Wine Price Margins

[Rail Paul]

The December 15 issue of Wine Spectator has an article about where the costs in a bottle of wine derive. Page 50 in the dead tree edition. A quick glance at the chart suggests why the winery direct issue has had so much trouble making it through the various states.

The example is a $24 bottle of Napa Valley Cabernet Sauvignon

Grapes and growing $1.80

Winemaking 2.20

Packaging 0.92

Marketing 0.60

Sales and Distribution 3.00

Administration 0.60

Interest 0.60

Taxes 0.94 (not including sales tax paid by purchaser)

Winery profit 1.35

Wholesale Markup 4.56 (about 19% of the selling price)

Retail Markup 7.44 (about 41% of the selling price)

So, 60% of the cost of a bottle of wine occurs after the wine leaves the winery by their calculation.

It's a good article, in an unusually good issue. Lot of focus on the business of wine

[britcook]

So why is it that when you buy this bottle personally at the winery in Napa it still costs $24?

[hollywood]

So why is it that when you buy this bottle personally at the winery in Napa it still costs $24?

I don't get it either. Maybe they claim it's to cover the overhead of running the tasting room, tour, etc. Still, why should it cost more at the winery than it frequently does at a local wine seller's store?

[jordyn]

I would guess it's because:

a) They don't want to undercut their retail channel, especially to the extent that they are dependent on it for distribution into many states.

b) The winery likes making lots of money.

[Rail Paul]

I'd agree that channel conflict is probably a major element in the winery's attempt to maintain price equality at the winery's own shop. There's probably a prestige element, too ("This is a $25 wine, not a $10 wine").

[Steve Plotnicki]

The thing about winery margins is that if you planted vines in say 1970, you based your investment on the cost of a bottle of wine during that time. Do you have any idea how many wineries planted vines when a bottle of wine was worth $6.99 a bottle and now 30 years later the same wine sells for $75 a bottle or more? Unless they have had to grub up their vines from phyloxera or some other reason and replant them, the margins they make are astronomical. As for the winery direct issue, it has nothing to do with wine, it has to do with things like Jack Daniels where the local distributors make most of their money. The amount of money the big distributors make from wine is marginal compared to what they make on hard liquor. But they are afraid that if they allow wine to be shipped into their states, then it will expand into hard liquor. And the larger wineries like Mondavi Phelp's don't want to rock that boat. That's because they make lots of plonk that the want tied to the sales of their good stuff.

[hollywood]

As for the winery direct issue, it has nothing to do with wine, it has to do with things like Jack Daniels where the local distributors make most of their money. The amount of money the big distributors make from wine is marginal compared to what they make on hard liquor. But they are afraid that if they allow wine to be shipped into their states, then it will expand into hard liquor. And the larger wineries like Mondavi Phelp's don't want to rock that boat. That's because they make lots of plonk that the want tied to the sales of their good stuff.

Huh? Run that by me again. Why does the wine cost more at the winery than at the local store?

[Steve Plotnicki]

I don't understand your question. Where did I say that wine costs more at the winery?

[hollywood]

I don't understand your question. Where did I say that wine costs more at the winery?

You didn't, Steve. At least I don't think you did. Previously on this thread that was the question. I thought you were trying to answer it. Guess not.

[baruch]

KUDOs to "rail paul!!! great observation & thx for bringing it the attention it deserves. my favorite topic & one i can't get anyone interested in. compare the price from the vineyard - to - the wholesale markup - to - the retail markup - & then, voila - the restaurant markup!!! why do we put up with this crap?? because:

we are stupid!!! its a joke when the wine industry can't figure out why wine is not more popular!!! what's the mystery? it will be interesting when nyorker's can buy direct, but it still won't have an effect on restaurant prices. why don't we boycott? because - we are all stupid, including me!!

[mickblueeyes]

Another faux pas in the WS breakdown is the distributors cut. I have seen what the distributors markup is--very close to 50%. We only get an average of 20-30% markup on the retail level. Any retailer that is getting 41% is pricing himself out of business quickly. Distributors however have mini monopolies set up in regions, as most localities regulate the number of distributors allowed. They charge what they want because they know the retailers have to pay it.

Winemaking (along with handmade cigar making) is one of the biggest rackets going. WS has seriously downplayed the markups that go on prior to the retailers getting thier hands on the product. I have heard specific winemakers say that there is no bottle of wine that costs more than 6.00 to make. Interesting thing to ponder.

Edited December 2, 2002 by mickblueeyes (log)