ILPB- Ep 3: From Bordeaux To The World

In the global world of fine wine, so many threads are connected by one single place, La Plas de Vordo. For 800 years La Plas de Vordo's unique trading system has brought the fine wines of Vordo to merchants and collectors around the world. But what was for so long an exclusive local club is now the hub of the international world of fine wine. But despite its huge influence on the world of fine wine today, we don't really know much about La Plas de Vordo. I mean we don't really know what the Plas de Vordo is and what happens behind what appears to be closed doors. The most important and influential wine market place in the world remains shrouded in mystery. How does La Plas work? And maybe more importantly, why? And when does it work? Who's behind it? And who gets to be in the club? And one of the questions that we hear most often from wine makers around the world is, will my wines be successful if they go through the Plas de Vordo? I am Bullen Vigel, co-founder and director of a reneglobal, and after hearing these questions over and over, we decided to explore exactly what La Plas de Vordo is, who the people behind it are, and explore the role that the Plas is likely to play in the future fine wine distribution. And I'm Felicity Carter, the editorial director of a reneglobal. For me, this is a fascinating journey into a place that's growing in importance, but yet remains poorly understood. So come with us as we enter La Plas. Welcome to this third episode of Inside La Plas de Vordo. In this episode, we look at the journey of the Bordeaux fine wine bottle from the chateau to the consumer table. Pauline talking about a fine wine distribution system can be a bit dry, so let's get the technical stuff out of the way before we lose everybody. Could you quickly recap the three types of wines that pass through the La Plas distribution system? Sure. So they are the top Bordeaux wines that go through Amprimer, so 400 labels more or less from between 200 and 250 properties, and those are the wines that are sold while still in barrel. Then they are the librable or bottled wines. So this includes wines that are no longer sold through Amprimer, like the wines of Chateau de la Tour or Chateau de Cam, but also all the bag vintages, all the vintages that are released by all the properties outside of the Amprimer system. And finally, they are the beyond Bordeaux wines or the wines from outside Bordeaux that now goes through that mass as well. And where does Bordeaux wine sit in all of this? Because this is traded through La Plas as well. Yeah, La Plas does distribute both Bordeaux wine and other bottled wines from across Bordeaux, but they're not really fine wines, so they're not our main focus for that, for that podcast. Got it. And of course, Bordeaux wine is also traded by Nagostian and Cautiers who sit outside the fine wine system. So when we go back to fine wine, do you have any idea of which categories account for which proportion of the wines sold through La Plas? And that's a really good question, because we think Amprimer is such a big part, but actually it's not, let's hear what Matthew Shadouignet from the city of Ibegey has to say about that. Amprimer remains the single most important moment of the year. Year in year-outs, Amprimer will represent a third of our business and no other element of our business represents as much. So a third for the Amprimer campaign, can you give us the rest would be the bag of the vintage and the beyond bottled? Precisely. Okay. And that's a third for each part of your business more or less. No, no, no. It's no beyond Bordeaux would be somewhere around 20% and the rest being bag of the vintage and some wines that are not released on river like Dickem and Chateau Latour for instance. How do you see that balance between your activities at all being? Would you, would you see remaining it the same or less? How much time will do you see part of that revenue changing? I mean, obviously you didn't have the beyond Bordeaux 20 years ago. Yeah, 20, 21 years ago, we didn't have the beyond. And the percentage is only reflect to a certain extent the evolution because even though we do not share our financial figures, it is pretty obvious that the turnover of the company today is not what it was 25 years ago. The 20 each percent on beyond Bordeaux are not a transfer from other regions. Okay. It is something additional. But to answer your question, to a certain extent, I expect the beyond Bordeaux business to continue and grow all the time, but I do strongly believe that Bordeaux retains the tremendous growth potential and I don't see on Premier going away. So in 10 years, the odds are pretty high that EP would still be as it is today in terms of share of our business. Maybe beyond Bordeaux will have grown a little bit, but I also strongly believe that Bordeaux will have grown as well. I think Pauline, let's follow the journey of a bottle of wine sold through Laplace. Where does it begin? So there will be more or less the same process for all the three categories of wines that we've just quoted and it starts by the wineries setting up their price. So the wineries themselves decide on how much they want to sell their wines for and then they will at some point have contacted the courtiers to release their wines on the market and for the courtiers to match the wines with the right negotiator and the courtier operates with a legal 2% commission on any transaction that I've paid by the negotiator. It's not taken off the shadows he's taken from the negotiator. OK, stop right there. So let's talk for a minute about the courtier. I thought I finally had a good handle on who they were, but I've just learned that there's more than one type, so I'm back to square one. Can you please untangle this all for me? Yes, of course, because we are in front. So things are complex, complicated and also highly regulated. So there are several types of courtiers and they will all require specific exams and tests to be cast. Oh, really? So you can decide to be a courtier and just go and study. Yeah, you could be a courtier tomorrow, if you need to. I mean, at least in theory, because of course many people grow up in the business. It's a relationship based business, after all. Oh, I see. OK, so that's another career hope dashed. All right, so tell me about the different types. All right, well, the ones that are relevant, at least in the context of Bordeaux. So the first one are what we call courtierd compagnes, who can't recite Brokus, I suppose. Goodness. They mostly deal with, you know, bulk wines. So those are the ones that I knew when I was growing up in Burgundy. So