$100 is the new $70

WINE TALK
1

Roy made the above statement in a thread about Realm “Dr Crane”. He also said this:

I understand where he is coming from. Every vintage new Napa Cabs appear at unbelievably high prices and they may get some positive press as folks give these new, typically quite good, wines a try. At the same time, a few past board or Parker favorites seem to be in a race to see you can hit each century mark in price first.

So the question is, have I done it all wrong? When we released our first wine back in 2005, I priced it at $72 a bottle. Not cheap, but certainly towards the lower range for a small production, single vineyard Napa cab farmed by Jim Barbour. We’ve held our price and in fact, offer discounts to repeat customers so that they often pay way less than $72. As a result, our margins are slim and without selling most if not all of our production, financially, it’s not worth it. I’m not trying to share a sob story or promote our wines here, but I do know from my own experience, from customer feedback, and from Cellartracker, folks love our wines and consider them excellent values. Generally our problem is probably too little exposure and when I think back, perhaps we would have created more buzz with higher prices and we certainly would have been able to afford fancier packaging and mailers, advertising, slicker promo materials, more travel, etc.

It may be tough to get some opinions beyond the “hell no, we want low prices,” mentality, but thinking deeply, do you think that $70 is a bad price for a wine… too high for an every day drinker but not high enough for you to perceive it as a true luxury good, “high-end,” or excellence when so many peers are priced higher?

(Customers, don’t worry, I’m not about to jack my prices, just wondering in hindsight if bucking the trend and going for value when launching the brand was the wrong direction to take and creating a mysterious aura, high pricing, etc would have been wiser.)

2

I am sure others will have far more eloquent answers than I but…I used to have this conversation with a well known Cab maker and his reply, when working on pricing with the owners of the labels - and he fought to keep it on the lower side - was you have to be at $100 or above for people to take you seriously as a high end, luxury label, Cabernet. His clients all wanted to go well north of $100 but he at least fought to keep things around $100.

It just seems the nature of CA Cab, there needs to be an aura of scarcity, a high price, a well known winemaker (Andy Ericson, Thomas Brown, Mark Herrold, etc.), high RP scores and some influential posters on the wineboards being able to barrel taste and promote the wine.

There are only a couple of Cabernets, IMO, that generate any buzz at the $75 mark - Switchback Ridge and Karl Lawrence.

3

I think most of us realize that what Tony said is true and for me it has the converse effect where I figure if they shoot north of that price then there is a tinge of marketing versus being serious about the wines. I know thats not the case for EVERYONE before I get trashed but I do tend to write off wines that go north of that price unless I know they are wines with good track records of improving in the bottle and come from a good vintage.

4

Being in the retail side of things, I’ve long felt that the $51 - $99/btl Napa Cabernet price point was a no man’s land. The high dollar buyers most often wouldn’t look to a sub-$100 cab because it doesn’t fit their image (wines are trophies and the dinner table way of showing off) and the lower price point guys ($30-under typical purchase), don’t usually (in my experience) reach much past $50 for a special-event bottle. I would argue under $50, you get the splurge for the lower end and the everyday wine for the higher rollers.

When asked, I tell my friends if you aren’t under $50, you should be @ $100. That said, the rules are being re-written as we speak so I’m not sure where things will be this time next year.

5

Well, first I would disagree with Roy’s assertion that “$70 is pretty much history for high-end Cabs.” The “high-end” moniker is at least a moving target, and at best a subjective pronouncement – unless of course “high-end” ONLY refers to price. That said, I have the feeling my high-end probably wouldn’t be Roy’s (or maybe your’s) either.

W/o going through a phone book looking for names, I’d say Paradigm offers a “high-end quality” Cab at less than $70. And, while it may not do you any good to hear this, after reading your posts and visiting your site I came to the conclusion that if/when [in these uncertain times] I want to pull the trigger on some $70 Cab, it will probably be yours.

