Wednesday, October 07, 2009

Tha Dolla' Dolla' Billz Behind Wine Pricing Y'All

An answer to the question you've never asked but always thought. How is wine priced?

Retail Shops:
The standard margin for independent wine shops is net 33%. So 50% over wholesale. If they pay $10 a bottle from the distributor they sell it for $15--when you consider general boutique retailers (jeans, skin care, shoes, et al) run a net 50% or higher, wine shops are giving you a deal.

Grocery stores will generally run a tighter margin, as they do with all their products. It's usually a net 10% give or take. When you couple that margin with huge volume (buying 2000 cases of a wine for regional distribution will get you better price then three cases for a stack in a small shop) then you see how grocery stores can fill their shelves with <$10 wines when most independent shops can't.

There're also a handful of independent "discount" wine shops that run out of warehouses, shop around for close-outs, and generally keep a lower overhead. Here you'll find wine at a net 15% but you'll have to travel pretty far afield and/or not get the hands-on customer service that you'll get from a neighborhood shop. Worth it for big ticket items maybe, but not to save a buck or two on an everyday wine. Some big hybrid discount/specialty retailers run a net 20%-25%.

Finally there are some shops that specialize exclusively in close-outs, odd lots, and grey market direct imports. Trader Joe's gets most of their imports on this market. Here you'll find wine at crazy low prices and it'll often be wine you don't see any place else. But just because it's cheap doesn't necessarily mean it's a good deal. Distributors and importers will close-out wines for pennies and since there's nothing else around to compare against, the store can pretty much fix its price. And grey market direct importing means cutting out the middle man and quasi-legally sidestepping California regulations.

In my opinion you should do most of your shopping at your neighborhood boutique wine shop and hit up your local discounter, Costco, or Cost Plus for your pricey gifts if you want to save a few bucks or you're buying for a party. Generally speaking, grocery stores don't sell wine worth drinking.

It used to be that margins were pretty standard. Neighborhood spots marked up their wine about 3x wholesale, upscale restaurants closer to 4x, and fine-dining could be as high as 5x wholesale. Glass price was generally set at 1/4 or 1/5 bottle price depending on the size of the pour.

In Los Angeles, all that is out the window. Some nice restaurants have really aggressive wine prices and some neighborhood dives are running French Laundry prices on wine. Particularly interesting is the "glass first" approach where a glass of wine is priced at the wholesale bottle cost and then the bottle is priced at triple the glass price. It makes for fair bottle prices but freaking expensive glasses of wine.

At the same time I'm seeing a trending toward lower bottle prices with new restaurants like Bar Brix and Noir Cafe pricing their wine at just over 2x wholesale. A shrewd move in my opinion--sell two $24 bottles of wine instead of one $36 bottle. The customer gets more variety and the business moves more product and makes less margin but more real cash. That's what all businesses need to look to do right now.


kathrine said...

What do you think about "Garagiste" type purveyors of wine? I've been a member of the one in Seattle and really like the wine I have gotten through them.

Jeff said...

I've bought a lot of stuff from Garagiste...and they are generally cheaper than where ever you can find the wine at retail. Recently, the had a Delas Frere 07 CDP that was 26 I think and K&L was 35ish...

Love this comment--"Generally speaking, grocery stores don't sell wine worth drinking." It's right on the money. Grocery stores like Ralph's and Von's are completely in the hands of the big producers who have more of an ability to offer large volumes of wine at a discount. And who the fuck really needs a 15$ Mondavi Cab when you can get awesome Cotes du Rhone for 7$ at TJ's?

David J.D. said...

Garagiste and other e-retailers will almost always offer wine at better prices then brick and mortar stores, even the big ones, because they simply have lower overhead. They can run with a smaller staff and less space (just a warehouse and a shipping area).

They also don't necessarily need to hold very much inventory as they can order wine from a distributor as the orders come in from customers since there's at most a two-day turnaround to get wine from a distributor.

But yeah, online retailers are great and models like Garagiste can offer these prices too because they sell via their email list and not on a website that's visible on WineSearcher, that way they don't tick off producers who see their wines online for half the tasting room price.

But of course if you need wine right now, they're not of much help.