they would visit my dad after the harvest and taste the wines on the barrels. And they would bring an expertise that was two-fold. The first one was the technical expertise. So in my dad's day, and I suppose it's still very true today, but they were playing the role of a consultant somehow because they were advising on quality, or at least they were giving you an idea of where you'll wind fitage in the benchmark of quality of the, you know, of the wines that were produced in the same village. And they also brought like the market expertise, which is the new, what the negotiations needs, what they were willing to pay for it. So this courtier I'm talking with, you know, past tense, but this still exists in all the French production regions, where production was historically separated from distribution and still is some extent. So of course, Bordeaux, Burgundy, Champagne, the Royal Enthoesre example. Okay. So you're really talking about a local version of what we would otherwise call a bulk wine broker. And so who were the others? So the ones we most interested in are what are called courtier de plus. So to my knowledge, they only exist in Bordeaux and they only deal with Bordeaux wines and negotiate from Bordeaux and nothing beyond that and nothing outside of that. They deal with fine wine and they have no rule when it comes to tasting or to advice on the wine making, you know, the shadows are totally independent on that. They have the own team, they aren't consulted. Their value is linked to insulation. What stock, where, for what price is, and to the quality of the network of course. So these are the people who are out and about on the road checking another shadows, seeing what's going on, communicating with negotiations. Is there anybody else who is a courtier? So some of these courtiers are on top of everything what we call courtier sarnante. So they are expand judicia or expert witness. I think it's in English. So should a trade issue occur, they would be called as experts in French courts. So as one of our interview, we said, you know, if a courtier says that an apple is blue, then the apple is blue. And I have to say at this point that not everyone sees the value, you know, of a courtier. We had conversation of the record in Bordeaux with Chateau, who said that they wish they could do without them. But because now they know there's any go see on it. Anyway, they were dealing directly with them and you know, phoning them every day. But when I asked them why they would still use one, they told me that when the transaction goes through courtier sarnante, it means that the price of the transaction becomes the official benchmark price against which all the other ones will be compared. So it's a bit like fixing the price of the commodity on a stock exchange for example. And that's by the way why the culture where the chosen to establish the classification of 1855, because there were the ones who had all the records of the official price it. And finally, Cortier Samardé are also responsible for guaranteeing the solvency of the negotiate and the shadows capacity to honour its contract. So basically, they're the people who know where all the bodies are buried. It's funny that you say that the Chateau said they'd love to do without the court here, because I spoke to Christian Wiley from Garzón in Uruguay, and he told me in the early days when their wines were going through the plus that they had to do the Cortier work themselves, and it was really difficult because they didn't know how the system worked. So eventually, they got themselves a Cortier, and everything was much smoother from then on. But they will have to go through a specialized broker as well, because as mentioned, Cortier the bless only deal with border wines by law, so they can't deal with beyond border wines. And hence, we've seen a new category of Cortier emerge on the bless, since the development of the category. So beyond border wines will go through a different kind of Cortier than the interesting border wines. And just as you would have imagined that the beyond border wines, because they are not linked by tradition and history and everything, they will choose to operate directly with the negotiation, right? But here is Viennig Hathor, so Viennig is the commercial director of supertoskins on an iron maceto, and here's Viennig explaining why they actually chose to work with one. Do you go through a Cortier because you have to, or do you choose to? No, we chose to. You must understand that when we first came on a class couple of years ago, this was an unknown territory for us, and it's extremely important to have someone leading through the system of the plus, opening the doors during the go between explaining to both sides and making clear, making clear to both sides what the other side expects, what can reasonably expect, and what should not be expected, which is the function of a Cortier, and giving us information about the state of the market, and on our side explaining to our negotiations partners who we are, what we do, and what we expect. Legally, I think we could do without, but not sure, it would be such a good idea. So it sounds like Cortier's are like coat hangers, they're proliferating. All right, so the Cortier has spoken to the negotiating, that the Ghost Yacht has bought the wines, and then the wines are released, they go into warehouse in Bordeaux, and the Ghost Yacht now sell them through their international network. So when they start sending out the wines to different markets, do they sell them all at the same price? So on the case, in the case of Unpreem Act, for example, technically, theoretically, all the negotiations will propose a shadow at a same price, with an added customary 15% margin, applied by the Ngoz. But of course, there is theory, and there is practice. So I ask that very same question to Tom Parker, who's the fine wine bias of far bit news, fine wine merchant here in the UK, and listen to what he had to say about practices for Unpreem Act wines. They are variable. Okay. They are variable. I don't know how much I should say. Ngoz, obviously, are businesses that have to make money as well, and I think there can be price variation depending on how good your relationship is with the specific Ngoz, how important your allocation is. So let's say, you know, there are certain shadows that we deal very closely with every year, where we have quite sizable allocations. So if we're taking on a lot more volume, there may be some level of pricing change for that. Can those prices ever be below the price that the shadow has offered in Ngoz. No, I don't think on release, there would ever be Ngoz doing that. And