Winery Price versus Retail (Napa)

Will someone explain why the exact same bottle of wine is less expensive at a retail shop than when buying directly from the winery? Sometimes, the price difference is dramatic. I noticed this trend on a recent visit to Napa. Thanks in advance.

My guess is that they have an agreement to not undercut their retailers. I know it works this way with bourbon distilleries in KY.

Iā€™m sure theyā€™ve realized people will impulse buy at the winery as well, especially after a few tastings.

Quantity pricing? Assuming a distributor/retailer would commit to a vast amount at a reasonable scaled price for the winery.

Wineries have to sell the wine to you at retail unless you join their wine club. Then you get perhaps 20% off.

The winery establishes the ā€œsuggested retail priceā€ of their wine and many demand retailers meet that price to carry their wine. Wineries have a ton more overhead than retailers which drives some of their prices as does contracts for grapes that demand minimum prices to have the vineyard name on the label. Winery direct to the retailer usually has that matching price requirement or something reasonably close. Once the major wineries get their wine into the distribution system, the distributors can do with it whatever to move it or hold it hostage. Occasionally, distributors and some wineries dump wines that arenā€™t moving to their expectations through sites like Wine Library, Wine Access, Last Bottle Wine, etc. The distributors may buy in bulk move the product at a fast pace with little markup. This allows the retailers to offer wines at a lower price than the winery.

Iā€™m cheaper on most wines than a certain retailer in Yountville. My rent is $2.75 a square foot. Their rent is $7.00 a square foot. I donā€™t have employees. They have four employees.

Then thereā€™s the other side of the equation. Many wineries monitor the prices on retailer websites. They see you are too low, you are cut off, whether it be from the winery or the winery notifying the distributor not to sell to that retailer.

Will someone explain why the exact same bottle of wine is less expensive at a retail shop than when buying directly from the winery?

To add to what Randy said above -

Itā€™s basic business if youā€™re selling through resellers.

If you expect people to go out and hustle your product, you donā€™t undercut them and compete with your own agents, especially if theyā€™re doing good work for you. If you were a retailer who carried a wine and found out that it was sitting on your shelf because the winery was undercutting your price, how long would you keep that wine around? Youā€™d clear it out cheap and get something else.

It happens with any product. I used to find companies like HP under priced by their own resellers all the time. In addition, the reseller may get different discounts from different producers and consequently offer you a lower average price.

Wasnā€™t going to mention that part Greg but we have taken home and a number of wines we couldnā€™t sell because it became available for less than wholesale at Costco, Wine Access, etc. when the winery or distributor dumped it.

Maybe customers get caught up in the winery experience. Maybe the lack of competing brands on the shelf.

Yeah, Iā€™ve noticed this as well and it kind of rubs me the wrong way, at least if thereā€™s a dramatic price difference. I get that the retailer will buy in bulk so they should get a better price and therefore might able to offer it for a bit less. I also get that a retailer may be discouraged from buying a wine if they see the winery selling it on their website for less than they want to sell it for. However, if I take the time to travel to the winery, schedule a tasting, pay for the tasting, and the winery still tries to sell me a bottle for 20% - 50% over retail, well, it just puts a bad taste in my mouth.

This.

If you have a channel-based business model, then undercutting your channel immediately destroys your entire business model.

There are myriad stories of large & successful channel-based businesses who thought they could dispense with their channel only to watch the entire business crash and burn as a result.

Business schools used to teach their MBAs to immediately cut ties with the channel & bring all sales back in-house, as a means of cutting costs, but I think even the idiot professors in the business schools finally wised up to the insanity of that ā€œadviceā€.

Although I could be wrong about that - never misunderestimate the damage which can accrue from following the advice of a university professor.

I wrote something lengthy about this awhile back, if itā€™s not too gauche, Iā€™ll just paste it here. It was in response to a question about ā€œwhat should you do if your wine club price is higher than retail.ā€

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I donā€™t think this happens but rarely with any lists I buy off of, and if it does, the odds that the price difference is enough to be worth making a separate order and paying separate shipping for the wine in question is very low.

I think, however, this is quite common with your big wineries, when you buy off their club or buy directly from them at their tasting room or off their website.

For example, I just looked on BVā€™s website. If you join their wine club, you get 20% off their wines and products. However, their 2012 Tapestry Reserve is $65 from the winery, so with a 20% discount itā€™s still $52, plus youā€™ll be paying shipping unless you pick them up in person. At Costco today in Fountain Valley, the 2012 Tapestry Reserve was $39. On WSPro, you can find legit retailers selling this for as little as $23 (Leiserā€™s) and $27 (Sokolin).

Or look at the 2012 Georges de Latour. $135 on BVā€™s website, or $108 after your wine club discount. This same wine is widely available at $75-80 looking on WSPro.

Clubs at wineries like BV are neither for the bargain shopper nor the WBer type. I think they exist for one or more of the following: (a) as a convenience to someone who wants to have their wines arrive regularly without having to think about it or do anything, (b) for people who make an impulse decision, probably while visiting the tasting room and having a lovely time, without really doing any homework about the value proposition, and (c) for people who are into the events and tasting room, and maybe the prestige of telling people theyā€™re in the wine club, and donā€™t really care about the pricing and all.

