“Just made my first purchase with Premier Cru today. 2012 Beaucastel for $50 per. I figure I won’t see them for 2 years but not a chance I touch them for 8-10 years anyways. We will see—but a hard deal to pass up!”
A morbid kind of curiosity directed me to this comment, taken from an October 2014 post on a popular online wine forum under the thread “Why Does Premier Cru Take So Long.” As of a few months ago, the question posed in the title of the thread—which refers to Premier Cru, the California-based merchant once known for offering deep discounts on high-end wines—has a whole new set of answers. In January of 2016, the business filed for bankruptcy, claiming over $70 million in liabilities. They’re now under investigation by the FBI for operating what basically amounted to a fine-wine Ponzi scheme.
At the heart of the scandal is the abuse of the “pre-arrival” sales model that has long been a fixture of the American retail landscape. When conscientiously applied, the concept breaks down to a simple cash-flow solution: In order to secure rare blue-chip wines, retailers will commit to purchasing a specified allocation from the supplier months, and in some cases even years, before it arrives in the marketplace. In turn, they offer the merchandise to clients on a pre-sale basis, use that advance capital to pay the supplier and, if all goes according to plan, deliver the wine once it shows up.
“This practice has been around for as long as I’ve been in the business,” says Jeff Zacharia, president of Zachys Wine & Liquor in Westchester County, New York. “Some wines you offer before they hit the shelves. They’re simply difficult to get and there’s limited quantity, so people want to lock them up as early as possible.”
Because they are the objects of such competitive envy, certain wines inherently lend themselves to this model—a fact that Premier Cru blatantly exploited, offering bottles they never owned at unrealistically low prices. As the details of the case continue to emerge, I can’t help but wonder how the pre-arrival feature became embedded in American wine sales in the first place. How has it evolved to keep pace with a rapidly growing market, in which demand constantly outpaces supply? And now that the opportunities for abuse have become so clear, does the potential benefit for consumers outweigh the risks?
As with so many aspects of aspirational American wine culture, the origins extend back to Bordeaux—specifically, the region’s time-honored “futures” campaign. For decades, Bordeaux has implemented a complex en primeur system, whereby buyers place orders for the new vintage at pre-determined rates two years before it has even been bottled. Riding America’s first wave of luxury wine consumption, pioneering retailers like New York’s Sokolin and Sherry-Lehmann were among the earliest adapters to bring the practice stateside with the 1959 vintage.
Historically, the rewards were worth the wait. As author and former Slate wine critic Michael Steinberger explains, “In exchange for giving producers these interest-free loans, consumers would be able to buy the wines more cheaply than if they waited for the wines to hit retail shelves.”
To be fair, this isn’t always true today. “Release prices have become exorbitant,” Steinberger says, “particularly in acclaimed vintages,” and several recent releases actually sold cheaper once they arrived on store shelves. There’s also the fact that many mature Bordeaux wines, which are already prime for consumption, now sell for less than those offered as futures, which typically require several additional years of waiting before they’re ready to drink. But as problematic as the larger Bordeaux market may have become, as a self-contained system the en primeur model remains stable, and most importantly, transparent.
“Bordeaux is a streamlined machine,” says Daniel Posner, owner of Grapes the Wine Company in White Plains, New York. “Futures guarantee you quantities, and you lock in a price and format. You pay for your wines, then two years later the importer gets it to the retailer, who gets it to the consumer, and everybody is happy.”
Over time, however, with skyrocketing demand for wines from other celebrated regions—notably Burgundy, where production has always been minuscule—the formula has begun to change. If Bordeaux futures represent a cost structure meant to incentivize buyers to act early in order to secure a lower price, then in Burgundy the motivation to buy on pre-arrival isn’t price, but limited supply. After all, when top producers only make a few barrels of their most prestigious grand crus, the opportunity to stake an early claim becomes critical, regardless of cost.
“If you don’t buy a case of, say, Rousseau Chambertin or d’Angerville Clos des Ducs on a pre-arrival basis, you might not be able to get your hands on the wine at all, or at least not in the desired amount,” says Steinberger. This is precisely where things start to get tricky. Take an extremely limited wine like that Rousseau Chambertin, for example. Considering how little of it arrives through licensed US importers, it’s only natural that merchants would try to supplement their allocation by sourcing bottles in the gray market, outside the “official” distribution channels.
“In the case of a wine where only 30 bottles come into the country, if you’re a retailer, of course you’re going to try to source that wine in Europe,” explains Rajat Parr, winemaker and wine director for the Michael Mina restaurant group in San Francisco. “European suppliers send lists of different wines. You get a confirmation from the supplier that the wine is yours, you put out a pre-arrival offer to your customers, then you pay your invoice with that money and wait for the wine to arrive.”
But it doesn’t always work out as planned. Unlike the Bordeaux futures system, with its delineated tiers of fixed prices, or the certainty of working with an official distributor, a shroud surrounds gray market wine sales. Due to the legal ambiguities involved, few retailers are willing to discuss the details of this murky corner of the industry. But with less openness and regulation comes greater risk for the consumer. While most merchants try their best to estimate accurate arrival times, delays are extremely common. Provenance and storage issues, moreover, can be questionable, and many customers have reported placing orders that never arrived—or, more likely, were sold to others for higher margins.
This shouldn’t suggest that such abuses run rampant. To the contrary, most reputable retailers follow the lead of a business like Zachys, whose website proudly proclaims: “In the 35 years Zachys has been offering Pre-Arrivals, Zachys has delivered on nearly every single case, nearly every single size, exactly as ordered.” The need to issue such a disclaimer, on the other hand, implies that other businesses might not always maintain the same high standards.
Premier Cru represented an extreme—the worst of the proverbial bad apples. But there’s no denying that their crash and burn might give pause to some fine-wine collectors, particularly following so closely behind the Rudy Kurniawan counterfeiting scandal, which defrauded buyers just a few years back. “It’s like another nail in the coffin,” says Geoffrey Troy of New York Wine Warehouse, who speculates about a potential crisis of consumer confidence.
So it’s no surprise that certain purveyors have deemed the pre-arrivals game more trouble than it might be worth. “We’ve tried it and have determined it’s not for us,” says Jamie Wolff of Manhattan’s Chambers Street Wines. “There are almost always delays, so even pessimistic ETAs can run late, and occasionally we don’t receive exactly what we’ve contracted for.”
The evolution from consumer-focused transparency toward the gray market’s obscurity simply reflects the cost of doing business in today’s fiercely competitive wine world. As long as collectors continue to clamor after the same rare trophy wines, they’ll be willing to put up with the attendant hazards. The key—which applies to any market—is understanding the delicate calculus of risk and reward and the benefits of “one in the hand” versus “two in the bush.” But as those lured by Premier Cru’s fictitious prices know all too well, another old adage equally applies: If it sounds too good to be true, it probably is.