Winery Price versus Retail (Napa)

[Nathan_Smyth]

distributors won’t carry your wine

If you’re a channel-based business, then either you have a happy channel, or else you’ve got a bankruptcy in your near future.

Like I was saying above here, Castellano tried to squeeze an extra five points out of his channel, and his channel rose up in fury and assassinated him.

[BTW, for those of you who are blissfully ignorant of these things, there was a non-trivial intersection between Castellano’s channel and the ostensibly legit ETOH distribution network.]

Very, very few wineries sell all their wines direct.

Earlier this evening, I was trying to imagine which California wineries could sell 100% of their product every year direct-to-consumer.

In the old days, that might have amounted to SQN & Screagle.

Nowadays, one of the newcomers, such MacDonald, or Ghost Horse, might be able to pull it off.

In France, DRC & Roumier & Coche could go to direct sales with their GCs, and probably also with their 1ers, but it’s hard to imagine them selling through their village wines without a channel.

[Scott_Brunson]

WineSearcher has an app; you can check prices before you visit a winery. Very few Napa wines are significantly cheaper at the winery/mailing list than at retail. Many of those wineries have already been named in this thread.

[Gabe_Berk]

Winery X has a large amount of unsold 2016 wine that they couldn’t sell DTC or to distributors. They sell it off at a negotiated price to the likes of K&L, JJ Buckley, Last Bottle, First Bottle, etc. who are selling it for 20%-30% off what retail was when it was first released and sometimes 40%-50% off what the winery charged upon release.

As mentioned from someone else, the 2014 BV Tapestry for $34 a bottle with a 95 point score is a steal. Same bottle right now on their website is $65.

[Mike_Kuller]

Back in the day, in the 1980s and 1990s, the Napa wine tasting rooms used to be called “hospitality” as a way to introduce customers to their wines.

Tasting fees were low and could be applied to a purchase. Some let you keep the glass.

Fast forward to the late 1990s. More wineries popping up, more traffic and Napa looking for ways to keep drunk drivers off the roads.

Wineries discovered their tasting rooms had become so popular, they could be retail profit centers. Tasting fees went up…and up.

Naturally it was just to discourage drivers from drinking too much

Amador County, Paso Robles, Livermore and other non-Napa/Sonoma small wineries still view their tasting rooms as hospitality.

[Alan_Rath]

I’m not sure I understand the “don’t undercut your retailers” logic. Why isn’t taking the time to visit a winery and buy directl something to be rewarded by at least selling at the prevailing “discounted” rate of the average retailer? It’s not like most people can actually visit the winery and buy direct, that’s a rarity for any wine of even moderate production.

You don’t need to understand it. You just need to understand distributors won’t carry your wine if you do this.

And yet you cite examples of discounts in just your next post

I certainly understand why “Prisoner” or Hall isn’t going to discount at the “winery”. But much smaller producers often sell direct at less than retail for the little wine that will make it into that channel (Dehlinger used to give a 10% case discount, probably still does; Carlisle offers discounted pre-release pricing; Copain has it’s club discounts; etc.).

[Mike_Kuller]

I thought Steve Zichichi in Dry Creek has a great business model. He’s an interesting guy who was the orthopedic surgeon for the NO Saints but after hurricane Katrina he retired and brough his young family to property they owned here. We discoverd him over 10 years ago and others may do something similar.

There is a sign outside his parking area on West Dry Creek Rd. that advertises “Barrel Tastings”.

When you come in you can taste current releases at the counter for a tasting fee. Everyone is invited in the barrel room in back for barrel tastings of at least 3 reds that are to be released the next year (his zin is really good).

If you buy a case of the unreleased wines, you get a 20% discount. The next year when it is released he can either ship your wine to you or notify you to come back to pick up your wine at the tasting room - where you can repeat the process all over again. The tourists feel like wine connoisseurs.

And the future buyers are helping to finance his operations.

[z_hart]

I thought Steve Zichichi in Dry Creek has a great business model. He’s an interesting guy who was the orthopedic surgeon for the NO Saints but after hurricane Katrina he retired and brough his young family to property they owned here. We discoverd him over 10 years ago and others may do something similar.

There is a sign outside his parking area on West Dry Creek Rd. that advertises “Barrel Tastings”.

When you come in you can taste current releases at the counter for a tasting fee. Everyone is invited in the barrel room in back for barrel tastings of at least 3 reds that are to be released the next year (his zin is really good).

If you buy a case of the unreleased wines, you get a 20% discount. The next year when it is released he can either ship your wine to you or notify you to come back to pick up your wine at the tasting room - where you can repeat the process all over again. The tourists feel like wine connoisseurs.

And the future buyers are helping to finance his operations.

We too discovered Zichichi about 10 years ago as well. He makes a killer Old Vine zin. I’m not sure if he uses any retail outlets, but he is very generous with his futures case discount.

