Thursday, 19 October 2017

Bordeaux 2017: The rich and the poor.

How much does it cost to produce a bottle of Bordeaux wine?
To oak or not to oak? The decision could double the production costs.
Alex Hall at Vineyard Intelligence wrote this interesting article, explaining that the costs for producing a Bordeaux AOC wine is approximately €2.88. It is important to remember that over 55% of the 700 million bottles produced per year in Bordeaux are Bordeaux AOC or Bordeaux Superieur. (figures from 2010).
However for the top Cru Classe estates in the Medoc, Pomerol, Graves and Saint Emilion the production costs will be slightly more than €2.88. If new oak barrels are used for ageing the wine there is an immediate extra €3 per bottle. There may be additional capital expenditure such as an optical sorting machine. These amazing innovative machines can cost approximately €150,000 for a Bucher Vaslin or X-Tri machine. But these machines reduce the labour costs of sorting grapes, as 6 or 8 people were previously employed over two or three weeks. The current minimum agricultural wage in France is €9.76 per hour. So the cost for employing 8 people over three weeks would be approximately €10,000. The optical sorting machines also process the grapes extremely quickly and precisely.
Of course there is capital expenditure required in any winery, such as replacing fermentation tanks and up grading pumps and cooling equipment. But these costs can be off set over a large wine estate that might be producing over 500,000 bottles per year.
And finally the cost of the bottle (most top Chateaux use a heavier or engraved bottle) as well as the cork (a longer cork is best), and the label.
Some Chateaux are now investing in ambassadors and marketing people in order to support their brand, but the main sales are still controlled by the wine merchants (negociants) in Bordeaux. So there are minimal costs for sales and distribution.
So the approximate cost for producing a bottle of top quality wine in Bordeaux:
€2.88 basic cost (based on volumes above)
€3.00 if using new oak barrels
€2.00 for extra winery costs
€1.00 for extra marketing
Total= €8.88

Of course these figures can vary tremendously depending on the scale of the estate. As an example Chateau Clinet in Pomerol produces +-48,000 bottles per year, whilst Chateau Lascombes in Margaux produces well over 500,000 bottles per year. So the relative costs may be much lower for a larger estate. But if these wines are sold over €50 per bottle (the wholesale/trade price), then there is a decent margin involved, and sufficient financial cover to see the estate through some difficult years.

How much did it cost to produce each bottle of these exquisite wines?
In Bordeaux we now have Chateaux owned by Chanel, Louis Vuitton, Prada and Gucci. Some of the humble farmers have produced wines that have become luxury goods and marketed accordingly as re reassuringly expensive ultimate symbols of excellence. But for the majority of Bordeaux who are fighting for survival at the lower end, it is becoming quite tight. Especially with a difficult climatic year such as 2017, when the spring frosts have devastated many vineyards. We are looking at volumes 30-40% lower than average for the current harvest. If we have two or three bad or difficult years, there will be plenty more 'A Vendre' signs outside Chateaux. But most people seem to buy wine estates with their hearts and dreams rather than their heads.
If you are producing Bordeaux AOC wine at €2.88 and you are struggling to survive with minimal margins and slow sales, then you are hit by a drop in production, it will hurt. This is 55% of Bordeaux production.
The irony of 2017 is that most of the top estates on better terroir have not been effected by the frosts, whilst the majority of other estates on the lower vineyard area in Saint Emilion, parts of the Entre Deux Mer in Moulis and Listrac and in the wider Graves area have been hit hardest. This is the volume of Bordeaux production.

It is cheaper to produce dry white wine or rose wine in Bordeaux and the ROI is quicker.

It is more expensive and more risky to produce sweet wines in Bordeaux.
Sauternes sweet wines should be more expensive than the red wines.

1 comment:

Damien said...

Interesting comments but i'm afraid it only just approaches the differences in production costs as it is a lot more complex than this.
The yields is maybe what impacts the most. The cost of production is usually measured by hectare, but the cost of production per bottle is then divided by the quantity produced in that bloc of vine. GCC is usually between 30 to 40 Hl/Hectare while generic Bordeaux are More around 50 to 60. And of course, the cost of production per hectare is usually higher in GCC.
Indeed, the work in the vines also differs a lot: usually a lot less mechanisation in GCC which means slower work and higher numbers of salaries.
Another huge expense is the maintenance of GCC which are usually bigger than bordeaux generic: gardens, old stones, roof surface, woods, forests... All this has to be included in the cost of production. One year of maintenance in a well looked after GCC exceed the million euros.
And I'm not event talking about the visits, tasting, sample bottles, sponsors, charity, leading in research...