Economics of the wine business?

Wine Pimps
21

Yeah, but you forgot about the COD thingy. For those who don’t know what I’m talking about, not only are there no special pricing deals (beyond what Rick has mentioned), there’s no invoicing so there are no terms to negotiate. COD for everyone, all the time.

Of course, the benefit of this is that some retailers, since they don’t have to carry the inventory for any length of time, will give you cost plus 10% on solid cases ordered in advance. Burn 'em once by taking a month to pick up your wine and they’ll cut you off. They should.

22

I think you spotted a Commie, Chris. [welldone.gif]


[wink.gif]

23

There are a few wineries who dictate where their wines go. Some are class operations with exceptional wines or at least a history of exceptional wines. Many wineries don’t want their wines in retail stores, demanding restaurant and winery only. In these trying times, many are rethinking their strategy. Some are going back to “hands on” control, now that their “name” and history aren’t selling the wine or its showing up in places they don’t want to be seen. In a perfect world, the wineries would choose the individual retail stores their wine would go to. K&L has a great reputation and a long history in the business. Because they maintain their level of service and knowledge, they have continued to have access to some very hard to get wines that many new and/or smaller boutique merchants are struggling to obtain.

All in all, customer service and wine knowledge are the keys. An upscale store paying way too much rent may be able to command higher prices for awhile, but eventually cash flow becomes an issue. Providing or hunting down a wine for good customers is a key element. Carrie will hump the leg of anybody on this board, to fill a tough order and do it for $5.00 profit, to win the customer over with the understanding we aren’t paying for electricity to store a wine for two years before it sells. In and out, happy customer, no hassles.

Here at Napa Valley Wine & Cigar, we have Carrie, an equal opportunity abuser of anybody crossing the threshold. I still haven’t figured it out, but people come in here for a dose of abuse by the WW of the W followed by that flirtysmile she always gives them. Ask Vastola. He’s never been here, but look at the abuse she serves up to him. Ships him gift wrapped bottle of 2 buck chuck to be opened at a fancy wine tasting. Anybody feel sorry for me yet. [stirthepothal.gif] [worship.gif]

24

I’ll happily take all the abuse you and Carrie can give me!!! neener

25

Actually, the more you talk, the more sorry I feel . . . for Carrie! [tease.gif]

26

30 years ago, NY State specified the retail liquor prices (at least the minimums) ostensibly to reduce alcoholism, in reality to make having a liquor license a sinecure.

27

Viewed from the bottom up it looks something like this:

Glass, cork and label is about $1 a bottle in small volumes (pallet at a time)
Small quantities of grapes cost between $.5-3 per lb to buy, It takes about 4 lbs to make a bottle.
(assuming 2 bbl/ton juice, racks down to 500 bottles a ton accounting for lees, evaporation, spillage etc. Larger tanks should be more efficient)

So neglecting labor you have $3 to $13 cost of materials per bottle at the boutique level.
Figure there’s overhead, taxes and some level of profit and the cost from the winery is $5 to 20.

If you buy your wine retail at the winery, they have costs of mopping that shiny tasting room floor.

Looking a bit deeper, if you want to grow your own:

land costs go $5k to > $1M per acre depending on where you buy it, and if it’s got yielding vines.
Lets assume you already own the land for simplicity.

Entav Inra clone vines go about $5 each last time I bought small quantities (2008)

Depending on planting/trellis/thinning yields are 5-20lbs/vine. Say you target 5 ton/acre (assume 5 lbs each on 2000 vines) you toss in some money for field prep, trellis costs, irrigation, chemicals and you’ve got a three year cost to first harvest of > $15k per acre (above the land costs) before any labor is factored in.

If you use family labor (i.e. unpaid) you can figure your annual costs there after are simply depreciation, water & chemicals. If you pay labor, its going to be more, (given recent government action, if you pay over the table maybe a LOT more)

My neighbors have 1.5 acres and their annual costs including paying cash to some non english speaking pickers, (may be citizens, may not) come in about $3k, while they do all of the spraying, tilling and only pay for pruning and harvest. (annual harvest party costs $500 alone) They’re considering buying a used tractor for $10k to save on the hassle of renting one for tilling, you will need a truck too.

So figure your costs are $500/ton as a minimum not including taxes on the land at the small end, the guys who are running the central valley vineyards do a bit better.