6

Further thinking about it, and I did read Roy’s post - b/c he had some good information about pricing - Cab grapes for vineyards like Beckstoffer ToKalon are really expensive, corks are expensive (although I saw more $.75 per cork than his figures), labels, glass, barrels (at $1200 or so and most are almost exclusively 100% new oak). These all add to the price.

But what it really comes down to is perception. For a lot of wine buyer/collectors especially in the Cab market which seems to be where the status drinkers hang out (I know not everyone is a status drinker) but this category has more than any. I can say I saw more celebrities coming over to Napa wineries looking for Cabernet than I saw coming over to Sonoma for Pinot and Syrah. And they all knew Screaming Eagle, Harlan, Shafer HSS, Caymus, etc. So getting back to the status drinker, $300 with a hot winemaker is much more impressive than a $75 Cab with a relatively unknown winemaker - even if the juice in the $75 wine is better.

The reality is that you have to work harder to get the $75 wine in the hands of people who are going to drink it based upon what’s in the bottle and get them to be repeat buyers - which it sounds like you are doing very well. CA Cabs, without the named winemaker, also need high RP scores. I think what Juan has done at Realm is sheer genius. He travels a lot, hosts wine dinners with affluent people in various markets, barrel tastes them and walks away selling a lot of wine. We’ve talked it about it…

7

Here are a couple scenarios for you Randy considering your wine was priced at $100/btl since release:

  1. Direct Sales: Your mailing list might have been the same to start with only to see people drop off as the years went on. You would have to spend more time trying to fill those drop offs. While the margin would be higher, right now you would be fighting to find more buyers and sending more wine to distribution. This leads me to …
  2. Wholesale accounts: This where more of the wine would have ended up. Let’s assume your wholesale cost would have been $67/btl for the wine YOU sold direct without paying commissions. Next we need to factor in your travel costs per bottle and the price of fulfilling the order. This is going to bring the price closer to $60/btl. If you are paying a broker to sell this wine in CA, your price will be closer to $50/btl.

Now let’s look at FOB and distributor costs. FOB would be $50/btl and no further costs associated with getting the wine to the said market in shipping costs. BUT to get the wine into these markets, you need to consider your time finding the distributors and sending samples as well as potentially visiting them first. This will bring the price to ~$45/btl. Assuming the the wine doesn’t work it’s way through distribution in the first week, you need to spend time and money making the wine move. Let’s say you sold two layers to NY and need to spend a week out there to introduce the product. The cost of visiting NY, staying in Hotels, entertaining the reps, sample budget, the car rental and flight comes out to ~$2500 for the week. Your per bottle cost is now down to $42 and you have spent the week out in the market. Now, let’s consider if the didn’t sell through. You plan another trip but a shorter one. Let’s call it a $1500 trip for three days visiting key accounts. Your bottle cost is now well under $40 and you are hoping to sell through the rest of their inventory to get another order. In a best case scenario, you sold through the inventory but the distributor is now asking for the SAME wine at a discount in order to push it through the system. You feel the wine shouldn’t be discounted. There is no repeat order. Now you must find another distributor and spend the same amount to re-introduce the wine into the system. You find a new distributor but they want a discount too even though they like the product. What to do now.

Instead of going through this headache, you have a loyal base of customers who are getting the wine at a perceived discount so they are content and YOU are still selling the product at roughly the same price as direct wholesale in the state of CA. I think you went the right route. [dance2.gif]

8

Another scenario I forgot:

Let’s say you did discount your wine to said distributor. It is now showing up at retail in the $75 range. Your mailing list is pissed because they can find the wine for $25 cheaper and not pay shipping. Now your list is way down and you are a slave to the distributors.

9

Randy,

Interesting post! I haven’t tried your wine, so my opinion is based soley on my stance (and personal monetary situation) as it relates to Napa Cab pricing.

First, some context:

  • I’ve never spent more than $100 on a bottle of Napa Cab. … Napa Cabs. just aren’t my favorite wine, so I have a hard time justifying spending that much when I’m not buying a Rhone or Bdx.
  • Most of the Napa Cabs I buy are in the $40 - $60 range.
  • I start “thinking twice” about buying a Napa Cab. when the price hits $80.


