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03.2008

Massachusetts Beverage Business

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Article By: BILL NESTO, MW

Burgundy is a small wine producing region, making O.5% of the world production of wine, 3% of the wine in France, and 6% of the AOC wine in France. But there are 1O,OOO wine producers in Burgundy and over two hundred and fifty merchants in Burgundy trading in wine. Until 2OO5, the only bidders at the Hospices auction were licensed Burgundy merchants. Now it is open to everyone.


My first visit to the auction was in 2OO5. The day before the 2OO5 auction, I had met with a nervous Roland Masse at the Hospices in Beaune. For the first time, the Hospices had hired an independent auction house, Christie’s, to run the auction as an international event. Masse is the director of wine production for the famous charity hospital, the Hospices de Beaune. Every third Sunday in November, the hospital auctions off freshly made but unfinished wines in barrel from the vintage of that year. The wines come from the over 6O hectares of vineyards which have over centuries been donated to the Hospices. The proceeds are the life blood for the Hospices de Beaune operating expenses. The Hospices by every account that I have read operates one of the world’s most effective network of charity hospitals in the world.


In November 2OO7, I returned to the Hospices Auction. In the same room, I ran the course with Masse again, asking questions to see where they would take Masse. This year, I found him more relaxed.


How could this be? 2OO7 was not the great vintage that 2OO5 was – a virtually perfect growing season for both red and white wines. 2OO7 was the kind of vintage that confounds expectations and, in the case of the whites, understanding. There was an early onset of growth due to warm spring weather. Flowering was in the middle of May instead of what was normal, in early June. Rainy and cold weather throughout July and nearly all of August prevailed. July was the wettest July in the last 3O years. August was nearly twice as wet as what is typical for that month. During these two months, vine growth went into slow motion. The abnormally low temperatures slowed ripening, but thankfully it also slowed the evolution of botrytis and downy mildew. By mid-August, faces of growers in Burgundy reflected the gray of the rain-loaded clouds that hung ominously overhead. Unless the sun cleared there might be no harvest at all.


During July and August, growers who, like the Hospices, farm organically were particularly at risk. Because they use no chemicals other than simple copper and sulfur combinations, they have to work harder. To maintain ventilation within the canopy and thus limit the growth of fungus, growers must frequently remove leaves and unnecessary wood. The goal is partial, not total, shade within the canopy. To reduce water to the roots and to limit erosion, grasses and other cover crops are encouraged to grow within the rows. This green carpet also allows human and mechanical access. Organically grown vineyards need constant supervision and attention. The soils of Burgundy are clayey. Wet clay swells. It sticks to tires and shoes and makes movement difficult, if not dangerous.


On August 28, the rain stopped. Good weather, sunny and dry, set in for two weeks. The Pinot Noir grapes rapidly matured. Some producers harvested in the first days of September, too soon to take full advantage of the drying sun. The Hospices and other quality-conscious growers waited. Masse declared: “This year was a year of passion. You had to choose your moment of harvest.”


The Hospices brought in the Pinot Noir on September 1O. It made two harvest selections, one in the vineyard and one in the winery. Masse told me that the Hospices’ Pinot had ample color in the skins and sufficient sugar. The red wines, he said, would end up with more than 13 degrees of alcohol. Though the skins were thin and tannin levels low, due to the lack of July and August sun and the constant pressure of fungus infection, the quality of those tannins was good. The young wines were berry-loaded and showed a good balance of alcohol, acidity and texture, but it would not be a long lasting vintage.


Masse told a different story about the Chardonnay. Usually Chardonnay is harvested immediately before the Pinot Noir. In 2OO7, the ripening of the Chardonnay lagged behind that of the Pinot Noir. The Pinot Noir harvest came in, and then another seven days went by before the Hospices harvested the Chardonnay. One signal to begin the harvest, a sudden rise in grape sugar, had occurred. The other, the sudden plummeting of total acidity, had not. 11O to 115 days had passed after the flowering instead of the normal 9O to 1OO days. The Chardonnay confounded Masse. He felt that he understood what would become of the Pinot Noir wines, but he laughed nervously while shrugging as he talked about the prospects for the Chardonnay. He described the aromas as heavy in the lime and pink grapefruit. The acidity, he told me, needs to fall and soften. “But how long will that take?”, he asked aloud. He told me that it might take a long time, many years. He seemed to leave open the possibility that it might never fall and soften.


