When the old ways of doing business aren’t working anymore, it may be time to break with tradition. Of course, doing so can be easier said than done. For inspiration, consider how the administrators of the venerable Hospices de Beaune charity wine auction in France shook up the wine industry over a decade ago, as described by the San Francisco Chronicle and Wine Spectator magazine.
The Way Things Were
The Hospices de Beaune, which is composed of two hospitals, produces 42 different Burgundy wines on 150 acres of prime vineyards that it acquired through donations over the centuries. Rather than bottling and selling the wines, the Hospices has traditionally auctioned off barrels of unfinished wine to large Burgundy négociants, or merchants, such as Louis Jadot and Joseph Drouhin.
As the first annual market indicator of the French wine industry, the 156-year-old Hospices de Beaune auction, which is held the third Sunday of each November, is closely monitored worldwide. Winning bids reflect the perceived quality of that year’s vintage of Burgundy and influence the prices paid for other wines.
After buying barrels at the auction, the négociants “raise” the wine—blending, finishing, and bottling it under their own labels. In France and other European countries, the widespread négociant system created a “win-win-win” scenario: the winemakers get paid up front for their wine, the négociants avoid the overhead of harvesting grapes, and the consumers reap these savings.
The New Rules of the Game
Yet for the Hospices de Beaune, the large négociants became a source of consternation in the modern era. The négociants controlled the auction—and, in 2004, succeeded in colluding to greatly drive down prices—amid wider industry changes. Smaller grape growers and wine merchants were clamoring to purchase Burgundy wine, yet they were excluded by tradition from the Hospices auction.
In 2005, the Hospices decided it was time for an overhaul. First, management of the auction, which had previously been run locally, was handed over to Christie’s auction house. Second, members of the public were invited to participate alongside trade members. Third, whereas only lots of multiple barrels had been sold in the past, single barrels were put up for sale, a change designed to attract smaller buyers.
In 2007, Christie’s introduced telephone and Internet bidding, and the auction went global. Prices for red wine (which outsells white in Burgundy) rose 40% over the 2006 vintage, though the 2007 vintage was widely considered inferior. The Hospices had reason to toast its success.
A Case of Sour Grapes?
Before the 2008 auction, one representative of a large négociant sniffed to the Chronicle that the new rules had made the auction “irrelevant” in the larger wine world. But most of the négociants were appeased when they finagled lower prices at the 2008 auction. (Red wine prices slid 31.5% from prices paid in the 2007 auction, a drop that seemed almost inevitable amid the global financial crisis.)
Despite the radical changes to the rules, the Hospices and the négociants remain interdependent, as the French wine-raising system remains too complicated for most private buyers to navigate. Meanwhile, the proud owner of his first two barrels of Burgundy told Wine Spectator, “Until today, I’d thought that for a person like me, the wines of the Hospices were untouchable.”
Related Win-Win Negotiations Article: Conflict Management Techniques – Should You Take Your Dispute Public? – What factors influence the decision to make a private conflict public? What negotiation strategies could negotiators use after making their dispute public? In this article, the advantages and disadvantages of making previously private disputes public is discussed with reference to negotiating tactics and bargaining dynamics.
Adapted from “The Hospices de Beaune Wine Auction – New World Tactics Meet Old World Tradition,” first published in the April 2009 issue of Negotiation.
Originally published in 2012.