Recently we were interviewed by AWS based in Hangzhou, China. Lou Chao and his team came to Bordeaux to interview leaders in the Bordeaux vineyard transaction space and those who have had extensive experience in selling Bordeaux vineyards to Chinese investors over the past 12 years.
AWS were interested to understand the state of the vineyard market, some of the opportunities for vineyards for sale in Bordeaux and our opinions regarding the Chinese experience with their vineyard acquisitions over the past decade or so.
As it relates to Bordeaux vineyard transactions, one of the most common questions we are still asked relates to the Chinese and their relationship with the vineyards of Bordeaux. Last autumn Alexandre Rajbhandari and Evelyn Yu came to Bordeaux to interview us and then wrote extensively on the subject of the Chinese acquisitions of Bordeaux vineyards for Bloomberg in an article named “The end of the Great Chinese love affair with French Vineyards.”
Our team at Vineyards-Bordeaux were in the heart of the action during the 8 year buying spree that started in 2010. At that time, the Bordeaux wine industry was in transition then, on the back of the 2008 economic crisis (in the West) the vineyards of Bordeaux gave birth to two outstanding vintages – 2009 and 2010. The release of the 2009 vintage came in the spring of 2010 and with the press that it attracted, to those in the East, it seemed that it was an opportunity too good to miss. It all kicked off in 2011 with the purchase of Chateau Viaud by the state run agricultural conglomerate COFCO group in the Lalande de Pomerol; thereafter another 170 or so Bordeaux vineyard estates were sold to Chinese buyers (just over 2% of the total Bordeaux vineyard inventory). It is worth repeating the quote that Evelyn Yu published in her Bloomberg article: “There was excess money looking for a place outside China to invest; it was a perfect storm —a perfect mix of positives there blending with the negatives here,” said Michael Baynes, co-founder of Vineyards-Bordeaux. “Chinese investors said to themselves: this is the price of an apartment in Shanghai, and I get all of this enormous land and a beautiful castle, what can go wrong?”
I remember being at dinner with the Chairman of a giant publicly listed Chinese company and asking him about his motivations to look at Bordeaux vineyards for sale. I will never forget his answer as he proceeded to tell me that his research department believed that over the next 10 years, the Chinese middle class would grow by 300 million people (more or less the entire population of the US). I then asked what his definition of “middle class” was and he replied that it was someone that would regularly purchase a bottle of wine for €50 Euros. And therein lies the financial logic that many rational businessmen and women used as they looked at buying a Bordeaux vineyard and producing wine for around €5 Euros per bottle. But not all buyers followed this line of thinking, there was speculation and hasty decisions were made without professional advice or experienced transaction guidance.
There were some notable headline failures such as the Kweichow Moutai Co purchase of Chateau Loudenne. The Bloomberg article covers some of the story but from our perspective, the failures were predictable and came down to two quite simple misunderstandings: 1) Vineyards should not be purchased like real estate and 2) don’t underestimate the importance of having a handful of good local advisors – especially in such a tiny market such as Bordeaux (only around 30 vineyard transactions a year).
A vineyard buyer does not need to be Chinese to fall into this trap, but arguably the Chinese investors were more susceptible due to the cultural gulf that sits between Europe (the West) and China. Li Lijuan (Lily) from the Vineyards-Bordeaux team was an essential cultural bridge and I suspect as our Chinese clients look back they see how invaluable she was to them and the purchases they subsequently made.
Some Chinese investors also chose not to have a professional broker transaction manager which has led to some sad stories, law suits and significant financial losses. Vineyards-Bordeaux was recently at a chateau that in its prime was a stunning vineyard domain, but today it is over grown, with unfinished construction projects, mounting debts leading to stock seizures and falling into a serious state of disrepair.
So is it a pause or an end of an era? It is true that we are seeing more Chinese sellers today than we are seeing buyers. And there are some more failures to come as once again the Bordeaux wine market suffers following the pandemic, Brexit and the Trump tax of recent years. Our opinion at Vineyards-Bordeaux is that it is a pause – not the end of the relationship with Bordeaux and her vineyards. We saw some great successes notably the sale of Chateau Birot to New Century Hotel group.
We had a close collaborative relationship throughout the acquisition; they did not look at their Bordeaux chateau acquisition as real estate, they understood early on that it was a business and should be purchased like any business with M&A disciplines and due diligence. They put their trust in Vineyards-Bordeaux and gathered excellent advisors around them to ensure that they were able to make well informed decisions about a subject that was not their core business. Today they have a strong vertically integrated business where they are able to control the supply chain from their vineyards in Bordeaux through to the tables in their 160 or so luxury hotels.
What does the future hold? Our prediction is that China will become much the same as other nations around the world that have fallen in love with wine, Bordeaux and her vineyards. There will be serious enthusiasts and investors with clear business plans that will continue to purchase Bordeaux vineyards. It is unlikely that we will see the kind of speculation and stampede buying again from China but to overlook the most populous country in the world and the second biggest economy would underestimate the scale of the Chinese market and its potential.
Written by Michael Baynes