The Agence France Press reported recently that Diageo Chateau & Estate Wines “has abandoned Bordeaux wine after 35 years” and is aggressively liquidating its warehouse stock worth tens of millions of dollars at drastic discounts.

The U.S. importer is a subsidiary of the British beverage giant Diageo, also owns Sterling and Beaulieu wineries in the Napa Valley.

Chris Adams, chief executive with Manhattan retailer Sherry Lehmann, said Diageo’s withdrawal “is having a huge impact on the market,” according to the French news service.

“For many years DC&E was the largest U.S. buyer of Bordeaux and amassed a colossal cellar,” the article states. “Now famous labels such Lafite, Haut Brion and Lynch Bages are being offered to American retailers at up to 50 percent off.”

AFP also quotes an anonymous source who blames “enormous stocks of unsold Bordeaux for (Diageo’s) exodus.”

According to AFP, prices for Bordeaux wines “soared between 1982 and 2005 “under the combined pressure from Asia, speculators and Robert Parker’s faithful legions.”

Geoff Labitzke, an executive with a California-based wholesaler Fine Wine for Youngs Market Company, stated in the article that the problem was exacerbated because Costco and Diageo “bought huge allocations and hoarded the wine, creating an artificial level of implied demand from the U.S.”

Guillaume Touton, a New York importer,  told AFP that he has “$5.5 million worth of First Growths in my warehouse that I cannot sell because I’ll be 50 percent more expensive than Chateau & Estate.”

Victim of success

Industry observers maintain Bordeaux is, in many ways, a victim of its own success. Due to a rather lofty reputation, wine drinkers tend to associate Bordeaux with the famous Grand Cru estates and assume that all Bordeaux is expensive.

Few consumers know that the majority of wines from the region are priced inexpensively. According to statistics released by the Bordeaux Wine Council, more than    80 percent of Bordeaux wines are sold at retail for less than $35.

With more than 10,000 growers, Bordeaux is the largest fine wine producing region in the world — 284,000 acres are classified, quality controlled vineyards. Bordeaux is also possibly one of the most overlooked sources of quality, reasonably-priced wines.

Because a vast majority of Bordeaux vintners have small estates without marketing budgets, they don’t label their wines by grape varietal — which is how most Americans buy wine. As a result, Bordeaux at the low-end of the price spectrum is often passed over.

Raison d’état?

The European press is having a field day with the so-called Diageo bloodbath.

Rumors are again swirling again on the street that Diageo is on the verge of acquiring its remaining 66 percent in in Moet Hennessy, according to London’s Daily Mail. Giving credence to the theory is the fact that shares of Diageo stock are on the rise.

The Daily Mail speculated that parent company LVMH could make more than $10 billion by selling Moet Hennessy to Diageo, which it could then use to purchase luxury fashion label Hermes. Acquiring Moet Hennessy would give Diageo Champagne and cognac brands, namely Hennessy and Moet & Chandon, adding it to its inventory that already includes Mumm Napa Valley and Mumm Champagne. It would also allow Diageo to bring Moet Hennessy brands within its wider geographical distribution system.