    I think large price increases from year to year are offensive to the consumer (especially in this kind of economy … blah blah blah). Even more offensive, however, is the new label that comes out with a Napa Cab at $200+ for their first release (I’m sure we can all think of at least a few examples). I think there’s a lot to be said for earning consumer’s business, rather than expecting it.

Do high prices in general, or with first vintages, generate “buzz?” Yes. But you have to ask yourself, is this the kind of buzz I want to generate?

Another thing to consider is whether the juice justifies the price … in many cases, I suppose it does.

Finally, winemaking is certainly a business. There are many different types of business models. Some are designed to maximize profit at every turn. Others hedge profits in the name of certain personal beliefs of the owner/winemaker.

Obviously, the vast majority of consumers prefer lower pricing … but, there will always be those who want to brag about how much they spent on such-and-such a bottle, so I suppose one could price themselves out of that market by pricing too low. Consumers who want higher pricing are frickin’ out of the gourds. [foilhat.gif]

As you know, this is a very complex and difficult question. I’ll be reading this thread with interest.

10

Randy-

I don’t know about you, but I wouldn’t want my business to depend on the whim of the way a couple of people felt about my wine on a particular day and wrote as such. Trying to out-Harlan Harlan or insert your own name there is a dangerous business. It’s a highly-competitive and tough place at the top, and those brands have the track record on you.

There are a lot of brands on fire right now that get no play on wine boards, or really even from critics. But their revenues are sickeningly good right now. Value and price positioning plays a big part in that (and did even before the economic woes). I’ll take being anonymous with a healthy balance sheet over being a player who’s an 88 away from a full warehouse any time.

If ~$70 works for your business and it is strong, go with it. If it doesn’t, maybe there is something to be said for raising prices…that’s an old retail saw, isn’t it? When something isn’t moving, raise the price?

I knew it was a different world Roy was talking about by looking at his numbers. $24/cs for cork and $48/cs for glass is nuts. I’m not even sure what I would say if a vendor came to me with that. Forget about actually signing on the dotted line; I’d lose my job. Barrels…well, hey, I must plead guilty as charged there. I disagree that there is no excellence <$70, though (and not just because I make a <$70 Cab, but that’s part of it).

Juan has done a great job, as Tony said, and is a really nice guy. But he works his ass off in getting it done. If you want to play in his sandbox, you’ll need to pack a lunch. Or, build loyalty with your customers with your value. $70 may be retail no-man’s land, but if you’re not selling to retailers because your mailing list takes cases rather than nibbles, BFD?

11

Nate - well said.

And let’s be clear, I am not suggesting that Randy raise his prices or rely solely on scores or that there are no good sub $70 Cabs. There are plenty but it seems real buzz comes from the things I mentioned above but it is a slippery road to play on because as Nate said, a couple of sub par scores and let’s face it, when it comes to CA Cab these days anything below 95pts seems like a let down based on the ever increasing RP scores out there and ever increasing prices, can kill all the buzz for the point chasers/status drinkers/collectors.

If you have a loyal customer base buying your wines direct that is awesome. Continue to cultivate those people, continue treating them well and when some of their status drinker friends find themselves no longer playing in the $250+ sandbox, they may funnel them your way.

I still think it is important to be able to meet people at the source in Napa…people love meeting with the owners in their setting, surrounded by barrels, in wine country, tasting the wine.

I haven’t had the Randy’s wines but do know that as a DRINKER, I would rather pay $70 for a CA Cab if I like it and like the people behind the label. And yes, Juan does spend a lot of time traveling…

12

My take is only two words.
Randy Dunn. His wines are not for everyone and take a decade not months to reach optimum pleasure, but he proves that a great tasting, well constructed wine can sell for well under $100 and succeed in this market. The days of needing to show off a fancy label to impress penis envy low self-esteemed friends are over. Guys with that mentality are stuggling to pay mortgages and high car payments today. [suicide.gif]

13

I have been really enjoying sub $70 and even sub $50 bottles of Napa Cab recently…'05 Parallel, '05 Drinkward Peschon, '04 Kuleto, etc…FWIW. I still have a bevy of the $100+ bottles as well, but most if not all are labels with good track records. I got burned by the Ovid hype last year and I will only buy expensive wines moving forward if they have been released and people I trust have tasted them.

