Curious to hear people’s opinions. Becheur (and to a lesser extent de Negoce) has got me very interested in this topic.
I’m new to buying wine direct from wineries. For the past decade I’ve bought most of my wine from retailers like Garagiste and Wine Access. Some wineries, like Loring, I’ve been purchasing multiple cases for years but for the most part, just never got into it. I’ve been doing it since Jan '19 Berserker say (that’s what drove me to this website) and I find the entire business model behind high end wine fascinating. I primarily only buy Cabs so we can keep the discussion to California Cabs >$75 a bottle.
Wineries generally fall into two categories:
Waiting list and thus sell out all their wine with excess demand
No waiting list, rarely sell out
There are a few wineries that have no waiting list or a very short waiting list that still sell out all their wine within a few weeks of being put on sale. For now, let’s put those aside.
For wineries that fit #1, they are underpricing their wine. They might be doing it for a bunch of reasons (playing the long game) but clearly supply < demand and they could raise prices. And many do and scare off their list members and then become #2.
Most wineries fit into #2. They sell their wine through many channels: email list/direct to consumer, direct to restaurants, wholesale to restaurants, wholesale to consumer/retail, and finally - bulk wine. The pricing on each of those is vastly different, of course.
What if wineries that fit #2 went to a dynamic pricing model? The goal would be to sell out the years vintage at the maximum proceeds for the winery. Could they make more money going that route vs. selling through many different channels with many different middle men? The bulk wine they sell for penny’s on the dollar is done so they don’t dilute their “retail” price they get from loyal customers. But what if they could sell more volume at a lower clearing price?
Would you be turned off by dynamic pricing from your favorite winery? I think this route only works for well established brands with a clear track record. The problem Becheur is facing is it’s a “blind” wine and nobody knows what it’s “worth”. But if an established wine was put up for sale and was done so in a dynamic pricing fashion, could it work? What say you Wine Berserkers? I have a lot of thoughts about the Becheur business model and I think it could be tweaked so don’t let the way it behaves now drive your opinion. You can come up with any kind of dynamic pricing model you want!
I’ll give you something else to think about…dutch auction pricing.
If a very successful winery, like MACDONALD, moved to dutch auction pricing, they would be wildly successful and clear much higher prices for their wine I think.
The way dutch auction pricing would work is during the auction period (maybe 30 days) you’d submit the highest price you’d be willing to pay and how many bottles you want. Want 24? Sure. Then, when the auction closes, whatever the lowest price level that would clear all the cases out, that’s the price everyone would pay that submitted a bid at or above that price level.
No waiting list, no economic rent given away. All wine sells out. You could also submit multiple bids at different levels so if the price ended up low enough for your liking you got more bottles.
I suspect people would feel that those models violate some mutual sense of loyalty and would push some long time customers away. I also think there may be down years where the higher end wineries makes more from standing lists than they may make with an auction style model.
For those that dont sell out, they are trying to make people feel like they may sell out and generate the same loyal following.
Selling all your stock at once may depress prices so you would probably want to spread out the sales over 6 months or so
But in theory it prob is a more efficient model.
Yes, Dutch auction is an interesting model, but you would need to develop a dedicated software solution to be able to offer it in a combination with an allocation model.
Perhaps a bigger discussion: If I think if America has done one thing wrong, it’s that we hitched wine consumption to the luxury bandwagon rather than food wagon. I see that it was once necessary to elevate American wine so it could find it’s identity (and we have Robert Mondavi to thank for that push, mainly), but sometimes after that they should have decoupled. Now we have a situation where American wine is seriously over-priced, trying to be “fancy” and we have just about zero exports as a direct result of that. We have to rely entirely on US consumers willing to pay a premium for American wine. That’s a dangerous spot to be in and defines the saying “putting all your eggs in one basket”.
Ultimately, although I agree of your economic analysis that if a wine sells out, then it’s under-priced, I think it’s important to resist anything that will increase prices on American wines, especially at these uncertain times. It’s detrimental to the whole industry and the longer perspective.
I agree, this is the rub. But the idea wouldn’t be to make more from customers. I’m focused more on #2 than #1 wineries. In theory, the consumer would get it cheaper, they’d sell out all the wine over time, and they’d cut out the middle men. Dynamic Pricing is different than dutch auction. With DP, the price would go up or down as demand presented itself. The winery could set the algo for sales to last for months if they want to.
For wineries selling #1 wines, the question is: for what are you optimizing? Is the goal max profits? If so, using an auction scheme like a Vickrey auction has the best chance at profit maximization. Anecdotally, this is not what I hear from wine makers selling these types of wines. They are after maximizing their general utility which seems to be a function of profits and who drinks the wine. Depending on how valuable you find the latter, you might go to more or less extreme measures (lists are a way of ensuring wines are going to people you know, imploring people not to sell their wines and instead consume them, etc). Selling more to restaurants than people is an alternative strategy to increase the chances of a broader collection of people drinking your wine. All this is to say, I think the more you are in #1, the real question is the mix of profit and desired drinking. 100% then you are treating it like an equity and you just want best execution.
The #2 group is interesting and, by using the channels you describe, they do employ dynamic pricing: price scales based on volume, allowing them to basically hedge their production. I think if the infrastructure were easy to setup (not only the pricing but the logistics as well), using a direct dynamic pricing strategy could be good. Questions about brand erosion but might be small
Thoughtful post. You are right about #1. Maybe the better answer w/ the #1’s is set aside a small part of the production for dutch auction and sell the balance via traditional means? Can even say X% of the dutch auction wine will go to charity (which is also a writeoff for the winery). It allows the winery to profit off of the secondary market and directly inject supply into it thus hurting other secondary market players who capturing economic rent that’s not theres to capture! This is what the Ticket business did and it’s been wildly successful. Fan clubs still sell good tickets to long time fans (who pay a yearly fee too!) but the bands sell some of the best seats directly to consumers at inflated “scalped” prices on Ticketmaster.
