The top 10 things often underestimated by Bordeaux Winery Investors

The top 10 things often underestimated by Bordeaux Winery Investors

Over many years working with hundreds of investors seeking to purchase a Bordeaux winery we have come to see that there are a handful of topics that are often underestimated by those seeking to buy in the region covered by AOP Bordeaux.

1. The Power of brand

Ever since Josiah Wedgewood gave (for free) his fine China ceramics to members of the British aristocracy the power of brand creation has been evident if not essential to capitalist markets. In the Bordeaux region over the past 20 years we have seen a significant shift away from famous chateaux names and towards brands – sometimes brands that don’t even mention the word “Chateau.” Probably the best example in Bordeaux is “Le Dome,” the 100 point scoring wine from Chateau Teyssier in Saint Emilion. This shift was largely due to two influences: 1) competing with the new world wines that almost exclusively used brand names only – think “Opus One” and 2) Robert Parker, who was largely responsible for creating a Bordeaux meritocracy in wine – even if it was he who decided those with merit. Today therefore the wine world lives by new rules: the product must of course be good but to sell it, there must be a strong brand that the journalists consistently underwrite with praise.

2. Influence you have over your own local market

Unless you come from Bordeaux itself, the chances are you will have a strong network in the industry or geographical location that you come from. Investors often underestimate this fact and tend to be quite un-strategic in their marketing business plan. It is worth considering a focused marketing strategy on a targeted group in a relatively small geographic area. This might be a city or if the country is relatively small (e.g Denmark) then it can be the whole country. To illustrate this point with a rather blunt image; it is probably better to spend 1 million Euros in one or two locations than 1 million Euros in a million locations. Make a major impact in one place and once you have conquered it and if you have the interest to do so, move on to another market.

3. Thinking that you don’t like the current owners wine style

A very common misunderstanding is that if you don’t like the wine at a given Bordeaux winery then it is not the winery for you. Wine is a man-made product and while there is no doubt a relationship with the land and the climate, there are many influences in the wine making process that can significantly alter the style, literally, one vintage to the next. Perhaps an easy way to illustrate this would be to find a Bordeaux wine that you really like and then give that to your wine maker as an example of the style to follow. In summary, if everything about the winery is perfect except the wine, this should not be an obstacle to proceed with an investment.

4. Believing that a winery purchase is similar to other real estate purchases

Buying a winery is nothing like buying other real estate assets. This has been such an issue for us at Vineyards-Bordeaux that we set up a distinct company to serve our vineyard clients and to handle vineyard transactions. Our other company, Maxwell-Baynes Real Estate deals with residential real estate sales and marketing. There is so much to say on this point that is covered in other articles in our Learn section of this website.

5. Underestimating the importance of buying stock with the purchase

A Bordeaux winery is a production facility with the added benefit of typically having a residence on site as well. For the overheads of the winery business to be met each month there is a choice to make. The staff, the offices, the marketing, the farming – all need to be paid for year in year out and if wine stock is not selling then the owner will have to underwrite the costs of operations directly. If stock is not purchased with the acquisition of the chateau and winery the winery business will have nothing from which to generate revenues. A Bordeaux winery is a revolving operation – this means that a harvest that was brought in two years ago may be coming out of the barrels and into bottles now. It is not unusual for a Bordeaux winery to have between 2 and 3 years worth of stock on site at the chateau. There will be the current vintage that has just been harvested, the vintage from last year that is in the vats or barrels and then a vintage in bottles ready to be sold. An investor that does not buy the stock may have to underwrite the business costs for 3 to 4 years before their first vintage produces revenues. Add to this, the practical complexity of moving wine juice that is in giant vats and unwieldy barrels. Furthermore, the former owner will have thousands of bottles of wine that they will need to dispose of into a market that you are seeking to make a good impression and built up your brand. The former owner’s motivations and pricing may be quite different than yours.

6. Underestimating the experience you can bring from your own industry work background

One of the things I appreciate so much about Bordeaux is that it is an extraverted community. It has welcomed internationals for so many hundreds of years that have given it a very outward looking perspective. The Bordelais have learned to their great profit that people from other parts of the world can bring fresh new ideas and test outdated practices.