That brings your grape costs to $.25 a pound, and gets you to $2/bottle or $25 a case cost of materials. Add in depreciation, power (it gets really hot here in the summer) numerous taxes and fees interest, insurance and the costs to fetch materials and it adds up pretty quickly.

So when you go to the boutique winery, and you buy that “50% off case” for < $100, the winery is not making a whole lot of money. At full boat retail, they may be making a reasonable return on their time for a job that involves working most weekends, dealing with the public in a state of occasional intoxication and the charming minions of your local, state and federal government.

And yet the good people you meet make it worthwhile.

28

…because, I’m in CA and I’m fantasizing about having place where everyone pays the same wholesale price. It would be nice to compete solely on experience and service.

Out of morbid curiosity, how much can wholesale really differ? And, is price the only thing you think should be ‘the same’?

Should you also be fantasizing about all stores being the same size, all wineries producing the same number of bottles?

29

I gotta come back to this thread - after leaving a post that was meant in jest “the fantasizing about…”
I’ve been called a Commie and folks are wondering if my throw away extrapolates to “same size stores…etc.”

It was a JOKE (poor one at that.) It’s pretty clear absolute socialism experiments have not worked and I am not advocating that.

Bootstrapping a small wine shop in the great recession is the hardest thing I’ve ever done.
Fantasizing about alternate realities is just that and a creative rubric for my musings.

I have enjoyed talking about the biz and plan to continue the dialog with all of you.

30

A lot. It’s not at all unusual for the wholesale price of a wine to be $200/case if you’re only buying a case or two, and for there to be a discount on a 10 or 25 case purchase that brings the price down to $144 or even $120/case. That means that a small wine shop like mine has a shelf price of $24.99 while my “big box” neighbor sells the exact same wine for $17.99 or $14.99. It doesn’t matter how knowledgeable or nice or helpful I am, my customers are going to see the $10/bottle price difference and assume that everything in my store is outrageously expensive and never come back.

And then there are the “unpublished” discounts. It’s extremely grating to be told that the deepest deal on Dom Perignon, for example, will bring my cost down to about $115/bottle, and then see it being advertised by the big guys at $99.99. The wholesaler swears that the big guys are paying the same price I am (yeah, right - they’re losing $15/bottle but making it up in volume), but gets very quiet very quickly when I ask about the “free goods” being given to the big stores.

Don’t get me wrong - there’s certainly a place for small wine shops that carry the best wines, have a wine knowledgeable staff and provide great service, but please don’t begrudge us our fantasies of being on a slightly more level playing field.

31

…which is why I am always careful purchasing anything from the big dists…I’ll never get the deals big stores/chains get and the price differential will send the wrong message to my customers. What makes this twice as frustrating, the big dists have equally great deals for small restaurants (which then mark it up 3-4 times.) The small shop has the worst pricing in the wine wholesale universe. I tend to buy wine from small producers and through brokers who offer more level pricing.

32

Richard and roger,
My retort was looking for serious answers which you both provided.

I’m surprised to see such wholesale differences but wonder if that has more to do with onerous regulation. Wishing for more of that may hurt. Not that you are calling for that.

I fall back to one position. Consenting adults should be able to enter into free contracts unfettered by state intervention.

And, yes being behind a big box by 80 per case is serious money. I agree.

33

Chris, another tactic is to GIVE a big account something like, say, a pallet of mineral water in addition to the best price. It would take us a month to turn that into money and we don’t have the space anyway but a supermarket or BevMo can sell it for a buck a bottle and…poof: $600 off the invoice price for the wine it was attached to (maybe in one day if they stack it in the parking lot or at the exits).

For restaurant buy the glass placements the most amazing thing I have ever heard is “Hey, Franco, why don’t you cater our sales meeting this Friday? There are 200 salesmen. But, they are really busy getting yelled at for their numbers and aren’t that hungry so why don’t you just send the BILL and keep the food?”

34

“I’m surprised to see such wholesale differences but wonder if that has more to do with onerous regulation.”

No, that part is pretty much unregulated by anything other than the big suppliers need to move boxes. Do you know what a depletion allowance is?

35

I do not. What is a depletion allowance?

36

I was the only one who used that term and I thought I used enough smilies so folks would know I was kidding. In fact, I was teasing Chris and not you.

37

Big wineries and importers pay a spiff called a depletion allowance (x dollars per case or even pallet sold but contingent on making a certain number before any payout accrues) to distributors who may or may not then either share that with salesmen or put it into large quantity discounts to accounts.