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Prices plunge, sales slow as the slump takes aim at wine

17 comments

I sat down to read the Sunday S.F. Chronicle yesterday and, as is my habit, began to separate the sections I like from the advertising sections which I have no interest in and put right into the recycling bin. But then one of them caught my eye. It was from Cost Plus, the chain store. On  the back of the supplement they were advertising “Our Biggest Red Wine Sale Ever!” and I saw lots of familiar bottles, because I had reviewed most of them for Wine Enthusiast

The prices seemed a lot cheaper from what I remembered, so I went into the magazine’s database and looked up the suggested retail bottle prices the wineries had indicated when they sent me the tasting samples. (In the interests of transparent disclosure, most of the wine I review is sent to me, unsolicited, by the wineries.) Sure enough, the prices Cost Plus was advertising were much, much lower than the SRPs from the wineries. Check it out.

Chateau St. Jean Cinq Cepages. SRP $75. Cost Plus price: $50. Discount: 33%.

Simi Alexander Valley Cabernet Sauvignon. SRP $26. Cost Plus price: $17. Discount: 34%.

Blackstone California Merlot. SRP: $12. Cost Plus price: $7. Discount: 41%.

Michael David 6th Sense Syrah. SRP: $17. Cost Plus price: $11. Discount:  35%.

Castle Rock Mendocino Pinot Noir. SRP: $12. Cost Plus price: $9. Discount: 25%.

Admittedly, the SRP that wineries list for new releases is often higher than what many people will ultimately end up paying. That’s because the wineries figure customers who think a wine will cost $25 will be pleased when they find it for $21 and thus more likely to buy it — whereas if the customer thought the wine cost $21 and then discovered it was $25, she’d be less likely to buy it.

But in my experience the difference between SRP and average shelf price is maybe 10% or 15%, tops. So what’s up?  Either Cost Plus is desperately trying to move inventory even if that means taking a profit hit, or the wineries themselves are trying to move inventory by lowering their prices to Cost Plus. Maybe it’s a combination of the two.

Either way, the extent of the price discounts is shocking. But this news is pretty shocking, too. There is “a worldwide drop in champagne consumption for the first time in almost a decade,” the Comite Interprofessionnel du Vin de Champagne reported last week. 

Are these two things related? Yes. Are they temporary blips, or two canaries that just dropped dead in the coal mine? I don’t know.

  1. A winery’s SRP is what they hope they’ll get for the wine, before a wholesaler wants his pockets lined with discounts, so they can give their sales reps even more money for getting the wine shelf space. Wineries cringe, every single time they see their wines discounted… At least, that’s what I see on my end in marketing meetings. ;^)

  2. Our stores actually get in trouble for pricing things as low as we do. But unlike Costco, we actually do that everyday. As they say in the biz, “stack it high and watch it fly!”

  3. SRP as just that: Suggested.
    It is the final price point that retailers will end up charging for the product. Wineries sell their wines to distributors for about 1/3 that. There is enough room for mark downs and discounts.

  4. I saw the same sale and was not surprised. When hard times hit, people still drink. But price is a factor, those that adapt best stay around, those that don’t, bye-bye! That doesn’t mean everyone should drop there price, some will use other marketing idea. But we must adapt to survive.

    Arthur comments have not been my experience. Wholesale is 2/3 of retail, distributor price is 1/2 of retail. there may be some wineries that drop there price to 1/3. But in the long run, I think that hurts your brand. I could name many wineries this has happened to, but won’t call them out here, it’s the wrong form for that.

  5. This reality is one that we’ll see over and over again – deeper discounts on many ‘name brand’ wines as they try to clear out older (and in some cases, current) vintages to help pay the bills for future vintages . . .

    Don’t be surprised to see these ‘deals’ coming from the likes of K and L and other similar stores as well – I have seen first hand deals being made at the wholesaler level on same very well respected wines – buy 1 case from the wholesaler/distrubtor, get one free or at a very very deep discount.

    Curious to hear what others have to say about the issue – and what they are seeing in their local stores . . .

    Cheers!

