Question

1) How does the Bordeaux wine distribution system work? Who benefits and how?

2) How is price set? Trace the process from the sale of the first tranche to the sale of a bottle in a wine store for $1,200. Why is the process so complicated?

Answer 1

1) Like almost all other representatives of the Bordeaux community, Chateau Margaux has concentrated its attention on producing excellent wines, not on selling and exporting them. As a consequence the 400 merchants called the en primeur group established an intricate structure. Such merchants sample the wines early and make views of the world's major buyers that will affect purchasing decisions.The wine, particularly the first growths, may be sold in barrels and any surplus should be packaged for sale and distribution. Pricing may differ significantly from year to year, depending on the preference and appraisal of the foreign exchange and journalism conducted each year.

1. Provided specific distribution at a fixed price for chosen merchants.
2. Offered at higher calculated demand.
3. Had the consumer been perceived as open, it would be given.

This system supports the wine makers as it helps them to concentrate on their main industry of producing excellent wines while helping them to sell, retail, and deliver the wine to the merchants. Everyone gains and generates a benefit in this deal, since they know the interest everyone side brings to the table for the other group.

2) The product is not a set sum but on the costs underlying it. Pricing is more like an art than a process as the basic costs of operating the vineyard do not measure and produce it.The price cycle starts when the merchants or dealers have an early sample of the wine and continue to express their view with the major buyers from across the world who approach them in expectation of the latest barrels that will be available.This expectation tends to create demand that gets much stronger as the merchants control the business and sell the wine broadly in limited quantities, growing the premium in a cumulative impact on prices. They start making several offerings to assess pricing and demand.Selected merchants are given the first tranche at a fixed price and the response to this tranche lets them gage and change the higher demand for the next or second tranche. A third tranche be sold if the demand continues to show concern.Different levels, like the vineyards and retailers, lead to premium pricing, but the true basis for premium pricing is supply and demand control, strengthened by generating competition at the first degustation to gage-tranche's performance and change the price accordingly.