do you know the price that was offered to the Ngoz. Sometimes, yeah. Sometimes, yeah, if we have a good relationship with the, if we have a good relationship with the shadow, they'll, they'll, you know, there's a certain element of, of they'll call us before they're going to release their price and talk to us about what we think about where the price should be and talk about, you know, where back then, just a price and try and understand where the market is. And then sometimes it feels like they don't listen to us at all, but sometimes they do take on board some of this information and will have a vague idea of where the, the, the, the shadow release price will be. And sometimes you know, it's just openly available. So you'll see pre-dislaughty, pre-de-revamped, like, so pre-dislaughty being the, the shadow release price and pre-de-revamping that being the Ngoz price, very transparently shine. And then that could be fairly set for everyone. Is that a, the shadow that decides to make it transparent, that who decides if it's transparent or not, that kind of information? I don't think the shadow have much to lose by being fairly transparent with their release pricing. Sometimes they can do it as well to, to, increasingly you see multiple releases with over the course of two, three weeks, trying the on-premark campaigns, so there might be the initial pre-dislaughty, which is only five percent of the total production and then there could be something slightly higher. There'd be a second-trange price, then there could be a third-trange price for certain lines. And then it's up to the merchant to decide whether you, you want to wait. If you know that there's another release coming, do you wait and try and price balance and then offer a, a, a balance price to your customers or some merchants might decide to take their longest standing or best customers and offer them that first price. And then, you know, everyone asks it, so second-do goes a bit to the, so that's almost the second-do market within the pre-mer system. Yeah, that's really interesting. So I have a question about importism buyers. I can understand why they would be very keen to work with particular negotiating so that they can get access to the very points, but how do they choose whether they're going to work with other negotiations or not? Well, it's a good question. My understanding is that it's a mix. So any given buyer, in any given market will work with X number of negotiation, but they all work with more than one. And the way that shows them depends on, of course, as you were saying, the capacity to access high demand wines, that, that's, you know, the core of what they need. So both on-premise wines and also back vintage and, and we've seen as much you explain that this is a bigger and bigger part of the trade. The size of allocations that they can offer you, the price, of course, of these allocations, but also their professionalism and quality of their logistics. But more and more, and that was fascinating for me to discover, but in these difficult years, some buyers also choose negotiating based on their solvency, again, solvency issue. So listen to what Jerry Stockman, the MD of Watson Wine, one of the biggest fine wine buyers in Harkel, has to say about this. We have very, very good relationships with some of the negotiations. We did cut a few out because we found that we'd rather put more with some negotiations and be more in poor stead, rather than doing a little bit everywhere. Now, in the old days, you needed to get some of your first rights allocation, but these days, to be honest, we can get what we need. And, and so I would rather work closely with a few partners. So we have, you know, out of those 12, several of those will be considered to be clutched out. You must be careful with these days, you do keep our money, to these negotiations two years before we get the wine. So when the financial situation is not as great, what has to have trust that that goes to will still be there to be slay talk. And we all know history of certain negotiations and merchants that have not delivered pretty much stock because they've gone buff. So we do have to bear that in mind as well. And last year, a number of Chinese clients never paid for their offering. They didn't have stocks. It's not a problem. But the negotiations are smaller negotiations have to make a decision. Do they take the stock and stretch themselves because they don't have any funds from the customer or do they go back to the chat to say, I don't want my allocation, but I committed to, which of course means that they'll be off the list for the following vintage. So there are going to be some negotiations that have stretched this year. You know, if your negotiating is sitting on 50 million euros worth of stock in your in your warehouse, you should be fine because you've got assets. But if you're wearing a negotiate that relies on reselling straight away. And if this is true for merchants as well, if a customer wants to buy from a merchant and needs to pick a merchant, they're confident it's going to be there at two years. I know what's very large British wire, where there's been around a lot of time, but they need to sell over 90% of their prima up before they pay for it. So, you know, they're working on very low margin. So you've seen, you know, felicity, you were hoping to be a covetier. It's right. And then I found out you had to be a nipo baby. Yeah, but then, well, if you were willing to be a negotiator, you know, it's not that easy because you want a lot of capital, so you can't improvise yourself in a negotiator either. Yeah, I mean, you know, what German is saying about 50 million euros worth of stock in the warehouse? So that makes me think there must be specialized insurers who just insure wine because could you imagine if you had had a fire in the warehouse, it would be, what a catastrophe. Okay, so another thing that's just occurred to me is that the Gossiants must be very good at paperwork because every single country has its own regulations around alcohol and taxation and some of these rules are really complex. Yes, indeed they are. So just think about compliance of the back label for example, because they can vary a lot. And of course they are customs documents and tax being paid. And as we've discovered Felicity as well back in October, there's all the non-tariff barriers to trade. Right, and all those hoops you have to jump sometimes just to get your wines into your market. So it's a lot of insects you wear that the negotiates are during the whole supply chain. So what I've learned from this is that all those starry-eyed people who go working in fine wine