I wonder if over time we will see most of the Grand Cru vineyards sold or leased to the producers who achieve the highest prices for their wines. You can buy a Chambertin, for example, on release for $150, or one for $1,000. I realize the price that the domaine achieves is far less than what the market sets as the value, but, I still wonder why we dont see more of this purely from an economical point rather than a practical point. Id have to believe that a piece of Bonnes Mares is more “valuable” to a Roumier than a Drouhin-Laroze. Or, is rarity the main driver of the market price? Curious as to what you guys think.
In a perfectly profit driven world, this would make sense. (Just look at Napa these days). However this would be antithetical to everything that Burgundy currently represents. The whole point of Burgundy is small producers with varying approaches to similiar plots with varying results. Of course there are small climats within many vineyards and these, along with vine age, clonal type, etc make for the facinating variants that many of us love about Burgundy. You could argue that blending several plots together over a vineyard might make a “better” wine (whatever that is). But that completely misses the point. I can go lots of places in the world like Penfolds that blend wines to give a consistent product. There is no guarantee that if Roumier owned all of Bonne Mares that it would all taste like a “Roumier” Bonne Mares. Then again it would not be nearly as rare, and probably command a somewhat lower price. If diamonds were as common as pebbles were would not pay a lot for them…
I wonder what is of more importance to a winery when it comes to owning a piece of a legendary vineyard: A) being seen as a more respectable operation due producing a Grand Cru or B) whatever profit might come from those few hundred/thousand bottles it gives. Obviously I am not talking about the star domaines of the region.
Three additional points:
- if you buy a plot of land and want to lease to a top producer to get a better return, they may ask more (as in a bigger share of the grapes) - so this nets out the return;
- a grand cru often has a reputational effect, as pointed out by Ilkka;
- there is a big difference in vine material between vineyard: asaik it can take up to 20 years to improve a vineyard especially if you need to rip up the vines (bad clones).
This is what the Coase theorem would suggest. The fact that it hasn’t happened yet indicates that something has made the transaction costs very high.
If producers sold onto the secondary market sure.
They don’t so the IRR is different.
You can’t leave cultural factors out of the equation. In many cases, plots have been in families for generations or centuries. They don’t look at the vines and think about returns on capital. Thank goodness.
Offer enough money, and they will. Or their kids will.
That’s the story for public consumption, along with the horses and overalls, but those lovely families often amount to dozens upon dozens of absentee shareholders and one can find many accounts of such folks being extremely focused on getting their due share of the return on capital.
To be sure. And lots of vineyard owners DO sell land. (Think of the Currado family selling Vietti in Barolo for an enormous sum.) But the original question was why grand cru plots haven’t all ended up in the hands of the producers whose wines command the best prices. In America, that might happen. But it’s more complicated in the Old World.
Roumier just got more terres blanches in Bonnes Mares… will change the wine…probably not the price…
As I understand it, vineyard leases in Burgundy are not market-based. The French government sets limits on lease payments, with the idea originally being to rein in rapacious landowners and keep farmers on the land. In Burgundy, the maximum vineyard lease is 4 barrels of wine per hectare per year, or its equivalent in cash. There are rare occasions, so I’m told, when a review panel will permit 5 barrels per hectare, but that’s very rare. And as far as cash per barrel valuation goes, that is not market-based either. There is a panel of insiders – owners. farmers. negociants, government officials – who decide the cash barrel equivalent each year for each appellation. For example, the cash lease payment (fermage) on Bonnes Mares in 2017 was 20,852 euros/barrel, or 69.50/bottle. Doesn’t matter if the owner leases to Roumier or to Joe Schmoe (or Jacques Schmaques) unheard-of, that’s how much he’ll be paid in vineyard rent. So there is no financial incentive for owners to rent to one domaine above another.
Indeed, and the government has a right of first refusal in case of sale of certain plots as well.
Great post,
That’s something i didnt know
So, does the government own any 1er cru vineyards?
I think there is something missing in all these posts. Many or most of the great producers listed above are small producers. Many small producers do not want to get larger because they believe that they have the size of an estate that they can handle. To expand, to them, risks losing control and losing the ability the make the wines as great as they currently make the wines. So, they do not look to expand. When wineries come for sale, it typically is not Roumier or Bachelet or Mugneret-Gibourg or someone like that who buys them. More often than not, it is the large companies - like Boisset buying Gambal.
Also, the small estates typically do not get the premium prices for their wines that we see at retail in the US. I know people that have allocations at a couple of high-end wineries and the prices they pay for the wines are a fraction of the US retail prices. So, there really is no arbitrage to be had.
You guys are thinking like American corporations, not like artisanal Burgundian farmers.
Very interesting. Does this effect what happens when owners agree on a metayage arrangement? Or can they sell grapes or juice to Roumier et al at far higher prices than the $69.50 per bottle you mentioned.
I remember a French friend explaining to me that the role of government was to make free enterprise difficult with regulations and red tape. Any red blooded Frenchman equally had an obligation to find ways of getting around said regulations and red tape.
Fermage (tenant farming) and metayage (share-cropping) both have government-imposed limits. Metayage rents runs anywhere from one-quarter to one-half of the harvest, and I suppose in theory the owner could sell on his part to a negociant, although the price is limited by Burgundy’s internal market, which sets the price for grapes/finished wine in each appellation in a given year. The French government limits the room to manoeuvre around that price to about 5% on each side, from what I’ve learned. They couldn’t allow true competition!