And thatā€™s fine - I donā€™t mean to imply that everyone in the world needs to spend a bunch of time paying the least they can for everything - but I think that sort of explains what is going on with those kinds of clubs.

I donā€™t know of many wineries that are the subject of a lot of interest and discussion here on WB where this is the case, and if it is, itā€™s more likely a single bottling or two from a winery that pop up on a discount somewhere, not a consistent and large discount available widely at retail as compared to the wineryā€™s price. If that were the case, I wouldnā€™t be buying from that winery either, probably not at retail or direct.

I understand that wineries walk a fine line about not undercutting their distributors, but they should feel even more strongly about not undercutting their club and list members. I get that they arenā€™t responsible when a store somewhere clears out a wine of theirs for cheap and I have no problem with that happening, but if youā€™re consistently selling at substantially above retail pricing, I wouldnā€™t be part of that. Frank is right that we have connections and fondness for the wineries we love, but I donā€™t think Iā€™d be feeling much of a connection if they were charging me $53 for wine I could buy for $25-30 in stores and doing so on a regular basis, while pretending Iā€™m getting a 20% discount. Loyalty is a two way street.

Iā€™m not sure I understand the ā€œdonā€™t undercut your retailersā€ logic. Why isnā€™t taking the time to visit a winery and buy directl something to be rewarded by at least selling at the prevailing ā€œdiscountedā€ rate of the average retailer? Itā€™s not like most people can actually visit the winery and buy direct, thatā€™s a rarity for any wine of even moderate production.

What about Williams Selyem? Isnā€™t their wine priced the same to all? So, if a retailer wants a profit they have to mark it up over the winery?

It is ā€˜illegalā€™ to tell a retailer what to charge for wine - just as it us for most other products. That said, if a winery has ā€˜cloutā€™, they can choose not to sell to retailers who donā€™t abide by what they want to.

The idea of ā€˜not undercuttingā€™ the retailer is an interesting one - and it is not consistent. Many wineries simply do not make their wines available at retail, or if they do, they do not offer huge discounts which makes it nearly impossible for retailers to price the wines anywhere near what the winery sells it for. I know that Turley used to work like this - their Juvenile Zin, for instance, could be had for $25 direct but nothing under $30-35 from retailers - if even that close.

As a winery owner, pricing is important to me. I do price my wines to retailers to be able to allow them to sell them at 10-15% below my normal retail prices - but not below what my wine club members can get them for. To me, itā€™s important to ā€˜take careā€™ of my most loyal customers. And in the event that I offer better than wine club prices - for BerserkerDays, for instance - I let my wine club members know and give them the opportunity to take advantage of these special prices as well. I donā€™t think most other wineries to this - but they should.

I personally would be pissed if I was a wine club member of a winery and found the wines available cheaper then what I can purchase them for directly. If Iā€™m not a wine club member and I can purchase them directly for a little cheaper then what i bought it for at the winery, I would change my purchasing behavior and stop purchasing direct - unless there are other advantages of buying direct instead of just price (purchasing ā€˜limited availabilityā€™ wines, for instance).

And this does not just happen in Napa - it happens with every wine region as far as Iā€™ve seen.

Cheers.

Just the other day, I was reading an account of the life & times of Paul Castellano - apparently Castellano raised the levy on his channel, from a 10% cut to a 15% cut, and the resentment fostered by that increase gave John Gotti the leverage he needed in order to assassinate Castellano and successfully seize control of the Gambino family crime syndicate afterwards.

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You donā€™t need to understand it. You just need to understand distributors wonā€™t carry your wine if you do this.

Case (and sometime half-case) discounts can cancel this out, or more. Also, most tasting rooms offer wines that donā€™t make retail. Itā€™s rare for a retailers to carry more than 3 wines from any one winery. It would be a wild goose chase trying to track all the current releases you want from some wineries.

Another thing Iā€™m seeing now is wineries crediting your tasting fee (or half of it) towards a purchase. Donā€™t know how common that is, but it seems like a smart workaround for some models.

Very, very few wineries sell all their wines direct.

Retail is an invaluable portion of my business, and growing awareness for my wines. Most independent retailers HATE turning their customers onto new wines, only to have those customers turn to the wineries websites and have the wines be available for less money. Wineries can also legally ship to most states, so you donā€™t need to be at the winery to take advantage of winery pricing-and most retailers are well aware of that.

My business is production not retail. I donā€™t have a fancy tasting room, but for those who do, all of the work and costs eat up a lot of the difference between wholesale and retail.

My pricing at the winery is careful not to undercut our retail support. But if you visit, I always make sure to offer Berserkers a ā€œfriends & familyā€ price.

What Wes said.

Also the internet is a game changer. Most wineries have websites and can ship.

I have 3 retailers in Portland who send people to visit, in part because when Iā€™m done with the appointment I request that the guest to buy from the person who sent them.