because they think they'll sit around tasting fine wines actually have to become very good at Excel spreadsheets. So does this disappointment pay off how much money do people make in the end of all of this? I did manage to get some mumbus. So and to me they are quite important to understand. They're very important to understand. Yeah, I'll come back to it. I'll come back to it later. I just remember as a reminder, we are now in the markets that the wines have less to follow. They are in the markets in the UK and the US and Halko and they are in the warehouse of the importers or the wine reactions. And this importers will then sell to private clients. So usually with the average of 12 to 15% margin, they will also sell to retailers who will then apply their own margin before the final consumer buys it and they can also buy restaurants who usually time prices by three or four depending on the value of the wines. So I've asked Tom Parker to explain how they will do it at far to decide their prices for their private consumers. How do you price your wines to your own client? Like what kind of data do you use to find the right price to position those wines to your clients? Part of our job is to offer some price estimates before the wines are released. So we will sit down as a business and particularly our German Stephen will sit down and look at the previous integers, consider the quality, consider what recent releases have been and then set like a pricey bracket by a formula of like a low estimate and a top estimate of whether it will be because a big part of gauging interest is through a pre-order and wish a system of use. So that in some ways determines we know how much interest we are going to have at a certain price anyway. So that's before the shuttle has released their price. So you go to the wine and sell the email? Yeah, so we go to the water and come back right up. I build the whole, that's my job. So I build that whole side of the website. Set all the pricing completely transparent on the website. What we think the estimate should be will also often compare it to a vintage of similar quality that's mature just to show where the pricing sits and then we'll send that out to basically our entire databases or thought about buying water over the floor. And they'll then tell us, you know, if they are interested or not like, yeah. Yeah, and if they pre-order they're basically saying, I will buy and they're committed to buy the wine at anything up to the top estimate price or they can set their own estimates. So we have an internal system where we can basically look and see what works at what price. And then we can use that to help set up pricing when we go forward. But I mean, the reality is because you've got so many merchants listing at the same time, you can't be 5% above everyone else. So there's an element of knowing that, you know, most merchants don't really take that much margin on primary and want. So does it matter for a client whether he will buy his case for, you know, £400 or £450? Yeah, yeah, for a lot of them it really does. It's interesting, you know, I think most people and certainly I did once would think that working at the fine wine end would be a way to make a lot of cash. But actually, it's not. It's just it's a tough business. Well, as tough as other parts of the wine trade, but it's certainly not got the high margins that the rest of the luxury sector has. So tell me how does all of this work for the final consumer? Do wine lovers get a better or a worse deal because wine's a distributed through the plus? That's a fascinating question indeed. But before we get into it, I just want to take a second to ask a favour to everyone listening to the podcast right now. If you like what you've heard so far, please do subscribe to the Rene podcast channel on any of the platforms that you are listening this episode on and give us a cool rating. It really helps. And when we say give us a cool rating, what we mean is please give us five stars, five stars, please back to your question, felicity. It's a very fair question to ask, but actually when you look at the supply chain that we've just described, the only difference that the wines that are distributed through the plus have is that they've got two additional intermediaries at the beginning, the quartier and the negotiating. But all the rest of them, like the impulses, the distributors, the retailers, the restaurants, whatever your distribution, you know, wherever you are in the world, you will go through that system as well. So does those two extra steps make the wines more expensive at the end of Ask Max Lenondrel who's the buyer for Barry Bross and Rudd here in the UK and arguably the biggest buyer of Bordeaux in the world? Let's say what he has to say about that. I mean, if I can ask this very genuine questions, but with the volume of wine that you are probably buying from Bordeaux, I can imagine, why aren't you in negotiate? Because the political aspect of La Pfasse is very old and everybody pays a part in it and it would be very difficult to be part of all the kind of layers. And actually from a consumer point of view, the Pfse Bordeaux is a very good system because if we buy a wine from the Rund Valley or from Bergen D or from the Lwavallee, for example, and we buy it directly, obviously we take a risk of financial risk. And that financial risk means that we have to take sufficient amount of margin to cover that risk. So if you go to a producer who has a small prediction, we know entirely sure it's a great advantage, but we need to buy the wine because otherwise we would have to lose the allocation for the following year, which might be a very advantage. So we have to buy that, we have to commit to the financial aspect of securing that stock. And therefore we have a big margin to do that. And so I would say normally on the wine from Bergen D and Rund Lwavallee, we're looking at 25 to 40 percent margin. All in for wine from Bordeaux, well the, you know, the Niggos Young take, the courty attack that 2 percent, the Niggos Young takes about 15 percent and we would take 10 to 15 percent of the well. So overall, it's the same margin, but it splits into three people. Exactly. It's not because you have more layers that actually it is more margin. But actually, effectively you probably have less margin overall when we go to Bordeaux than we do. So for that, I think if I want to take all the margin in Bordeaux, so if I would become a Niggos Young and the retailer, so take basically 30 percent margin, then it means that the other Niggos Young that I need to get access to to get more of the wines that I want would, we don't want to work