Another article - Diageo abandoning Bordeaux

[Rick]

http://www.napavalleyregister.com/artic ... 209937.txt

[JonB]

Rick - I think this is old news from early summer, and as I could recollect it was not a permanent decision, but a decision to get rid of inventory and not purchase futures of '08s (after buying a lot of '06s and '07s, and not being able to sell them profitably). They supposedly sold many '06s to NY state retailers (example, look at Pop's site www.popswine.com to see how much '06 1st Growths were marked down...originally $600+ en primeur, sold or selling for a little more than $300).

[DavidG]

I'm a little surprised to see this written up as breaking news. There's been a fair amount of angst about access to Bordeaux in the US in future years with Diageo out of the mix, but as Jon notes, if demand is there and prices are right, it would make sense for them to jump back in. Otherwise, I guess we'll all be getting it grey market through PC and waiting 5 years for delivery...

Jon, itounds like this decision has already hit home with the price cutting on '06s. I'm still waiting for the first growths to dip below $200 before I get out my wallet. If it doesn't happen, I can live with that.

[Tom In DC]

Diageo has been and continues dumping all of their stock, so price cutting is occurring as we type.

I'm more worried that the price folks in the US are willing to pay is being reset, in which case we'll see NOTHING from future vintages...

[DavidG]

That might happen, Tom, but I think it would self-correct within a couple of years as supply decreases and demand increases. For those willing to pay the going price overseas, there is still the grey market.

[JonB]

Per a WS blog by Mr. Suckling, he says Chateau and Estates was selling futures to merchants without obligation. So Diageo (C&S) would buy futures, then sell to merchants with no cash payment, no interest charges, free to cancel the order. So merchants would buy the futures just for cash flow.....cash from consumers free to play with for up to 2 years ((or longer for PC!)).

He makes the point that no other distributor does this; perhaps large market retailers will have the depth to be able to finance their own futures purchases, but perhap small market retailers don't have the depth or finances to support this financing.

I assume Sir James has some facts wrong or missing, as this doesn't make any business sense.....maybe that's why Diageo is getting out of the business, but you think they'd try modifying their business model first? Did a)C&S have such a poor business model it had to liquidate? or perhaps b) producers, by raising prices beyond what consumers are willing to pay, compromise their supply network?

[DavidG]

Maybe that model worked for them so long as prices kept going up and everyone kept spending like drunken sailors and buying like every vintage of the century was going to be the last. Not so much when the economy crashed and people stopped buying.