  6. Cost Plus is often a place we go to unload out of vintage wines that have disappointing sales in their normal sales avenues. Their prices are often very low for most of their wines because we sell them for very low.

    I’m currious about the vintages of the wines the author saw on discount. I’m guessing (and hoping) they’re well beyond prime!

  7. Jay, it’s hard to know exactly when one vintage replaces another, as it’s not a bright line. In general the Cost Plus wines were ones I reviewed in the last 6 months.

  8. Good chance the canaries dropped dead.

    Even better to ponder while swirling a glass of wine, what might hatch from the eggs left in the canary nest.

  9. Steve, I’d be hesitant to judge too much from the ads, especially given the discount nature of the retailer you are looking at. Have you asked any retailers what is happening at the cahs register? At the retailers I frequent, there has been cost-consciousness, but not a cutback in consumption (so far).

    As for Champagne, I am not surprised. Luxury in general is on a steep downward slope. Sipping champagne seems about as couth as driving a Hummer now, given the economic climate.

  10. Tish, I’ve been talking to many industry people — retailers, restaurateurs, producers, PR people, etc. Everyone is describing the same phenomenon to me. A lot of my previous blog postings have been on this scary topic that we’re in for a hard 2009. Maybe the good news about today’s stock market is an indication things are turning around. I hope so!

  11. Catharine says:

    Cost Plus is the Diageo/Constellation retail shop. What do you expect?

  12. I used to work for one of the wineries mentioned in the Cost Plus ad and the discount pricing is exactly the same as it has been for the last 6 years. As another person mentioned in their response, Cost Plus frequently marks the wines well below other retail outlets just to get people through the door. This is not to say that things are not going to get tougher in the wine market, I personally think they will.

  13. As a winemaker who sells his wine into the wholesale market at $13/bottle and then sees it on retail shelves in the $29-$35/bottle range and in restaurants at $52-$80/bottle range, I’d say the distributors, retailers, and restaurant pieces of the supply chain all have a lot of margin wiggle room within which they can work. I’m never surprised at how much below the “SRP” a wine ends up….I’m much more amazed at how many times (and how much) a wine is marked up before it reaches the consumer.

  14. Costplus is infamous for running ads on wine at their cost just to get customers in, so they can then sell them some cheap imported trinkets at 500% markup. Wine is their “loss leader”. Thats probably why they were going out of business, and Pier One has bought them

  15. As a former big winery sales manager, I will echo a few of the previous posts by mentioning:

    1. Yes, some of these discounts are typical, especially as we enter Q4. Not that the large wineries have a calendar fiscal year, but it’s still the time of year to make sales numbers. Many large wineries are case-driven, not necessarily revenue driven.

    2. Many SRP’s are what the wineries artificially state so that there is room for discounts and sales incentives for not only wholesalers but the retailers as well. Not that CPWM does that, though.

    3. Many of these wines are probably over-priced for what they are from the get-go.

    4. Many of these wineries and wholesalers need to meet their numbers to keep their jobs.

    Finally, my own thoughts: I still wouldn’t pay those prices for those wines in Steve’s blog.

  16. Steve, Wine accounts for approximately 18% of all Cost Plus revenue. Thus, their deep discounting is a strategy/tactic used to drive customers in to their stores. Of course, wine sales across all retail outlets are softening, however, from a Cost Plus standpoint their entire business model is built on selling “luxury items” you don’t necessarily need when times are tough. Cost Plus does not sell significant amounts of wine compared to Safeway or Costco. So, these steep price discounts likely reflect poor store sales for Cost Plus by running wine as a loss-leader in the hopes they can drive traffic to purchase private label wines and/or high margin furniture, etc. The wine industry business is soft but it is not that soft that these premium brands need to heavily discount themselves.

  17. DR. Daniel Callahan says:

    Question . Why does wine sold at $13 per bottle to a wholsaler end up with a $26 consumer shelf price? Answer, the so called “three tier system”.
    $13x 12 =156 per case + approx $14 freight and taxes. = $170
    $170/ .75 (25% Minium distributor markup)= $226.67 +
    $226.67/.75 ( 25%Minium Retail markup) =$302.23/12 = consumer shelf price per bottle of 25.19 or $25.99

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