with me because that would be their own competitors. For example, if we buy, if we buy 10,000 bottles from a winery in Bordeaux for Chateaux eggs, as a Niggos Young, you cannot get 10,000 directly. So, I couldn't fulfill the whole of my needs from my own Niggos Young. Okay, I see. I would need, in order to get the volume, I will still need to buy from other Niggos Youngs. So there are wineries, for example, in Bordeaux where we buy, in order to get the volume that we need, we need to buy from 25 different Niggos Youngs. Okay. There are 100 cases here, 100 cases there, 300 cases, 50 cases, 20 cases, etc. So if I was a Niggos Young, while in Bordeaux, I could probably get directly 50 or 100 cases, but if I need a thousand, I have to then buy from other Niggos Youngs to get the reminder of the requirements. And because they will see me as a competitor, they would want to give me that allocation. So therefore, yes, I will get my 30% margin, but I will only get it on 100 cases instead of a thousand. And also, it gives you more flexibility as well in the downstream, I suppose, because you can always choose not to buy a wine a year and come back and buy another year, which you wouldn't be able to do as Niggos Youngs. And the beauty of the Bordeaux system is that when we buy directly from a wine area, as I mentioned earlier, we have to buy it every year and we have to keep all them every year because if we let them die, we will have to buy it every year. then obviously as a business they will suffer a lot. So, you know, we are quite invested in portal. Although, you know, the allocation system is still there and very important. If, as you said, one year, a wine is working a bit less than we could load down by getting the scent and then go back up the following year a little bit more. So, in this case, there's a bit of a cushion if you want. And the negotiating are the ones that are in, you know, your position as an importer that have to buy every year. So, as we've said already, the system has a lot of intermediaries, but it doesn't mean that wines would be cheaper, otherwise we've talked about the, you know, the issues of paperwork and logistics and all the time and resources that it takes and someone has to do that anyway. So, what is fundamental to understand here is that, but because these loads of intermediaries, the margins are small for everyone, as you mentioned before on the chain. So, one of the consequence for the estate and for the wines is that no one in the chain has budget for brand building and brand building has to come from the shadow themselves. Because if you don't have internal resources to build your brand, no one in the chain has this resources either. When you work with a direct importer that have 40% margin, they can do something for your wine. They can position them in the market. When everyone's got 15%, all they can do is move boxes efficiently and work with young strategy, but they can't build your brand. So, I don't want to spoil the next episode too much, but this is to me one of the reasons that so many wines did not succeed on the plashing more because they overestimate the power of their brands and all. They don't have enough resources to devilow bit, by the way, Max interview was fascinating, so if you want to know what the biggest buy of Bordeaux wines in the world think about the system in depth, go to our website as we have shared the full transcript of our conversation alongside this podcast. Now the wines are in market and they've got through the customs and the logistics and all of the problems and now the importers and wine merchants have them, but they often have very tiny quantities of these very highly sought after wines. So how do they decide which clients get which allocations of which hydrovine wines? Well, they will each have their own internal process and you know past data that they can rely on to maintain and manage the list of clients and who get priority, young world, etc. Well, I didn't realise, but of course it must have been is, but before this podcast I didn't realise how fast things have changed in terms of these processes in the last 15 years also. So here is Tom Parker again reminiscing of how things were when he started back in 2009, compared to how he does things today. That's quite interesting. You know, my first job at Farr was basically as a sales assistant at the '09 Premier campaign Trist Complete Carnage because it was the biggest campaign we've ever had. And whilst we had a wishlist system, the allocation was just me and one of our buyers going into a room and doing all the sales and voices by hand, you know, everything was on paper and we had to decide off this person for these wines in 2008. So they get two cases, this person's buying them for five years, so they get three cases, this person hasn't bought anything from us before, so they get nothing and a lot of it was on the phone, so you'd have a call from some person saying, "I need five cases of a fee. I don't care what the price is. I just need them, so you're trying to, you're on the phone trying to talk to a buyer about allocations and can you do it, can you not?" To a certain extent, that still happens for customers you don't pre-order, but now we have a much cleaner system every time there's a release. I can just go in, put in the pre-derivant, put in our sales price, hit a button, and then I can just go down and if I need to, if we need to allocate it, also really I can just literally go on my screen and just change two to ones and, you know, four cases to half cases, so you can do it in five minutes, so. So what this really reinforces is we're back to Excel. You have to be good at Excel to be good at fine wine. You know, one of those DRM systems and software. You have to know about software. I imagine you probably have to have a pretty quick skin as well because I'm thinking about Australia where I remember some fine wines, there might be six bottles allocated to the whole market, and in that case you can mention being abused by customers who don't get their bottles or who don't get access to these wines. It must be quite tough. All right, so let's talk about the US market where everything is more complicated because of the three tier system. Who gets to decide on allocations there? Yeah, the three tier system is also complex to understand. It's not just the French that have complex stuff. So let's take a very practical example. So our next guest is Philippe Nulene, who was until very recently the Bordeaux buyer for an online retailer, which is called Wine.com. So retailers, as you will know, are supposed to be at the end of the three tier systems. You've got the importer, the