Too Much Of A Good Thing

The sun is setting as Alfred Tesseron finishes his tour of the Château Pontet-Canet, which is perched on a hill above the legendary Bordeaux wine village of Pauillac. He has talked proudly about how his father bought the château 30 years ago. He has driven his electric cart along the neat rows of vines and pointed out some of his big recent investments: the state-of-the-art water recycling404 Not Found

nginx/1.14.0 (Ubuntu) system, the new storage and bottling barn and the twin rows of conical fermentation vats. Now comes the moment of truth. Standing in his refurbished tasting room, he picks up a glass of the 2005 vintage, sniffs, sips and sucks the wine noisily through his teeth before spitting it out into a gleaming ceramic basin. He looks up quizzically, but he already knows the answer. It’s good. It’s so good, in fact, that long before he’ll start to bottle it, the wine is already being traded in Bordeaux for more than €50 per bottle. That’s double the price his 2004 wine fetched, and 75% higher than the spectacular 2000 vintage, the best in recent memory. “If you have a wine that’s in demand, you can sell it,” he shrugs.

In the village of Margueron an hour’s drive away to the east, at Jean Charles’ winery just behind the medieval church, the picture couldn’t be more different. Charles usually sells his entire wine output to a local merchant, who bottles and markets it for him. But this year, for the first time, the merchant is refusing to take any of it. The stainless-steel vats in Charles’ shed are filled with tens of thousands of liters of Cabernet Sauvignon and Merlot from last year’s harvest that he’s now frantic to sell at any price to make room for this year’s crop. Charles, 58, stands in his courtyard, surrounded by clucking hens, and struggles for words to describe his predicament. “It’s never happened before,” he says, gripping a wrench. “This year’s a complete catastrophe.”

The contrasting fortunes of both men are two sides of the same story: a long-awaited — and long-overdue — shakeout in the cosseted world of French winemaking. France is the superpower of the wine world, the largest producer and, measured by per capita consumption, the heaviest drinker. But for more than a decade, it has been sleepwalking as globalization transformed the business, bringing with it new markets, new consumers and new competitors. Producers from Australia, New Zealand, California, South Africa, Chile and elsewhere have launched massive — and often brilliantly executed — campaigns to promote their wines across the planet. They have ramped up production, introduced a new generation of consumers to inexpensive, fruity wines with labels that are easy to understand, and, in the process, run off with a colossal amount of business. A decade ago, France exported three times as much wine as all the so-called New World producers put together; today it has been overtaken, and now sells about 15% less than they do. The pummeling is especially bruising on its home turf: Europe as a whole now imports almost as much wine as it exports, something that would have been unthinkable a decade ago. In Britain alone, one of the biggest and most competitive markets anywhere, the Australians have gone from exotic afterthought to undisputed market leader in a few years.

The French barely reacted to these seismic shifts, largely because global wine consumption has been growing, up about 10% in the last decade to 240 million hL. But now so many people have got into the winemaking business that the world is awash in far too much of the stuff. In 2004, worldwide production hit its highest level in 20 years, almost 300 million hL, or 15% higher than the previous year. And it’s not just producers like Jean Charles who are hurting. The glut is hitting producers everywhere, particularly in Australia, where a local success story has quickly soured. According to estimates by the Australian Wine and Brandy Corporation (AWBC), the government body that oversees the wine industry, the country now has surplus wine stocks that exceed an entire year of exports, and many grape growers simply left this year’s crop on the vine rather than harvest it.

In France, a massive support system subsidizes producers who can’t sell their wine, and it is cushioning the impact somewhat. Even so, revenues and incomes overall have been dropping since 2002 — the first decline in decades — and many French producers are under pressure. The result is a growing stratification: good winemakers are investing heavily to get better; bad winemakers are facing the prospect of being squeezed out; and the rest, the vast majority of producers caught in the middle, are scrambling to build a better future — or selling up. “The crisis is having a salutary effect,” says Christian Delpeuch, managing director of Ginestet, one of the biggest trading houses in Bordeaux and former head of the region’s wine-industry lobby group.The shakeout is a case study in globalization’s impact. The best place to study it is in Bordeaux, the biggest French fine wine region and arguably the most prestigious. The place is suddenly rent with divisions: between winemakers and the merchants who traditionally sold their vintages; between the handful of top-name châteaus that enjoy worldwide fame — and who are making money faster than you can say premier grand cru classé — and the 9,000 others, about 500 of whom are estimated to be in dire straits; between young and old, traditionalists and reformers; those who still turn up their nose at New World wine and those who think they should be copying some of its tricks; between the Bordeaux establishment, which is pressing for a greater say in its own affairs, and the French government in Paris, which wants to micromanage the business.