Regarding #2, yah, there is a lot of kinks to work out. But if the end result is winery sells more wine and less goes to bulk market and prices end up lower, seems like a win win for everyone.
Pricing and demand psychology is an interesting topic that I don’t know if anyone has a perfect handle on. Any producer that sells out their production at release could, by definition, stand to increase prices somewhat. That said, the fact that the “perceived value” of the wines is higher than the release price is a significant reason to wait to get on the list — and then stay on the list once you’re “in.” If those values get too close, there’s no reason to be on the list, and because exclusivity itself is a driving factor in the value, the whole house of cards starts to unravel.
One thnig you need to think about - in the case of number (1) wines, people will pick up their allocations in poorer years to keep them in better years. Squeezing price and dynamically allocating every vintage means you’ll kill that level of loyalty.
(2) - you’d piss off your customers, if it was vastly differently priced. I dont know the States so well, but in France, ex-Bordeaux wine is pretty much offered at the exact same price to all channels. People down the chain make their money, but from a vineyard perspective, there’s no difference by channel. If you dynamically priced down because the first tranche didnt sell as well, people’d get irritated pretty quickly. There is plenty of precedent of second tranches being priced up.
All true. Can prob do a hybrid. Just sell 1/4th or less of the production via auction. Lets newbies enjoy the wine and the winery captures the secondary market.
Yah, good point. People buy the off years to stay on for the good years. Clearly just getting rid of the mailing list is a non starter so maybe a hybrid model should happen. Seems like it would be a win win win for everyone (but yah, people on the list would have their allocations cut back a bit).
If you’re going to bother, the more slick move would be just to have the owners peel off 20 or 30 cases per year and “personally” consign them to various auction houses. Not only does this help move them under the radar, but unless auction proceeds are taxable income (Do auction houses send 1099s?), you’d make out pretty well as far as taxes, too. [Not that I’d ever condone such behavior]
That wasn’t America. The Europeans hitched wine to the luxury bandwagon long before the Americans did.
Mondavi wanted wine to be something you had with dinner. Barolo and Tokaj both called their wines “The wine of kings; the king of wines”. Popes and emperors argued about wine before there was an America.
The owners of the chateaux in Bordeaux long ago realized that they could sell their wine as a premium product. What happened is that the premium just increased. Through the 90s and 2000s, they kept pushing prices higher and higher and they still sold out, so Americans started doing the same. But the idea of wine as luxury was not an American invention at all.
The export question is interesting. America is approximately sixth in exports, ahead of New Zealand, Germany, Argentina, South Africa and others. It’s also still the number one importing country. I suspect, but don’t know for certain since I’ve done no research, that the wines exported from the US are similar to those imported from countries like New Zealand and Chile - large production stuff from bigger wineries.
It’s hard for a small producer to export. There are plenty of them in Europe who would love to find a US importer if they could. But if you’re doing OK with the local market and you don’t have surplus to export, it’s not a bad thing overall for your business.
Yah, the Google IPO is a really good example of how this could work. They did dutch auction then priced it 10% below the clearing price! So a winery could incentivize people to participate in the auction by doing something similar and then still offer the wine for sale on the website but at a price higher than the clearing price. Then everyone is happy.
my guess is that the only problem with #2 for the wineries in that category is if you’re not routinely selling out, one of the things you want your brand to get is exposure. if you have to lower your price to sell out exclusively to the wine list, your brand doesn’t spread (via distribution, shop shelf space, selling in restaurants…) so this strategy ends up selling out wine now at a lower price vs trading some stock now for protecting the price down the road (when hopefully you have more brand recognition and larger customer base).
most brands in #2 love their mailing lists, but I doubt that most of them sell the majority of their wine that way. maybe this is a good COVID strategy for them to move product though?
The more the seller thinks of the wine like selling an equity the more these strategies make sense.
If you’re going to bother, the more slick move would be just to have the owners peel off 20 or 30 cases per year and “personally” consign them to various auction houses. Not only does this help move them under the radar, but unless auction proceeds are taxable income (Do auction houses send 1099s?), you’d make out pretty well as far as taxes, too. [Not that I’d ever condone such behavior]
I think part of the problem with these approaches is that most wine purchasers aren’t traders and don’t want to put in the time and effort to figure out their limits for what would effectively be auction purchases (many of which would occur around the same time). It’s a lot of additional transaction costs which annoys and frustrates certain people. Personally, I’d much rather buy things at retail for a fixed price than to spend a lot of time pouring over auctions in the hope of getting something slightly cheaper. Of course, that’s a very personal preference - I’m sure there are people who have the opposite view. But transaction costs are real (especially for busy people), and fixed pricing eliminates a number of them.
I do think for very small production wines this is something that can be done (see the thread on Coche pricing, which is effectively an offering that understands the wines can be flipped if the initial price is set too low), but I also agree with the posters above that there’s a real risk of damaging customer relationships by doing this. I’m much less likely to support a winery (or retailer!) who does this to me. It would be similar to a consumer asking their regular retailer to sell a wine at $30 cheaper because another retailer in [insert different location] has it at that price.