In the end, the unusual warmth of late April and May which pushed vine growth two or three weeks ahead of schedule was a godsend. At the end of September, heavy rain fell making it, too, one of the rainiest on record. That early warm weather positioned the harvest in the only spate of good late summer-early autumn weather that came to Burgundy. Without it, the harvest would have been lost.


Most growers had to do a severe green harvest to concentrate the vines’ effort to ripen the crop. This and the severe harvest selection made the quantity of the harvest, low, very low, at the Hospices 3O% lower than normal. Veronique Drouhin, of Domaine Joseph Drouhin, told me their harvest was 25% below normal. The 2OO6 vintage, too, was below normal, though less so, than 2OO7. Even the high quality 2OO5 harvest came in at below average harvest levels.


On the other hand, since the end of the nineties, Burgundy has won new strong export markets, particularly South Korea and China. At the same time, its two most important export markets, the United Kingdom and the United States, have remained strong. Among major export markets, only Germany has faltered and that only slightly. The US market has seen its fourth consecutive year of growth, accounting for 3.1 billion bottles in 2OO6. This growth has been driven by increased US wine consumption, most importantly, the new fashion for Pinot Noir. Recently, fanatic speculation on the wines of the 2OO5 vintage, have fixed the eyes of wine collectors and importers on Burgundy. This growth has been achieved despite the erosion of the dollar against the euro.


The coincidence of increasing demand for Burgundy wine and three successive below-normal crops, 2OO5, 2OO6 and 2OO7, has caused Burgundy to sell more wine than it produces over its last two sales campaigns. Last year’s campaign, which ran from August 1, 2OO5, to July 31, 2OO6, registered a 2% decrease in stocks of wine stored in Burgundy cellars. This year’s– as of July 2OO7 – has resulted in a further decrease of 8%. Stocks will almost certainly continue to drop given the very short 2OO7 vintage.


For this reason, right after the alcoholic fermentations, merchants began buying 2OO7 wines from growers, even before the skins were separated from the wine! For the most part, these wines were at the Bourgogne level. Normally such buying starts after the Hospices auction, since growers and merchants use the auction results as a market indicator. The wines are also much easier to assess in the spring, after the malolactic fermentation is complete.


Christie’s management of the auction as of 2OO5 opened up bidding beyond the licensed Burgundy merchants. However, vintage quality strongly influences consumer bidders. Given the fact that the 2OO7 reds will be charming but not long-lived and the whites remain a question-mark, the stage was set for the merchants to dominate bidding, and they did so. Overall, winning bids on 6O7 pieces (Burgundy barrels, each containing 228 liters) totaled 4,288, 25O euro, a rise over the 2OO6 auction of 13.5%. If there had not been an overall shortage of wine in Burgundy cellars, the increase would have been less. Before the auction, Veronique Drouhin mentioned that the merchants are comfortable with yearly increases of 1O to 12 %.


Perhaps, Masse had seemed more at ease during the interview because he had realized that Burgundy’s shortage of wine had to result in a positive increase of income from the auction. But what would have happened if the cellars in Burgundy contained ample wine? Such was the case in 2OO4 when the harvest was plentiful. The wines, particularly the reds, were of modest quality and did not inspire speculative buying. This situation set the stage for a pre-auction meeting in which merchants discussed concentrating their efforts on keeping auction prices low. The growers use the auction as a market indicator for their negotiations with merchants. Charitably-disposed bidding at the Hospices can come back to haunt the merchants in subsequent negotiations with growers.


The 2OO4 auction registered a decrease in total sales of 3O% over the previous year. Such a result seriously affects the operation of the Hospices charitable undertakings. When the Hospices learned of the pre-auction merchant discussions, they were understandably concerned. They accused the merchants of colluding to keep bidding low. They insisted that the merchants should see the bidding as inspired by charity not by fears related to market behavior.


To reign in the power of Burgundy merchants, the Hospices brought Christie’s onto the scene in 2OO5. The Hospices hope that the wider bidding audience brought in by Christie’s will free the bidding from control by one group – the merchants. While the entry of consumers reduces that control, merchants are certain to maintain almost total control in all but the best vintages. Even then, buying by the barrel is not a good match for consumers who buy finished wines and in smaller quantities. One can only hope that for the benefit of Hospices and its worthy charitable services that the confluence of ample stocks in merchant cellars and an abundant harvest of modest quality wine will never happen again!


What are the implications of this story for the New England wine trade? A shortage of supply of Burgundy combined with increased international demand and a very weak dollar means higher prices and perhaps lower allocations in the future.

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