Accounting for Alcohol – part 12 “The Bordeaux classified growth system: a strong legacy”

This is a brief summary of chapter 12 in our book, written by Stéphane Ouvrard, Hervé Remaud and Ian Taplin. The chapter describes the so-called Bordeaux Place, the organizing principle by which much fine wine from the region is sold. It is a marketplace with key actors (winery owners, brokers, négociants [merchants] and the officials within the city) interacting both contractually and on trust.

The authors note some form of organisation of the Bordeaux wine trade since the 1400s. The year 1745 saw the first classification of Bordeaux wine, which reflected quality and price. In 1855,  the Paris Exhibition (promoting French products) first awarded medals to Bordeaux wine. This classification system has only changed twice since 1855. Today, the Bordeaux Place utilises the en primeur system. This is a futures system whereby customers (wine merchants of Bordeaux, distributors, final buyers) buy (and pay for) wine today, to be delivered about 18 months later. Deciding on the price from the producers perspective is, of course, a difficult one.  The price has to cover the cost of producing, but for a substantial number of estates, marketing plays a more critical role in price setting than accounting. Wine producers can get help from brokers, obtaining indications about the price the market is willing to pay. But this is partial and somewhat biased, as merchants and the market prefer cheaper prices. In essence, wine producers base their decision on six main aspects (Remaud et al., 2015): vintage quality; how prices of similar quality wine have evolved over time; the level of stock on the market); the global economy at large, including interest rates, stock exchange prices and confidence in the economy; the status of the brand; and the extent to which an estate has been able to build a brand and not just a (high-quality) wine. This sounds like a great task for management accountants!