distributor, the distributor, and then the retailer. But when it comes to fine wine, it seems that they are at the beginning, I'll explain, but as the fine wine retailer, the last member of the chain of the system, Philippe is the one going to border during the Amprimach campaign, and he's the one deciding on what wine they will offer on Primo. He's also the one receiving offers from the negotiator, not the importer, not the distributor. He's the one who make the call. But then of course, he still has to go through the system. He still has to go through the three tier system to make it work. So let's listen how that what it means practically. Just so I be totally clear, you decide to buy the 24 cases of Chetelmerkel from two different negotiations that year and to get the allocation that you were given by them. So you said to DuCluz, Joanna, the civil engineer, whomever you say, "Okay, I take those bottles, then what happened next?" Because you can't technically buy from directly from them, right? Because you have to go through this three tier system. So as I said before, we'll work with our logistics partners because we have different logistics partners who touch different markets, just for efficiency purposes. We have warehouses in different places, so we'll have different logistics partners to help us based on where they have licenses. And then they'll go ahead and conclude the operation, import the wine, bring it to our warehouse, and that's the transaction that takes place in order to respect the three tier system. But so you don't have to go through distributors like Southern Glazers, for example, or are they the logistics partners that you're talking about? The logistics partners typically have wholesale or license. For efficiency purposes, you would want to have as few layers as possible, right? So the best partners are those who have both importing distribution licenses. But then in that case, it's really an admin thing because you just ask them to bring the wines over to the US. That's correct. And so, and I suppose you have different because you need to have them in different states. So then you can sell the wines in different states, right? Correct. And so that was one of my following questions. Is that for those highly allocated wines? How do you decide then which one will go where in the US? Well, don't forget, on the premiere, it's going to be we're going to be selling the wines on our website in advance. So we'll see where the demand is. So I'm based in Texas. I buy my Chattamargo Antima from your website and two years later, the wine will leave Bordeaux. Go to your whole cellar in Texas and then come to my house under the wine.com label. Well, it'll go to the hotel in Texas, who will then send it to our warehouse because we're the retailer. And then we will, and then we will go ahead and make the contact you to make sure that we're not delivering it to you in the month of July when it's 105 degrees in El Paso. And make sure that you're going to be home in November when it's cooled down. So it's a it's a it's a it's a consumer driven allocation market because you don't actually decide why it's going to be. It's on the first con first, but if you've got those bottles, then you know where they've already been bought. Okay. Yeah, we have a track record of where demand has been for given wine. So when we put it up on the website, you know, we have to put it in boxes by location. But then it's fluid because if you see that one location is taking more than you expected, then you can go ahead and take your virtual stock and away from another location where it's not moving that well. Fine, fine wine distribution is really it's really fascinating. I mean, a lot learning about all the all of those stuffs. But in this interview as well, what Philippe explained is that it would be the same thing for back vintage. So they would receive enough on the negotiar and wine.com would sell it on their website. And then depending on the where, the wines are sold. The wines will technically be bought by the logistic partners situated in the states, where South occupials are cute being before being delivered in wine.com warehouse. It's interesting. I did a story about four years ago about private collectors in the US and if they spot a buying opportunity like if they see somethings for sale at a auction on Hong Kong, for example, they can just tell their importer and get it imported for them. So even that's a complicated system. There are always ways and means of getting things done. But this is a challenge for the producer because they don't control the final price, which is true across most of the wine trade to be fair. But what they're staying to do is that they can closely monitor the situation. And here is how Janik Haverour, so from Ornilaya and Mousetto, here's how he does things and describe the situation. We in our particular case, we do not have an RRP. We didn't want to put a roof on the price of other wines. It's again a matter of demand meeting supply. And at the end of the day, if you do not control the point of sale, which to me is one of the definitions, the defining points of luxury, if you do not control it, you have to accept a degree of variation when it comes to your end price. You could target, you know, a band plus minus x percent around a given price. But if you don't own and control your distribution by definition, you will not have the exact same price all over. We cannot, and we do not micro manage the price until the very last point of sale all around the world. It's structurally impossible if you do not own your distribution network. And by which I mean all the way up to the shop and like we don't have a mess, for example. So just for me to really understand it 100%. You know when the nego charm, all the distributors tell you, well, since the internet price are really more transparent because people use wine searcher and stuff, they're just indicative price because someone being in Malaysia will see in one search the price in the UK, but you can't have that whiner that price anyway. So it's when they say that that put pressure on the price because everyone can see the prices. It's like almost a theoretical pressure because it's just for people to line intellectually on the price, but they can't they can't have that price exactly on every single market, right? I think alcohol being such a regulator product with a various level of taxes. When you look at the transportation cost and everything, it's exactly what you say. It's a theoretical price. How many times did I have to say to someone in the market? Right, okay, you've seen that somewhere else cheap, fine, buy it. Show