14

I have not had Randy’s wines either, but will rectify that on March 9th.
The plan seems sound and also seems to work for you.
I see $100 wines as semi-trophy/special occasion wines that are certainly at the glass ceiling at the moment. In all honesty, it’s been that way for a few years now. Watching wines like Futo get the numbers they do and reading the notes really makes me wonder about that business model.
Realm is a great example of the wines broaching that ceiling and drinkers of said wines, now in its sixth? I believe, vintage have a good track record, so the slip has been removed from the slope. The ToKalon just going over $100 this year seems about right with the market though, and I am sure a ton of BTK grapes don’t come cheap.

Unfortunately my everyday drinkers have really skyrocketed in price to the $50 mark, where they were $25-$30 tops. The whole market is feeling it but I argue that the lowered tier wine buyers feel it slightly more, especially a $10 jump on a $25 wine is 40% whereas the same $10 on Realms BTK is still under $10%.

I can tell you that most of the wines in my cellar are in that $25-$90 range. I hate owning the so called ‘trophies’. I drink my wines and would be hard pressed to ever really want to drink $200+ bottles when so much joy is found in my backyard. The ones I have owned always get traded away for drinkers. I own no Scarecrow, but have had it. No Ovid, Futo, et al.

15

Where is the original thread? Can’t find it.

One other point no one has mentioned. Lately some growers expect the price of wine to reflect grape prices. If that Beckstoffer Cab is what now, $15K per ton, he expects whoever buys that fruit to also price it at $150 per bottle. Price it lower and you’re not getting that fruit again.

16

Are you serious?

17

Greg - the original question/statement that Randy is referring to was posted in the thread on the Realm Dr. Crane tasting note

18

Greg- I don’t think that is entirely accurate.

There may be a minimum of ~$10,000 for BTK, as well as a makeup billing when the bottle price is set ((price*100) - 10,000), but I don’t think that if you price below that you are out. Provenance, for example, makes a BTK that is <$100. I would imagine, pay your bills on time and don’t rock the boat with price increases and you’re more than welcome.

Anyways, growers trying to set the price, or merely expensive fruit…they are both beside the point. Buying grapes is one cost basis in which the winery has total control. Pricing your bottle at ‘x’ because a grower is charging you ‘y’ is a bit bassackwards in my book.

I think growers should be using bottle price formulas in “name” vineyards. Wineries cash in on the growers’ brand in those cases. Which is exactly why they are willing to pay those prices.

When you’re paying $15K/T for fruit, $24/cs for corks and $48/cs for bottles, there’s some low-hanging fruit there for trimming costs [understatement]. Ironically, those are probably the 2.25" corks that people bitch about pulling and the bottles people bitch about being too heavy. Perhaps I should start a new career as a management consultant for wineries?

19

This has been an interesting development taking place over the last 15 yrs or so. Even if the vineyard is a relative unknown, growers will often lobby for their fruit to get its own billing, rather than have it included in an appellation blend. They are making certain that the value of their fruit is maximized, through the original pricing and into the final marketing.

20

Even if the vineyard is a relative unknown, growers will often lobby for their fruit to get its own billing, rather than have it included in an appellation blend. They are making certain that the value of their fruit is maximized, through the original pricing and into the final marketing.

I have seen (this was Pinot noir in 2006/2007) a grower take fruit away from one buyer who was to use it for an appellation blend and give it to another winery who promised to designate it. For a lower price.

Makes business sense. I would argue the point of maximizing their “value”, as the appellation wine still might be the better wine, but one cannot argue maximizing their exposure and potential future revenues (ie if the wine was received well, they issue an ultimatum to their contract-holders to go vineyard designate status or see their contract put on notice, and then they shift into “single vineyard” pricing - a difference of typically ~$700 - $1000/T at that time).