[Wes_Barton]

I’m not sure I understand the “don’t undercut your retailers” logic. Why isn’t taking the time to visit a winery and buy directl something to be rewarded by at least selling at the prevailing “discounted” rate of the average retailer? It’s not like most people can actually visit the winery and buy direct, that’s a rarity for any wine of even moderate production.

You don’t need to understand it. You just need to understand distributors won’t carry your wine if you do this.

And yet you cite examples of discounts in just your next post

Yes, I understand you don’t get it. Not sure why, though. Distributors don’t get upset if you charge suggested retail, but discount that to effective retail for club members and case purchases. If they perceive you as competing with the retailers to the degree that those retailers won’t want to waste their highly competitive shelf space on your wines, they won’t bother carrying you.

On top of that, throw in the long running corporate culture that dates back to what they were doing during prohibition. These are the same people who lobby for state laws that restrict market access to their competition. They don’t like any competition. You cross a line that they chose to draw, they will drop you out of principle, hanging you out to die. In some states they have laws that if you want to drop your distributor, you can’t. They aren’t selling your wines, you want to switch to someone else, but you can’t. Only they can release you, which they won’t do if they’re punishing you. That’s how far they’ll go when and where they can get away with it.

[Randy_Bowman]

Back in the day, in the 1980s and 1990s, the Napa wine tasting rooms used to be called “hospitality” as a way to introduce customers to their wines.

Tasting fees were low and could be applied to a purchase. Some let you keep the glass.

Fast forward to the late 1990s. More wineries popping up, more traffic and Napa looking for ways to keep drunk drivers off the roads.

Wineries discovered their tasting rooms had become so popular, they could be retail profit centers. Tasting fees went up…and up.

Naturally it was just to discourage drivers from drinking too much

Amador County, Paso Robles, Livermore and other non-Napa/Sonoma small wineries still view their tasting rooms as hospitality.

Back in MY day, (70s), I shared a house with two barely adults. If we ran out of beer money we’d jump in vehicle and enjoy the free hospitality at all 9 wineries. I realized we were overdoing it when we were on a first name basis with the hospitality staff of every winery.

Back in those days, I would estimate the major wineries moved 85 to 90 percent of their wine through the distribution system. I would not be surprised if the majors still have the same numbers. With a few exceptions, I would think smaller wineries would move 75 percent of their wine through distribution, depending on the amount they are actually bottling. We used to carry a lot of a small winemaker’s wines and had close ties. They would send us customers if the tasting room was low on any wine and periodically call asking how much wine we had left.

[GregT]

In some states they have laws that if you want to drop your distributor, you can’t. They aren’t selling your wines, you want to switch to someone else, but you can’t. Only they can release you, which they won’t do if they’re punishing you. That’s how far they’ll go when and where they can get away with it.

Exactly. It’s astonishing that this takes place, but it shows you who has the clout with the legislature.

And believe it or not, in some states, they’ll let retailers order single bottles from a distributor. You get an order for 25 bottles of 25 different wines and you’re basically acting as their stock boy.

Every state has some weird stupid incredible rule that makes no sense.

But as for the OP, keep in mind that the choices depend in large part on the winery. Small cult wineries may be able to sell their entire production DTC. Non-cult wineries may need some help with middlemen. And since those wineries have the least bargaining power, they’re not likely to PO their resellers.

Big brand name wineries can probably discount their wines at the wineries and if the retailers don’t like it, they’ll just get replaced but why would the winery discount? The customers want to say they went to the actual winery and had the winery experience.

And if some customer feels he should have been treated specially just because he is one of thousands who traveled to the place and asked some questions, there will probably be some deal signed off by corporate - maybe a free glass with a logo or a discounted or free tasting fee if he buys a few bottles. And if that’s not enough, losing a customer who wants special treatment and is willing to become a pain in the butt isn’t the worst thing that could happen.

The thing to keep in mind is that the winery doesn’t set the non-winery retail price, as Larry noted. When they set their own retail price, they have to factor in not just the cost of production, but the cost of running a store, separately from the cost of the winery. A retail operation is a different business with different codes, health rules, liability, personnel, etc. So they come up with a reasonable price. When they sell to their wholesalers, they calculate their costs, etc., and what the market will support with the reseller’s profits added. When I was doing some of this, I often told producers that their wines would have to retail for too much money to be reasonable business propositions. The wine business is about cash flow, not presenting inventory.

So some resellers will discount their wines if they’ve been in stock for some amount of time. Some retailers will give you a huge order if you agree to cut your margin - but why not cut it if you can sell entire pallets or containers? Those retailers will undercut their competitors who may decide to cut their own margins so as not to lose customers. Back at the winery, the producer sees those retailers out there and wonders if his brand is going to be devalued as some kind of discount brand, but there’s not a lot he can do about it.

Setting aside the flash sites like WTSO that also function as clearance outlets, big retailers can buy enough product to negotiate huge discounts, sometimes directly from the winery. And some of those retailers are willing to take an extremely low mark up on wine because they’re making so much on liquor that they’ll undercut pretty much anyone. Back at the winery, they can’t really compete with those guys.

