Venerable Burgundy auction gets a makeover

‘Irrelevant” was the word a high-ranking representative of a leading Burgundy negociant firm, who prefers to remain anonymous for fear of offending the tightly knit Burgundy wine community, used to describe the current Hospices de Beaune auction. That’s a startling assessment of what was – and probably still is – the world’s most important wine auction.

Dating to the mid-19th century and held annually on the third Sunday of November in Beaune, the center of the Burgundy wine trade, the Hospices de Beaune auction offers the latest vintage of wines made from grapes grown in vineyards donated to, and now owned by, the Hospices, two local hospitals. It’s the oldest wine auction and as recently as 30 years ago, it actually helped determine prices of the new vintage of Burgundy.

“It used to be a weather vane for prices,” according to Peter Holt, a longtime consultant to restaurants and former vice president for purchasing for California’s now closed Liquor Barn. Holt has followed the Burgundy market since the 1970s. Although inflated, since proceeds went to charity, the prices paid at the Hospices de Beaune auction reflected the perceived quality of the vintage and helped set the prices of other wines the negociants bought. “If prices at the Hospices went up by 25 percent, everyone’s prices rose similarly.”

Not any longer. During the last three decades the importance of the large negociants has waned as scores of small, quality-oriented growers have bottled and sold their wines themselves and even started small negociant businesses. Traditionally most of the transactions occurred between growers selling the wine to large negociants who then “finished,” bottled and sold it to the public, which made price setting difficult. And unlike Bordeaux, quantities of Burgundy are small, quality varies even from within the same grand cru vineyard and there is no en primeur system, all of which further complicates pricing. As a result, with more growers selling their wines directly, the overall Burgundy market has expanded. The system still isn’t nearly as structured as in Bordeaux, where merchants and influential buyers effectively set prices, but today the broader wine market – not the auction – sets the price.

Prestigious partnership

To enhance its role as a charity fundraiser, the Hospices de Beaune partnered with Christie’s, the London auction house, in 2005 to modernize this century-plus-old event. They reduced the size of each lot to a single barrel to make it easier for consumers to buy.

At last year’s auction Christie’s further encouraged consumers to bid by introducing online real-time bidding via computer. Christie’s expects more online bidders for this Sunday’s auction, despite the grim economy, since last year’s inaugural run went smoothly.

Previously, the public was largely unwelcome to bid. Large Burgundy houses, such as Louis Jadot, Louis Latour or Joseph Drouhin were given the right to bid. They would perform the elevage – “raising” the wine – completing the winemaking and offering it for sale under their names. An individual could bid only in conjunction with one of large houses. Although now open to the public, the auction still poses plenty of hurdles for the consumer. Off-site bidders have no opportunity to taste the wines before the auction, so are forced to bid solely on the reputation of the individual wine and the vintage. The winning bidder must arrange for and pay a negociant to finish aging wine in the barrel for them and deliver it, no easy feat given the complex regulations of each state. “Christie’s will be delighted to advise you if you are not already in contact with a local negociant,” according to the auction catalog.

‘Raising’ a barrel

But it might be difficult to persuade a negociant to “raise” a single barrel (finish the aging and bottle the wine) especially a wine they didn’t bid on themselves. After all, the negociant’s name still appears on the label along with the buyer. Louis-Fabrice Latour, head of Maison Louis Latour, was adamant – “Latour will never raise a barrel they didn’t bid on” – though he added he was speaking only for himself. Despite these potential pitfalls, the public logged on last year, according to Anthony Hanson, Master of Wine, the head of the Christie’s auction team, and the first winning online bid even met with applause in the room. The 2007 auction raised just under 4.3 million euros (approximately $6.3 million) by selling 607 barrels. Prices for red wines were higher by almost 40 percent (though lower by about 5 percent for white wines) compared with the previous year. The dramatic rise in prices for the reds from a year most consider inferior to the 2006s suggests that the public participation is driving up prices, much as speculation has driven prices of top Bordeaux.

Prices go up

Christie’s presence and the new format clearly puts upwards pressure on prices,” says Alex Gambal, an American-born negociant in Beaune who specializes in small lots of wine. Clive Coates, the writer and Burgundy authority, adds: “You can never make sense of the prices at the Hospices, but Christie’s involvement probably explains at least part of the rise in 2007.”

Many negociants, not surprisingly, remain wary. The auction historically has been a local event and they were the only players. Pierre-Henri Gagey, president of Maison Louis Jadot, said he wouldn’t “want to see it turn into just another charity auction that attracts the wealthy.”

Several other negociants indicated they were concerned that consumers could outbid them for the most prestigious wines, though they declined to speak publicly for fear of antagonizing colleagues.

Despite the apprehension, the negociants are unlikely to walk away, and it is hard to imagine this century-old tradition morphing into a consumer event similar to California charity auctions. There is a strong commercial bond between the Hospices and the negociants because, in addition to the wines sold at auction, the Hospices sells wines made from young vines directly to the negociants. Even with the change in format – Christie’s involvement seems certain to remain – and the recent worldwide demand for Burgundy, there simply are not enough private buyers willing to negotiate the system to purchase the 600-plus barrels of unfinished wine every year (a Burgundy barrel contains twenty-four 12-bottle cases).

This weekend’s auction should help define the trend. If individuals jump into the Burgundy market the way they have in Bordeaux, prices for Burgundy could soar. That would change Burgundy even more than the shift of power between growers and negociants.

About the auction

The auction’s roots go deep, back to 1443, when Nicolas Rolin, chancellor to Philippe le Bon, Duke of Burgundy, and his wife, Guigone de Salins, established the Hotel-Dieu – a hospital to care for the sick and the poor. The Hotel-Dieu and the Hopital de la Charite are the beneficiaries of the money raised at the auction.

The first donation of vineyards to the Hospices de Beaune followed in 1459 and now, with the last donation of 3.5 acres in Pouilly-Fuisse by Francoise Poisard in 1994, the Hospices owns almost 150 acres of prime vineyards, almost all either premier or grand cru, from which it produces 42 different wines (called cuvees) – 30 reds and 12 whites.

Each cuvee honors an individual or group, such as Cuvee Nicolas Rolin, or the donor of the land, such as Cuvee Maurice Drouhin, in addition to the appellation of the wine.

From hammer to bottle: The costs

Hammer price for the wine: 3,000

Buyer’s premium: 210 euros

Price of the barrel: 500 euros

Estimated price for raising the wine: 900 euros

Approximate price/case in dollars: $269/case for Savigny-les-Beaune Cuvee Arthur Girard or $2,960/case for Clos de la Roche Cuvee Cyrot-Chaudron

Does not include shipping, customs clearing and duty. Adventures in Wine, a Daly City company estimates $115/case by sea, $210/case by air.

This article appeared on page F – 1 of the San Francisco Chronicle on Friday, November 14, 2008