the market. The truth is; very few chateaux release their wine in tranches. That practice is mostly limited to The First Growths. Other chateaux might announce a second or third tranche, but the size of those tranches, are the direct opposite of what is taking place with the First Growths. A First Growth could release 5-10% of their wine on a first tranche. When other Bordeaux chateaux announce a second tranche, that is usually limited to a small percentage of their wine. The purpose is to gain press and show momentum in the marketplace. It is for show and does not reflect the market.
The negociant system will probably remain in place for the majority of Bordeaux chateaux. The chateaux are not in the business of hiring a large sales team of a hundred different people who will contact people all over the world to buy their wine. They would also have to hire people to arrange deliveries and provide other costly services. The chateaux can usually sell every bottle offered in a few hours when the vintage is in high-demand. It will take a few more days in more moderate years. Regardless of the quality of the vintage, they will sell every bottle. With that in mind, why would the producers want to change the system?
Negociants and chateaux have an interesting relationship. They need each other. They work together. Yet, they are separate. For example, once a chateaux sells their wine to a negociant, that is the end of the sale as far as the property is concerned. While all negociants sell the wine on the same day at the same price to all their customers, where the wines are sold, and how much of the wine was offered, versus the percentage of stock that was held back remains a closely guarded secret. Most negociants do not release that information to the chateaux. Some negociants, as part of their business plan hold back a portion of their stock, hoping to sell it at a higher price after the wine has been released. In part, this helps the negociant earn money in the difficult vintages that are hard to sell. Not every negociants holds back stock. Some offer out all the wines they have for sale as soon as possible.
Changes in the system have taken place, but in ways the long-established negociants are not happy with. They have more competition for allocations of the top wines than they were use to obtaining. This is because some of the top properties have started their own negociants companies, not only to sell their wines, but to market the wines of other chateaux as well. Plus some companies like Millésima has an Internet division that sells direct to consumers.
In June, 2012, another massive change in the Bordeaux negociant system took place. Diva, a large, but not one of the top negociants, with sales of a reported 33, million Euros per year sold a 70% stake in their company to Chinese investors. The buyer, Shanghai Sugar Cigarette and Wine (SSCW), a subsidiary of the Chinese state owned Bright Food company is China’s largest food products group. The relationship between negociants and the Chinese market has continued expanding since 2008 when taxes on wine were reduced to zero by the Chinese government.