[Adam_Frisch]

This is all very interesting. I have the whole nightmare of selling ahead of me.

[Jeff_M1]

We had a really interesting off the record conversation with a Napa winery owner who I won’t name earlier this year about some of those $300+ bottles of wine. I would say most wineries aren’t selling out of those expensive bottles and are offloading them at Costco and other retailers to clear inventory at lower prices.

[Mike_Kuller]

In talking to Santa Cruz (MJA) and Capitola (Armida) CA tasting room personnel, a number of locals have joined the wine clubs to get free tastings and they come in regularly for free wine before dinner.

MJA has had to limit the free wine for club members to once a week.

[Merrill_Lindquist]

In talking to Santa Cruz (MJA) and Capitola (Armida) CA tasting room personnel, a number of locals have joined the wine clubs to get free tastings and they come in regularly for free wine before dinner.

MJA has had to limit the free wine for club members to once a week.

Despicable misuse of the intent by the winery. Some people just go through their lives thinking someone else should always pay. I would limit it to once a quarter or every six months. Geesh.

[Mike_Kuller]

In talking to Santa Cruz (MJA) and Capitola (Armida) CA tasting room personnel, a number of locals have joined the wine clubs to get free tastings and they come in regularly for free wine before dinner.

MJA has had to limit the free wine for club members to once a week.

Despicable misuse of the intent by the winery. Some people just go through their lives thinking someone else should always pay. I would limit it to once a quarter or every six months. Geesh.

Guess I won’t join YOUR wine club

[John_Morris]

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

The winery establishes the “suggested retail price” of their wine and many demand retailers meet that price to carry their wine.

Sorry, but it’s illegal for a producer to agree with a distributor or retailer to sell their product at a set price. If the producer “demands” and the retailer agrees, they’ve got a legal problem. That’s price fixing and, so far as I know, it’s still one of the clearcut things in antitrust law.

That’s why you have “suggested list prices.” They’re only suggested.

It is ‘illegal’ to tell a retailer what to charge for wine - just as it us for most other products. That said, if a winery has ‘clout’, they can choose not to sell to retailers who don’t abide by what they want to.

+1

If the winery simply cuts off a discounting retailer, and there was no agreement between them, that’s not illegal.

Paradoxically, it’s the small producers that are in demand that have the market clout and cut off discounters. But if you’re a good sized producer, you need retail distribution.

Wineries have to sell the wine to you at retail unless you join their wine club.

I know if no such requirement anywhere.

[Merrill_Lindquist]

In talking to Santa Cruz (MJA) and Capitola (Armida) CA tasting room personnel, a number of locals have joined the wine clubs to get free tastings and they come in regularly for free wine before dinner.

MJA has had to limit the free wine for club members to once a week.

Despicable misuse of the intent by the winery. Some people just go through their lives thinking someone else should always pay. I would limit it to once a quarter or every six months. Geesh.

Guess I won’t join YOUR wine club

Friends are always invited to join me for some Black Cat for free.

[GregT]

We had a really interesting off the record conversation with a Napa winery owner who I won’t name earlier this year about some of those $300+ bottles of wine. I would say most wineries aren’t selling out of those expensive bottles and are offloading them at Costco and other retailers to clear inventory at lower prices.

Maybe so. We didn’t renew our Costco membership so won’t be able to shop for Bryant there, but keep in mind that it’s a little bit like getting 90 points. If you can’t find some competitor to talk trash about a winery, you probably haven’t looked hard enough.

[John_Morris]

When [the wineries] set their own retail price, they have to factor in not just the cost of production, but the cost of running a store, separately from the cost of the winery. A retail operation is a different business with different codes, health rules, liability, personnel, etc. So they come up with a reasonable price. When they sell to their wholesalers, they calculate their costs, etc., and what the market will support with the reseller’s profits added. When I was doing some of this, I often told producers that their wines would have to retail for too much money to be reasonable business propositions. The wine business is about cash flow, not presenting inventory.

I’m skeptical of this overhead argument. When you factor in the three-tier system in most states, with distributors taking a cut, and rents in urban environments, I suspect that most wineries have a better margin on direct sales than most stores do.

[John_Morris]

I’m not sure I understand the “don’t undercut your retailers” logic. Why isn’t taking the time to visit a winery and buy directl something to be rewarded by at least selling at the prevailing “discounted” rate of the average retailer? It’s not like most people can actually visit the winery and buy direct, that’s a rarity for any wine of even moderate production.

But you don’t have to show up at the door. If you could order online from the winery for the same price with shipping as a discounted retailer would charge with delivery, why would distributors or retailers want to carry the wine?

In areas like Napa and Sonoma, which are close to such a large urban area, competitive prices at the cellar door could easily cut into sales through the normal chain.

Plus, it would give the lie to the notion of a list price, which still seems to exercise some power over us.