This all has profound implications for the way Bordeaux is made and sold. Winemakers are putting a new emphasis on appealing more directly to consumers, with less incomprehensible packaging and smarter marketing, but sometimes also with less lofty wines. There are moves afoot to reduce the myriad appellations and weed out some of the châteaus in order to make the wine more consistent and less of a puzzle. Some new brands are even being created that, controversially, are far more New World in spirit and taste than traditional Bordeaux.

Underlying these changes is a conviction that Bordeaux still has what it takes to be the king of the wine world — one that is strengthened by worldwide demand that is pushing up prices for successful producers, including Pontet-Canet. For the very top houses, prices are in the stratosphere: the 2005 vintages of Château Cheval Blanc and Château Lafite Rothschild, for example, are currently retailing for about €500 per bottle. That’s about the same price as 1,000 bottles of the down-market wine sold in bulk, the sort of wine Charles makes.

The ability of élite producers to raise their prices is fueling Bordeaux’s recovery. Overall, the region’s wine exports dropped by about 20% over the past five years. But in the year to June, exports once again rose, about 5% in volume and 24% in value to €1.2 billion. The recovery is uneven, and nobody is sure that it is sustainable. Still, one thing has changed for good: winemakers up and down the region swear that their complacency is over. “We thought we were the king of carrots. We just didn’t see the others coming,” admits Jean-François Bruère, who heads a 220-member cooperative in Landerrouat, on the edge of the Bordeaux region, toward Bergerac. “We never bothered about consumers. Now we’re beginning to wake up. We understand that the consumer is what really matters. We can make the best wine in the world, but if nobody buys it, it’s useless.”

The big question, and the one most hotly debated, is whether Bordeaux, along with other French and European wine regions, can shift fast and far enough to beat back the competitive challenges and become more efficient without jeopardizing its unique character. Fighting the Australians and Californians is one thing; turning into pale imitators of their ways is something quite different. “We’re fed up with hearing that Bordeaux is a has-been product. I wouldn’t have come to work here if I thought it didn’t have a future,” says Marie Courselle, 30, one of a new generation of combative winemakers who, with her sister Sylvie, 28, recently took over their father’s winery, Château Thieuley. It’s critical for Bordeaux to change, she says, “but we mustn’t lose our soul.”

The village of St. Genes-de-Lombaud, a half an hour’s drive east of Bordeaux, doesn’t figure on the usual tourist itineraries of the region. It has nonetheless become a crucial destination for local wine producers, big and small. In increasing numbers, they have been driving their tanker trucks to Bernard Douence’s distillery just outside the village. There they weigh their cargo on a scale in front of the green-sided complex and then pump the wine into huge tanks around the back. “All the châteaus are coming,” boasts the white-haired Douence, 57, who runs the distillery with his three brothers and his 83-year-old mother. This year alone, Bordeaux producers have brought him 100,000 hL of wine to be distilled, the equivalent of 13.3 million bottles.This is the wasteful — some say, shameful — side of the European Union’s wine regime: when vineyards produce more than they’re able to sell, the E.U. hands out subsidies to turn the surplus into industrial alcohol. The cash is supposed to be be reserved for exceptionally difficult years, but “crisis distillation subsidies” have been paid out three times since 2001. At €500 million a time, it’s a hugely expensive way to deal with a market imbalance. And the European Commission is determined that it should stop. In June, the Commission published proposals for sweeping changes to the wine sector aimed at eliminating surpluses and making wine producers more competitive. Among the key measures it’s proposing are the grubbing up of 400,000 hectares of vines over the next five years in order to stop overproduction; a simpler labeling system to make European wine more attractive to consumers; and the end of all distillation subsidies.

None of that went down well in France. “The proposals in their current state are unacceptable,” growls Denis Verdier, head of the cooperative producers’ association, whose members make one out of every two bottles of French wine. But in Bordeaux — and this is a sign of the times — a surprising number of people think the European Commission proposals make sense. Roland Feredj, director general of the Bordeaux Interprofessional Wine Council (CIVB), takes issue with some of the details, but says that, overall, the E.U. proposals are “interesting.” He explains: “We need to permit the most dynamic producers to attack the competition by giving them more liberty to do it in their own way.”

This isn’t just talk. Bordeaux itself has put in place a series of measures that are broadly similar to the ones proposed by Brussels. The civb is offering to pay weak producers to pull up their vines. A new quality-control system is being implemented that, if enforced properly, could lead to underperforming wineries losing their right to call their wine Bordeaux. The Council is also quietly encouraging the 57 different Bordeaux appellations to consolidate. Five big areas — the Côtes de Blaye, Côtes de Bourg, Côtes de Castillon, Côtes de Francs and Côtes de Bordeaux — are now close to an agreement to combine into one single expanded Côtes de Bordeaux.

