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On Wine

Dan Berger On Wine: Wines’ Retail Pricing

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One of the wine industry’s Achilles heels, and a topic no one ever talks about, is that domestic wines’ retail prices always seem to go up and almost never come down.

If you asked winery owners why this is, they might say things like, “This is the best (XXXX) we’ve ever made,” or, “It got the highest scores we’ve ever gotten,” or, “The grapes are so expensive,” or “We made so little of it.”

Are those reasons valid? Uh, well…

There are several other reasons prices don’t come down. One is simply that a wine’s price is almost always more related to how much of it was made. It has only tangentially to do with its quality.

Quality is an issue, of course, but as I have said for decades, price and quality rarely have much to do with one another. I know of many expensive wines I consider to be pretty boring and not really excellent, and I know of many reasonably priced wines that are superb.

Importantly, obscure wines can be moderate in price, especially if few people understand or know about them. Then the few potential buyers are in-the-know consumers. (Several cool-climate Cabernets come to mind.)

One reason that prices do not come down is the fear that winery owners have of what the public might think a lower price than the prior-year signifies. They dread that consumers will assume that a $25 wine that’s discounted more than a few dollars must have something wrong with it.

The result is that this year’s price will often be about what that wine sold for last year. Consistency is important in domestic wines. By contrast, prices for many famed European wines, such as Bordeaux and Burgundy, fluctuate annually based on vintage quality. Sometimes wildly.

About 20 years ago, a Sonoma winery with a reputation for making excellent Merlot released one that was terrible. The price was identical to the prior year’s wine. The winemaker told me the two wines were similar. They were not. And it wasn’t a close call.

In the United States, consumers expect to pay about what the wine has always been, give or take a tiny variation. (I heard a year later that sales of that Merlot collapsed and the winery struggled to get rid of it.)

Also, most wineries rarely discount their wines to protect their wholesalers. But they often work in concert with their wholesalers to offer price incentives to move slower-selling wines. These inside-the-industry deals re always treated as top secret.

Discounting, usually a temporary price cut often is used when a huge amount of a particular wine threatens to disrupt the normal release date of the next vintage.

A Sonoma County winery executive told me a few weeks ago it wouldn’t release its 2020 vintage of its rosé until its 2019 was sold out. To deal with this, he said he would discount the 2019 rosé to accelerate sales. No one likes facing the prospect of having last year’s vintage still for sale when the new vintage is released.

Dropping the front-line price of a wine is always a tricky maneuver and should be done with all parties involved in the wine’s distribution (wholesalers, retailers, brokers) in the loop. Consumers are notoriously fickle and sometimes a winery’s best calculations fall victim to market aberrations.

Wineries usually try to make just enough wine to sell over a 12-month cycle without discounting, but if a winery reaches the 10th month after release and still has a three-month supply of it left in inventory, what then?

Also, dropping a wine’s price has other negative consequences.

Imagine the headaches if a winery dropped its Chardonnay’s tasting room price from $32 to $25 while retailers still were selling the same wine at the higher price.

Decades ago, a well-known Napa Valley winery found that rapid sales of its popular Sauvignon Blanc put its inventory in jeopardy: the winery didn’t have enough of the current or later vintages to meet demand.

At the time, the wine had a national SRP of $9. A winery executive decided he could justify moving the SRP to $11 a bottle. That, he believed, surely would slow down its sale and help control its inventory while making a greater profit.

Most of the winery’s national wholesalers balked at this move, some vociferously, arguing that a price increase of 20% risked consumers’ brand loyalty. Most wholesalers said they couldn’t go along with the $2 per bottle retail increase.

However, one large Midwest wholesaler reluctantly agreed to the price rise. (I learned about this from a competing wholesaler.)

In just two months the winery learned that brand loyalty wasn’t strong enough: its Sauvignon Blanc sales nosedived in the Midwest. Soon the winery was forced to drop its SRP price back to $9. Industry insiders chortled at the tale. The competitor told me that the person who came up with the price-increase strategy “should get the award for bonehead of the year.”

All this musing about price reminded me of the time in 1987 when a new winery owner called me in to chat about how much he should charge for his first wine, a Cabernet.

I asked for details of his project. He wasn’t sure about much. I asked about his winery’s 5- or 10-year plan. He hadn’t thought of such a thing.

“All I want to do is price the Cabernet,” he said. I said that pricing a wine is a lot harder than is making it. “Making wine is easy. Selling it is hard,” I said, repeating an old industry saw.

I never got involved with that winery again, but the owner settled on a price so high that it gave consumers the impression that it was one of the world’s greatest wines.

Was it? That’s hard to say. I have never liked that winery’s Cabernet yet it remains one of the industry’s most iconic names and people pay absurd sums to get a bottle.

I can name two dozen Cabs that are better and sell for half that winery’s price.

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Californian wine is world-renowned, but does that account for the sharp uptick in interest in this wine brand? With wildfires and pandemics to consider, it can't be the only reason.

Dan Berger lives in Sonoma County, where he publishes "Vintage Experiences," a subscription-only wine newsletter. Write to him at winenut@gmail.com. He is also co-host of California Wine Country with Steve Jaxon on KSRO Radio, 1350 AM.

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