For a long time I have felt the need to give a complete, in-depth explanation of how futures and pre-arrivals work when it comes to buying a wine in advance of its release. Given the recent developments of a large purveyor of futures and pre-arrivals going bankrupt I thought it might be time to de-mystify how they work, especially considering many people are generally cautious of things they don't fully understand. Seeing that I'll be headed to Bordeaux this weekend to taste through the 2015 Bordeaux vintage—a harvest that is already sparking rumors of a potentially-powerful en primeur campaign—the timing couldn't be more appropriate for a revisitation.
What are futures exactly? A future is a wine being sold before it has been bottled. The wine is not physically available at the retailer yet, but you are paying for it in advance. The most famous example of wine futures are from Bordeaux, which are sold as futures in a campaign called “En Primeur”. Chateau Montelena & Ridge Monte Bello are two local examples of future sales. In all these cases money is taken way in advance of the actual receipt of product (wine). A future is an opportunity to secure a product that is probable to be in very high demand, thus the potential of the wine selling out is a real possibility. Buying in advance of its actual physical appearance guarantees you will not miss out.
What is a pre-arrival? A pre-arrival shares many things in common with a future; the wine is also not physically available yet, you pay in advance, and it is usually a highly-desirable item. However, the biggest difference is the wine has already been bottled and usually should be available within four to twelve months from the date of purchase, whereas a future is usually twelve to thirty months away. Most pre-arrivals are wines coming over from Europe.
Now that we know what a future and a pre-arrival are, as well as their differences, let’s discuss why a retailer would offer wines in this way. The futures program works on a supply and demand system; generally wines sold as futures and their pricing are dependent on demand. A price is set, then depending on demand that price can go up or down from the original purchase price. Obviously the goal behind buying a future and tying up your money for a one to two years is to save on the price.
A pre-arrival is generally a wine that should arrive as soon as four or as long as twelve months from the date of purchase. There are numerous reasons to offer pre-arrivals but the most prevalent reason is to get around the three-tier-system. The three-tier-system consists of importer-distributor-retailer and can cause the pricing of an item to be 50-150% higher than the original cost you would pay if you bought it directly from the winery. Besides the high costs involved with the three tier system, often times the product being offered as a pre-arrival is either a different vintage from the one in high-demand, or the allocation is much less than what you can actually sell. By buying the wine overseas and importing it, a retailer can often offer a wine at a cheaper price, from a more desirable vintage, and in greater quantity than they would be able to do so working solely through the three-tier-system.
So now that we've discussed what a pre-arrival and a future are, their differences, and why a retailer may offer a pre-arrival, let's now discuss and answer some common questions.
Why does it takes so long for pre-arrivals to arrive? It would seem logical that if a wine is physically available in Europe and it is purchased by the retailer, then it should be able to be shipped to the retailer within a month or two, right? As consumers, we buy stuff all the time from around the world (thanks Amazon) and it arrives quickly, so how come my wine doesn’t? There are several reasons why the process of a pre-arrival wine takes more than ninety days. Here’s how the timeline works: an offer is sent out; as a retailer you respond generally within one to four days of receiving an offer. You then get a confirmation generally one to seven days after your response, confirming the order (price/quantity/vintage). Then you submit the invoice to accounting for payment (most bills get paid within fifteen to sixty days of receipt of invoice). Once the purveyor overseas receives payment they will release the wine to your importer and this part, depending on when the pick-up is scheduled, can take anywhere between one to three months. After the product is collected it has to then be prepared for shipment overseas, which means it needs to be loaded into a container for shipping overseas. Generally containers are not shipped until they are filled for financial reasons so it may take another month or two to get a full container for shipment. Once the wine leaves it generally takes roughly twenty-one days in transit from a port in Europe to the Port of Oakland. Then it takes about two weeks days to be unloaded, checked-in and then trucked to us where it should take another week or two for us to process the shipment and fulfill the pre-orders. By adding up the numbers, if everything goes as fast as possible, the earliest a pre-arrival should arrive is four months from date of offering, but with unforeseen conflicts like port strikes or other labor issues, shipping delays, and a multitude of other possible problems, all along this supply chain most pre-arrivals take six to ten months to arrive.
Why do I need to pay in advance? We pay for it in advance in order to secure the wine, so we charge you in advance. By doing business this way we are able to offer the widest range possible of selections at the lowest prices available. If we only charged you once the product arrived we would have to charge higher prices to make up for the cost of carrying goods for four to five months for which we have paid, but not yet sold.
I’ve heard the term “grey market” what is that? And are the wines different if they come from the grey market? The term “grey market” refers to the parallel market that exists in Europe for wines widely distributed in the US. Most of the famous and sought-after producers have at least one if not more American agents who buy the wine, import it, set up distribution, and handle the marketing of the wines. This is how the three-tier-system works. The grey market, which is a derogatory term created by jaded importers, is where K&L can purchase wines from purveyors overseas and then have the wines imported for us, allowing us to cut out several tiers of costs. The only difference per se on a bottle of Domaine du Pegau Chateauneuf-du-Pape purchased from an overseas purveyor versus the local supplier is a different importation label on the back of the bottle. It is the same wine, from the same winery, imported the exact same way.
I’ve seen the wine I bought from you on pre-arrival in-stock in other stores, so why don’t I have mine yet? When we purchase a product directly from Europe the schedule of arrival of that product is dependent on the timeline I discussed earlier and is solely dependent on us. Another retailer carrying a product could have been purchased from a local supplier who got it here earlier than we did. This is where container consolidation time comes in. Also, frequently products are available earlier on the East Coast than the West Coast since it is a shorter voyage and many of the larger wholesale suppliers and their products on the East Coast since it has a longer history with wines and many have their headquarters located on the East Coast.
I’ve bought numerous wines from this specific vintage; why have some wines arrived, but not all? In many campaigns, like Bordeaux 2009 or Brunello di Montalcino 2010, we sold such large amounts of wines that we were forced to do business with dozens of overseas suppliers and their fulfillment schedules meant wines were arriving at different times and being consolidated for shipment dependent upon container size. Receiving a wine a week later than another wine could mean it misses a container, meaning it will then have to be loaded onto a later container.
How do I know you have actually secured the wine I've purchased? Buying a wine on a future or a pre-arrival carries the same risk as pre-paying for anything you do not have physically yet. We do not sell or offer wines on a futures or pre-arrival basis that we have not secured. To do business any other way is unethical and exposes the purveyor to numerous bad possibilities. We recommend dealing with retailers whom have long reputations in delivering on the goods they sell at fair prices.
In other words, us!