The measures only go so far: they still leave 17,000 different Bordeaux wine labels, and only a few hundred producers to date have signed up for the scheme to be paid to get out of the business altogether. As part of its measures, the civb agreed to supplement the subsidies for distillation, a move that is furiously contested by some, including Delpeuch, who argues that it makes no sense to encourage bad wine to be made in the first place. And it’s no easy task persuading proud villages to give up their names; one planned merger between the Moulis and Listrac appellations fell through in 2002 when the authorities in Moulis got cold feet. Still, for Bordeaux, this all amounts to a sea change in attitude. “Ten years ago, if the head of the CIVB had said we’ll grub up vines, somebody would have set fire to his car,” says Frédéric Guiraud, who runs a wine trading business near Sainte-Foy-la-Grande, a town on the eastern edge of the Bordeaux region. Guiraud’s firm, GRM, used to be the one that regularly bottled and bought Charles’ wine. But times have changed. “Today, we refuse a huge amount, about 90% of the wine people offer us,” Guiraud says. “Sure, we’ll follow our old clients, but only if the wine is up to quality and they don’t keep increasing production.” On both counts, he says he has “some concerns” about Charles’ output.

Driving these changes is a new hard-nosed attitude among Bordeaux’s main customers: French supermarkets. They’re pushing for good deals because per capita wine consumption in France has halved since the 1960s; wine is no longer a staple with meals. Bordeaux made a huge strategic mistake by stepping up plantings in the late 1990s — a move that increased production and exacerbated the already growing pressure on prices. As a result, the balance of power in Bordeaux has shifted. “Until 2001, the mentality of producers was to say: ‘I make the wine, I label it and you take it and pay,'” Guiraud says. “Four years later, they’re now saying: ‘Do you want it? I don’t care about the price. And can I have an advance?'”Marie Courselle knows all too well what he means. Château Thieuley, which her grandfather bought in the 1950s, used to sell about 30% of its output to big French retailers. Then, two years ago, it received a blunt message: Cut your prices, or we’ll cut back on purchases. The Courselles refused, and their hypermarket sales dropped by half. They are now busy trying to build up a direct commercial network of their own. That means relying on a handful of merchants to sell into major markets, and doing the rest themselves. When they are not harvesting or tending their vines, Sylvie and Marie are on the road — to Luxembourg, Canada and elsewhere — touting their labels and looking for new ways to sell.

Not everyone has the stomach for a fight. Jean Gazaniol says he hesitated for a long time, but then finally bowed to reality and sold the Château de Parenchère, which his father bought almost 50 years ago. It’s a gorgeous 19th century mansion with 65 hectares of vines whose wine is exported to 60 countries. The estate was bought by Per Landin, a Swede who made his fortune trading oil in London and who says he’s passionate about wine. He’s 44, and was looking for a place in which to retire. Gazaniol has promised to help him out for a while, but he isn’t overly optimistic about the chances of success. In the 1990s, he worked hard to build Parenchère’s reputation and even tinkered with the formula — pumping oxygen into the wine during fermentation to make it fruitier and smoother. But now he’s 57 and looking for an easier life. “I’m not having fun any longer,” he says. “The competition is growing and that scared me. This crisis will last. It’s a structural one. Nobody will get out safe and sound.”

The wine glut’s impact is worldwide. In California, big grape growers and some wineries have gone into bankruptcy, including the Legacy Estate Group that owned prestigious brands such as Arrowood, Byron and Freemark Abbey. (The group was sold last month to a rival producer, Kendall-Jackson.) In South Africa, grape prices have dropped about 30% over the past two years, prompting a hunt by producers for new markets. In the Friuli region of Northern Italy, which specializes in Pinot Grigio and other whites, winemakers’ cellars are filling up with unsold bottles. Most dramatic of all is the situation in Australia. Output there doubled in a decade, but now the country is swimming in unsold wine. And unlike France, Australia has no safety net of subsidized distillation. Mark McKenzie, executive director of the trade group Wine Grape Growers Australia, says incomes for some growers have fallen by 60% in the past two years. The situation is so bad that the group petitioned the government to pay severely affected farmers not to grow grapes. (The government, which frequently gripes about the handouts Europe gives its farmers, refused.) “It’s as bad as I’ve seen it in 46 years,” says Brian McGuigan, an industry veteran and former managing director of McGuigan Simeon Wines, the nation’s second largest wine firm.

Viewed from Australia, the French measures seem timid and slow. Australia’s 20 biggest winemakers account for 85% of the market, and they have reacted much faster to the crisis, cutting prices and taking the financial hit early by writing down the value of their stock. Some grape growers are pruning back vines or switching to citrus or almonds. And, in a boon to consumers, many producers have been selling their surplus stocks as “cleanskins” — bargain-priced bottles that show neither the winemaker nor the winery. Even so, Sam Tolley, chief executive of the awbc, reckons it will take at least another two years before supply and demand get back in line.

