Wine Investment in South Africa - Cape Wine Academy

meet future market demand. The 1855 classification meant that each château had a
geographic limitation and production was thus finite so creating scarcity and fuelling
demand. Châteaux en primeur sales might be successful provided;
*The château was one of some fifty or so that could stimulate market interest and sell largely
on reputation.
*The wine at barrel tasting had to suggest sufficient quality and inherent promise to satisfy
future customers.
* Brokers and négociants had to predict potential profit based on the Château’s release
price.
*There had to be potential customers willing to pay.
There has been little change to the en primeur system for more than 150 years. It still
requires going through a retailer / wholesaler who goes through an agent / négociant ( often
the same ) who buys from a courtier / broker, to purchase wines on release.
The en primeur system has worked so well for some châteaux that today most wait for the
judgement of the market, in particular notable critics, before setting their release price –
often basing that price not on costs but on quality appraisals and an estimate of what the
market can withstand ( Losh, 2007 ). Further, many châteaux release in a series of
tranches, or batches, designed to fuel demand and consequently increase prices each time.
Those who hesitate to pay what might appear to be an expensive release price find more
times than not that the second or third ‘tranche’ will make the first release a bargain. For
example, the 2000 Château Latour was €175 (R1,750) a bottle on release, €273 (R2,730) on
second tranche one year later and €455 (R4,550) on its third tranche; an increase of nearly
150%. Even buying at third tranche looks appealing now, as recently ( March 2011 ) Latour
2000 sold at Sotheby’s London auction for more than £1,000 (R11,000) a bottle. A
successful vintage – and en primeur campaign - such as 2005, can increase demand for
earlier vintages, such as 2000, whose prices may look more reasonable in comparison.
The income of a winery such as Château Latour from its Grand Vin and its second wine, Les
Forts de Latour, with an average annual production of 18,000 cases of the Grand Vin and
11,000 cases of Les Forts and at release prices of €5,400 (R54,000) and €1,068 (R10,680)
respectively in 2009, before costs, was around €108,978,000 or R1,198,758,000. Actual
income was probably higher than this, because this assumes all wine was sold on release,
whereas much of the stock was held back for second and third tranches, where the price
had risen to well over €7,800 (R78,000) for the Grand Vin. Attempts by South African
wineries to establish an en primeur system is discussed in Chapter 8.
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