me the invoice. Show me your land at cost. I will reimburse the difference. I have never paid one cent in my 20, what is it? 24-year career in the trade and I've been saying that and I've always made the offer. I've never paid one cent. So there are friction costs, how there are transport costs, there are customs issues. It is not a pure and perfect market in the economic science sense of the word. It's not a fungible, well, one wide and a given vintage is one product, but there are so many barriers that price comparison quite quickly reaches an limit. Did you ever have the case of the price being like slashed or highly lower than what you would hope the price would be? It has happened. We have come across, you know, one of those who players who sought that it was a good idea to put some red and some yellow and a slash across numbers on the price of our white. Let's just say that we've had a few chats and it's happening less and less. Yeah, interesting. I suppose this is the moment that we should bring up that the evolution of services like wine, searcher and even livex have introduced new transparency to the market. Now, livex is only for merchants, so normal people can't go on the system and see prices of wines up, but wine searcher has the prices of everything available and it's been a both a blessing and a curse because on the one hand, I think it's I understand it's led to a sort of equalization of prices around the world because people can no longer have very high prices if they're, you know, very obviously low or somewhere else, but it's also caused a different problem because people look at the wine searcher price and they think they're being ripped off because what they don't realize is that much cheaper bottle in a different country may be cheaper because the taxes are much lower. It happened to me so many time when I was browsing through wine searcher and I was like, wow, there's like 150 euro different on that price and I was like, oh yeah, okay, this one's in bond, this one's got no bad, this one's got like no duty paid and and it makes it sometimes difficult for me as a consumer to actually, well, what would be the price for me in the end because in a lot of cases it's kind of a theoretical transparency, right? Yeah, that's right. All right, so I think what we have learned about the plus so far can be boiled down to this. So people work out what the price is, the price gets set and then the bottles get to the right buyers, but this system all breaks down when we talk about the secondary market. Yeah, of course, the big elephant in the room, right? Because we've described a very linear supply chain, you know, and and the wines will get to the final consumers and it will be drunk and everyone will be married, but it, you know, wines hardly ever end up being drunk by the first customer they cross fast with. And I think that's, you know, the reason why people describe fine, wine trade is obscure and not so transparent. So let's ask Tom Parker to illustrate everything for us. For me, the secondary market is defined as anything that's after initial release, right? So the primary market is that is that shadow to through courtier Tenegos to wine merchant to private client who stores it in their big country seller and drinks it. That's not really the reality anymore of how the bordeaux wine world works. So you would have this initial shadow to Nego's. If the wine is priced correctly, then Nego's to merchant to on-premise buyer. Sometimes it just stops at the Nego's and then it's there for quite a while before it gets sold. So that's your first secondary market would be Nego's selling through us to clients maybe 10 years down the line because that's not an initial release, but they've had to work around the pricing away for prices to improve or what the what the what the what the what the what the what the what the what the what the then you have us taking stock and will keep our own reserves of certain wines and not missing until we think it's appropriate. So that would be part of the secondary market as well. And then probably the biggest biggest part, the biggest part is that first client who buys on-premise very often these buyers are buying clay more than they'll ever drink in their lifetime either deliberately or buy by accident. When you say very often like do you have a number is that 80% of the time like how did you quantify that? I don't think I could quantify it very very easily. I would say probably you know 85% plus of our customers would sell back to us at some point. Wow okay. Wow that's a number okay. Yeah and it won't be all of their wine but it would be it could be oh I've got too much 2014 Bordeaux and I've tried a couple of things and I decided I don't like them but but more and more it's it's a it's a specific strategy where people are trying to buy the chateau that are on the rise. We'll drink some of them but we'll sell some of them and it's also very rare you see the two ends of the spectrum are very rarely handled in absolute so you very rarely have someone who at our end of the market is just drinking wine because then everyone ends up buying too much fine wine to be honest they will end up selling some and then at the other end you've got this like hardcore investment person and we don't really deal with people like that either. So as Dom has just said there are many ways for a wine to end up on the secondary market let me recap. So first, Négocian can keep some stock and then sell to other Négocian within Bordeaux. So most time through the courtiers and just remember the courtier will take 2% on every commission every time but then of course merchants can sell to merchants you've talked about livex earlier so within their countries or internationally they can trade through platforms like nightbacks and then private customers can also sell to merchants they can also sell to auction houses or they can also sell back to Négocian in Bordeaux so just imagine the loop where a wine will go through the normal supply chain and up in my cellar in the UK and then I decided to resell it to Négocian in Bordeaux that wants to have access to those back vintage or taken later and then the Négocian will put the wines back into the system again so the wines can go on loop on a loop and loop and of course in most times they will also have brokers in the middle so people that will help the supply regardless of the you know the nature of it either a merchant or a private client meets the demand and take a commission in between. Yeah I think we should also at this point make reference to the 3Ds which drive the secondary market death divorce and doctors so people who built up big