Price cutting required to clear French vintage

“Pile it high, sell it cheap” was the maxim on which Sir Jack Cohen built Tesco, and it has served supermarketeers well over the subsequent decades, with heavily discounted alcohol used as a prime weapon in the battle for custom. On the other hand, producers are much more wary about deep price cuts.

 

First, because they mean margins are pared: second, because it is devilishly difficult to restore prices to an optimum level once the public (and the all-powerful retailers) become accustomed to the discounted lines.  

 

That said, there are times when price cutting is the only way to shift stock and clear the way for a new vintage, and that is what is happening in France at the moment. The state agricultural statistics office, FranceAgiMer, has published data showing that value of wine exports fell by 29% in the first three months of this year compared with the same period in 2008. At the same time the trend for the French themselves to drink less wine has accelerated with consumption of 43 litres per head in 2008 compared with 47 in 2007 and more than double that level 50 years ago. As a consequence, producers are necessarily cutting their prices to shift stocks and create cash flow.

At the same time, FranceAgriMer, says it has identified that world consumers are trading down. This is based on the evidence that although the value of wine exports fell by almost third in the first three months of this year, volumes were only 15% down. Indeed, this trend has also been felt by spirits producers, especially in the important American market. 

The difference between wines and spirits, however, is that spirits producers can modify production as dictated by the market (or mature stocks for longer to produce extra aged and eventually more profitable styles); vignerons cannot do the same. They have to make room for the next vintage. 

Of course, en primeur prices are partly a factor of the availability of previous vintages and their quality; hence the heavy “discounts” for Bordeaux’s mediocre 2008s. At the more humble end of the quality scale, however, ex-cellars pricing is crucial. For instance, Australian producers have still to fully recover their margins (and reputation) following the price war triggered earlier this decade by Southcorp when it was faced by a grape glut.

When salesmen talk of targets they often forget one word – profit. Without everyone making a return, the market is enfeebled. 

 

Finance on Friday, 29.05.09