On one hand there is great wisdom of course in not trying to reinvent the wheel if something works well already. Nevertheless, investors often underestimate the expertise they can bring from their background and business perspective. The key to leveraging this expertise is selecting the right vineyard manager who speaks the same language as you both metaphorically and in practice. We counsel our clients to be good students but also to challenge the way things are done to ensure that no stone is left unturned.

7. The welcome received in Bordeaux from the Bordelais

There is no question that Bordeaux is a quintessentially French city. However, as we have noted above it is extraverted in nature and very welcoming of those from abroad. To be taken seriously in the wine industry Bordeaux professionals will work with English speaking distributers, exporters and sales teams from around the world. Inevitably then, the “business language” of English is widely spoken and international cultures are generally well known. It is not unusual for example to meet a French vineyard owner that spent a season of their youth in Australia, New Zealand or the US.

Over the 10+ years I have lived and worked in the Bordeaux region I have never experienced anything but a warm welcome from the Bordelais, eager to help and enthusiastic to know about you and the background you bring to their part of the world. Finally, Bordeaux winery investors often worry a great deal about the need to speak French. While there is no doubt that it helps assimilate into a new culture and will provide a richer experience, it is far from essential.

8. The ease of finding excellent staff

The Bordeaux wine growing region spans about 110,000 hectares or over 270,000 acres. It has been a powerhouse in the wine world for hundreds of years and today its name is synonymous with the best in global wines. The result is that the ability to source high quality bi-lingual staff is surprisingly available as well as cost effective – Bordeaux has a “deep bench” when it comes to readily available expertise. Furthermore, there is a wide range of companies that provide services on a subcontracting basis for individual missions through the growing season. Pruning, fertilizing, spraying, harvesting, bottling can all be outsourced as can wine making, management and advice. So whether you wish to keep it all in house or outsource there are a wide range of ways to approach the question of staffing. There are two cautions: 1) it is important to carefully analyse the existing staff profile as it pertains to your specific business plan. There is a presumption in France that the new owner will take over the staff of the company at purchase. If you strongly resist this idea then it would be important to include in negotiations during the purchase process. Generally however, in 99% of cases it is not only wise but efficient to keep existing staff and reshape them to your winery operation strategy. 2) If you take on new staff (as opposed to subcontractors) it is very important that they are hired in the correct prescribed way under French law – to not do so can be expensive.

9. Septic tanks

In the ten plus years I have worked in France I am yet to sell an estate that has a conforming septic tank on site. This is largely due to the fact that the inspectors very rarely have access to all parts of the septic system which of course is underground. Their default therefore is to state that the septic system does not conform to current standards leaving buyers scratching their heads and asking questions or getting anxious that they are inheriting a problem. The key to solving this issue is two fold: 1) a septic tank is very low technology and prima facie testing the toilets and waste water will offer a basic level of confidence coupled with a frank discussion with the current owners. 2) careful reading of the mandatory inspection sewer report will reveal the reason for the inspector’s non-approval. Sometimes this will clear up the issue, however, it may also be sensible to include the question of waste water treatment in the broader vineyard due diligence inspection and ask them to include an opinion in their report.

10. The need to work with a transaction specialist

Slightly predictably we can’t help but point out that our role is often underestimated particularly if we are mistakenly looked at as real estate agents. However, I would add that this is always at the beginning of the purchase process and never at the end once an investor has been educated about all that is needed to understand and resolve to make a well-informed decision. As the owners of Maxwell-Baynes Real Estate and Vineyards-Bordeaux we are well placed to understand the difference between the two transaction processes; the former is about access to the market while the latter with vineyards is about both access to the market, but more importantly ensuring that the right steps are followed by the right professionals at the right time and then acted on correctly. It is much more like project management.

Furthermore, we get so integrated in the purchase and investigation process that inevitably we get involved in assisting with post purchase management and strategy. Whomever you elect to work with be sure that they are seasoned vineyard experts as opposed to real estate agents that trade a vineyard from time to time. Bordeaux vineyard transactions are so different from real estate transactions that we would consider the choice of the wrong transaction team one of the most significant risks an investor can take. Give Michael Baynes or Karin Maxwell a call today for a consultation or just to chat through your vineyard investment ideas or ambitions.