collections know, as as was said, you know, get to a point, realize that heart drink at all or their doctor tells them they've got to stop drinking or they get divorced and they have to have to sell off the supply. I think that's that's a large, a large reason why so many wines are not on the secondary market. But the secondary market set the prices really, and this is where a lot of wine lovers get really angry because if there wasn't the secondary market and this ability to invest and the possibility of seeing the wine appreciate and value, the top wines wouldn't be as expensive as they are. It also puts producers in a bind. So the market is very quick to spot when a wine is underpriced and no producer wants to sell their wines and then see it sold for four, five or 10 times the price by someone else and let the money be made by someone else. Yeah, this is a huge problem for producers of wines that become cult wines. So over the years, I've spoken to many producers who built up oil customers. And then suddenly the wine takes off, speculative swoop in and the 30 euro wine start selling for $400 in bottle. And this is a problem because if the producer raises their price, they ruin their longstanding relationships, but if they don't, then somebody else is getting all the profit from their hard work. So this is not such a problem for established fine wines because they have a much clearer idea of demand and they know historically how their wines are performing in the secondary market. But it's certainly a problem for new ones. Well, and in the case of order, you know, it's also new slightly different. We've seen and we've said it many times that the role of the class is to make sure that the value of the wine increase. So who's better position to make a wine value increase, but the secondary market, they wouldn't be able to do it that efficiently without the secondary market. Yeah, of course. So they do need the secondary market, but they hate the secondary market at the same time. The secondary market allows for the financialization of wine from turning it from something that's delightful and enduring akin to something that becomes a financial asset. And that's what, you know, that's that's always been the subject of debate as long as I've been in wine. But when you talk to people, who do you think has the upper hand in the supply chain? It's an it's an interesting question and who's got power and where does the force lie? And actually it's it's changing and it hasn't been the same, you know, throughout the recent recent decades. So let's hear from two people, first Jeremy Stockman in Hong Kong. And then we'll ask the same question to Max Lenon here in the UK. What has changed the most in your relationship with the blast? Well, what has changed the most in Laplace over those two decades? In my relationship with my fine, I think the power base has changed a bit in and I think the negotiator is a little more humble and more chasing the business that they were to risk the hope. And which is I think? Is it just due to the market cycle? Is due to them being more experienced in handling human relationship? I think I think they need to chase business up. And there's a lot of competition out there. I think we do. It seems to keep telling me there's less wine and flavor. That's easy to sell from the shadows. I don't know it's that's true. And I think they're right. And of course, the other thing that's changed is that to make their numbers with everybody's got a boss to make their numbers, their choice, whatever they can sell heads, the output. So back in Europe, Max L'Ambre, more or less agrees with what Jeremy has just said. I would say when I started in in purchasing border wines, the shots were very happy to sell to anybody who could actually pay. So you could go to any of the even the first gross and buy 400 cases of it. And they would be delighted to have some of you by their wines. And obviously that kind of a power shifted from from see the versions and the niggas yell to the property or the or very tired of the 10 20 years. And then and then the property then wearing a position of strength where they could actually decide where the wine was going to. But you see that the properties have enjoyed our moment where they was a huge amount of demand in what that has helped the property to do this to what they call in in French and it's the same word in English. Well, but capillary tear, which means that, you know, the capillary is the name so basically they were trying to to distribute very, very widely their wine. So make sure that every single merchant received a small amount. We've heard that, you know, merchants were quite in a good position and they could actually decide and dictate what they wanted because the market is not that excited about wines, they had expensive wines today. But it's your take on that. I would say I would say that the power is now well in balance. Okay. So I wouldn't say that the merchant has the upper hand or the properties at the upper hand. I think it's it's somewhere where actually in terms of business it's quite exciting because there is some conversation like we have, which couldn't have to be if she if she a couple of years ago. Pauline, I think at this point, we've pretty much covered how Laplace works from who the players are to how pricing works to how the sales process works. But there's something really important that we haven't covered. Why do so many international wines want to be distributed through this system? What does the appeal and what is this doing to the overall world to find wine? How is it changing the fundamentals? Well, that's next on inside Laplace de Bordeaux. So don't forget to subscribe to our newsletter at Arrini.glugal or the relevant links are in the show notes to be the very first to know everything about our upcoming discoveries. And don't forget, we want those five stars. This podcast episode was presented by me for the city Carter editorial director of Arrini global, along with Pauline Vickard, the CEO and co founder, and it was edited by Pauli Hammond and the five forests team. We want to thank all the fascinating personalities who took the time to answer all of the hard questions we threw at them, only a few of whom were featured in today's episode. But you'll be hearing from many, many more of them in the episodes to come. Inside Laplace de Bordeaux was made possible thanks to the support of the city of Ije, one of Bordeaux's leading negotiations house. We are very grateful to Matryusha Dronien, all of his team for sharing insights, data, contacts, while allowing us to do tutorial freedom. Until next time, see you. Bye. (upbeat music)