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12.12.2010

Burgundy Makes a Pass at China

china_wine.jpgAs many of you know, I spent a week or so of November in Burgundy on a press tour of the region, including the annual Hospices de Beaune wine auction. I went to taste a lot of wine, but also to see what I could find out about how Burgundy is dealing with the challenges and opportunities of the 21st Century.

One of the top "news items" in Burgundy these days can be conveyed in a single word: China. More so than any wine region I've been to recently, most of Burgundy was talking about China in some form. The credit for this may lie partially with the BIVB (Bureau Interprofessionnel des Vins de Bourgogne -- an organization dedicated to promoting Burgundy's wine globally) who are now in their second year of bringing Burgundy winemakers on roadshows to educate and promote their wines throughout China.

One of the first people I spoke with after arriving in Burgundy was Nelly Blau, export manager for the BIVB, who had recently returned from the second round of these trips to China. She expressed a great deal of amazement at the difference between the first and second trips.

"Our first time there, the people we were interacting with [mostly press and members of the trade] had very little background for understanding Burgundy. They needed the basics and little more," she said. "On our second trip we were very surprised at how much had changed, and what kinds of questions we were getting about small details of appellations and terroir. In just a year, the market has made a huge leap."

The huge leap of course, is relative, Blau went on to say, and emphasized that there was a long way to go before China became a major market for Burgundy.

Nonetheless, it is clear that the BIVB, not to mention many others, believe that China is a massive un-tapped opportunity. In particular, there seems to be a strong awareness of the push that Bordeaux has recently made into China, both at the highest level of the market, where First Growths are shattering auction records, and at the entry level of the market.

"China is apparently driven towards Bordeaux. We need to go there and present the elegance and style of Burgundy" said Louis-Fabrice Latour, President of the Union of Burgundy Wine Merchants, through a translator at the Hospices de Beaune press conference.

In 2009 China was already the 14th largest export market for Burgundy, having moved up to that slot from being the 26th largest just three years ago, according to statistics provided by the BIVB.

The fact that the Christies auction catalog for this year's 150th annual Hospices de Beaune wine auction was translated into Chinese for the first time is obviously no coincidence. Much to the embarrassment of everyone involved, this year's honorary president of the Hospices de Beaune Auction was supposed to be Chinese actor Liu Ye, but he failed to show up, due to "shooting schedule conflicts" on his current movie.

"We've obviously pushed for the Asian market hard this year," said Emmanuelle Vidal-Delagneau, Christie's Business Director for the auction, through a translator. "We've gone from Beaune to Beijing, as they say, holding tastings as well in Korea, Hong Kong, and Taiwan. We know well that Asians are very Bordeaux-driven, but that they really want to discover Burgundy wines, and we're giving them that opportunity. The Asian market usually makes up 18-20% of our buyers, but it is clear there is much higher potential."

Despite the Liu Ye no-show, a PR gaffe that will likely sting for some time, apparently demand for the 2010 wines was good in Asia, though specific numbers of how many lots or how much of the total funds raised came from Asia were not published. Said Vidal-Delagneau in a press release at the close of the auction, "Asia is becoming the second most important market for great wines, ahead of North America, giving new opportunities for the Hospices de Beaune's widening reputation."

While it is clear that there is already demand for the highest-end Burgundies on the auction market in Hong Kong, exactly how and when demand will increase for mid- to lower-market wines remains to be seen, especially since those wines can never compete on price with inexpensive Bordeaux, thanks to radical differences in the cost structures and acreage in Burgundy.

"The lower end of the market is not for us here in Burgundy," said Pierre-Henry Gagey, Co-President of the BIVB, at the auction press conference through an interpreter. "It is impossible to copy Bordeaux given the structure, plots, and cost of production of Pinot Noir. We cannot produce high volumes like they can. Yields need to be limited and monitored. We don't want to go on the market of the low-end range. Bordeaux decided to go to China with huge volumes and low prices. For now, our AOCs need to be valued based on quality and genuine character of terroir, and as a result they cannot be wines that sell at three Euros."

Everything that Gagey said seems quite true, which will mean, in both the short and the medium term, that in China Burgundy will likely appeal to mostly the rapidly expanding upper-middle class as well as the nouveau riche who can afford what will likely be prices far too high for mainstream wine consumers in China.

At the press conference someone asked a very pertinent question related to this last point, namely whether we should expect to see price speculation for Burgundy in the Chinese market as a result.

"Collectively, we cannot take any specific action, but as Burgundians we have close relationships with our customers", said Gagey. "We are more in contact with them than other wine regions. While we will not be able to prevent some of our American stock from going to China as demand increases, our relationships should be able to prevent extreme speculation."

To expect relationships with buyers and distributors to hold off the kind of rampant price inflation that we are currently seeing in Bordeaux First Growths seems naive if not absurd. Should the hundreds of thousands of Chinese millionaires being minted every year take a liking to Richebourg, nothing will stop the prices for top tier Burgundy from going through the roof. And given that the best Burgundies are already out of the reach of most American wine lovers, such demand will rob many of the opportunity to ever experience them.

But as theoretically unfortunate as such a situation may be, that's the way markets work, and one can hardly fault the Burgundians for looking eastward to make sure they maintain their livelihoods. The BIVB has pledged to spend 400,000 Euros a year for the next three years on opening and educating the Asian market for Burgundy, an effort which will no doubt bear great fruit.

Photo courtesy of VinoFamily.

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