Letting the free market take its toll is not the way of French agriculture. That’s one reason why the pain caused by the glut is less acute in France than in Australia. But it also helps to explain why the French lost out so badly in export markets in the first place: their producers are bound by a plethora of strict rules. Unlike their Australian rivals, Bordeaux winemakers aren’t free to grow as many grapes or make as much wine as they want; quantities are strictly limited. Moreover, they can’t sell their wine as Merlot, or any other single grape variety — one of the most popular New World innovations. And under a regulation passed in the early 1990s, they are even forbidden from using their grapes to make table wine; the only production allowed in Bordeaux is of high-quality appellation d’origine contrôlée (AOC). “They tied their own hands behind their back,” says Christopher Carson, former ceo of the European arm of drinks firm Constellation, who played a key role in bringing Australian wine to the U.K. Over the course of 15 years, he watched the market share of Australian wines soar from about 1% to more than 21% now — five percentage points ahead of the French — as British drinking habits shifted. Wine has now overtaken beer as the nation’s most popular drink, driven in part by supermarket chains such as Tesco and Sainsbury that have made it affordable. Pubs are getting in on the act, too. One chain, J.D. Wetherspoon, is even starting to serve wine on draught at its 650 pubs.Some in Bordeaux may shudder at that prospect, but the region as a whole is racing to compete better. Some winemakers are thinking of allowing some winemaking techniques they long spurned, including sprinkling wood chips in maturing wine as a cheap alternative to keeping it in oak barrels. And they recently scrapped their regulations on AOC wine to enable producers to make a table wine, to be called Vin de Pays de l’Atlantique. Christian Delpeuch and other Bordeaux merchants aren’t waiting. In the conference room at Ginestet, Delpeuch shows off a bottle of his latest creation, aimed at the British market. It is the classic Bordeaux shape, but two elements stand out. The first is a screw top, rather than a traditional cork. The second is the label. The front has a huge drawing of a pretty château and announces the name: Bordeaux Classique. On the back, in English, is the lure: “Steeped in heritage,” it reads, “the winemaker’s philosophy was to take classic Bordeaux but deliver it in a very modern way.” “There’s no reason why we can’t make industrial wines just as well [as New World producers],” he says.

Or sell them just as well. That’s what Pascal Renaudat, an entrepreneur who aspires to create a French megabrand, is trying to do. He has persuaded several cooperatives in Bordeaux and around France to become shareholders in his firm, which is targeting the U.S. and Britain. Unlike his rivals, he’s done exhaustive market research — the name of his brand, Chamarré, is itself a focus grouptested marketing creation — and some of his sales staff come from consumer-goods companies such as L’Oréal, rather than the wine business. “Winemakers don’t know how to sell,” he explains. “They’ll just stick their nose in the glass and talk about how woody it smells.”

Yet as it adjusts, Bordeaux faces an image problem. The top wines in the region command huge prices because of their worldwide prestige, and their makers have no interest in being associated, even remotely, with the down-market plonk some merchants are now cooking up. But producers in the middle aren’t happy, either; they worry that the massive price increases pushed through by the likes of Château Pontet-Canet will give Bordeaux a reputation among ordinary consumers for being unaffordable. “What does it do to Bordeaux’s image to see people doubling their prices?” asks Marie Courselle at Château Thieuley, who is barely managing to avoid cutting her prices. “They are sabotaging Bordeaux’s image. It’s crazy that we are all put in the same basket.”

Indeed, a central concern in Bordeaux is to avoid a fragmentation of the community. “It’s almost like a Latin American economy, some very rich and some very poor. This could cause a revolution,” worries Pierre Lurton, who runs two of the most exclusive properties, Château Cheval Blanc in the St. Emilion region and Château d’Yquem, the world-famous sweet white Sauternes. Despite their eye-watering prices, bottles of both are being snapped up by a new breed of very wealthy people in places like China and Russia, as well as by U.S. and other investment funds.

Back at Château Pontet-Canet, Tesseron sits down for dinner with his wife, Isabelle, and a decanter of his house 1996. In the Bordeaux hierarchy, Pontet-Canet isn’t one of the very top châteaus, but it’s still a name, thanks to an official classification dating back 150 years that listed it as a cinquième grand cru classé. Tesseron is acutely aware that historic status alone isn’t enough. “I’m in a privileged situation, but it’s not a given,” he says. “I must continue to aspire to be the best.” That means investment, investment and more investment — as well as a lot of savvy marketing. This year for the first time, Tesseron threw open his château doors to visitors (although by appointment only), and hired three guides to receive them. One of them speaks Chinese. “Yes, there are new clients, but the real business still comes from our old ones,” he says. “I’m sure in the next 20 to 30 years people will be interested in products that are top. And I’m doing all I can to be top.” In Bordeaux these days, that’s a recipe for survival.