Wine prices are subject to inflation
By By Stan Torgerson / wine columnist
Jan. 8, 2003
The federal government has maintained for several years that inflation is under control and retail prices are stable.
Not in the wine business.
A little research through my files indicates that prices for many of the better more in-demand wines have doubled or even tripled since 1990. Even lesser wines have increased by 40 percent to 60 percent.
One of my all time favorite California wines, Beaulieu Vineyard's Georges de Latour cabernet sauvignon, carried a coming-out price in 1990 of $40 per bottle. For the 1999 vintage, that price has risen to $100 and that's for a wine that will not even be truly drinkable for 10 years.
Roederer Anderson Valley sparkling wine held at a steady $17 until perhaps two years ago. Today that's the wholesale cost. With the standard markup, most stores are selling it now for about $23.
Italian wines have skyrocketed. One of the best is Monsanto's Chianti Classico Reserva, available in most wine stores. Once priced at $16, most stores sell it today for $22 and up. There's another low-end high quality wine on the Italian list that once sold for $16. Today's price is $41.
Why is this happening? Surprisingly enough, it flies in the face of the "supply and demand theory." The supply of wines in all price categories continues to rise.
More and more acres are being planted in grapes. More and more employed wine makers are breaking away from their employers and going into business for themselves, creating their own labels.
If they can't afford to buy land, they buy grapes from those who grow them just for that market. These entrepreneurs aren't producing wines en masse to compete with the Gallos and Mondavis of this world.
They are producing limited bottlings, aiming for quality and the higher prices that go with quality. As their wines come into the market, the older, already recognized top labels raise their prices just because they can.
BV, established for years, isn't going to sell its wines for less than some Johnnie-come-lately producer whose wines have not yet received major recognition.
The other part of the "supply and demand" theory is working, however. Americans are drinking less bourbon, scotch and gin and more vodka and wine. Look at the vodka choices on the shelf of your favorite package store and compare it with just four years ago.
The same is true of wine. Its popularity has grown by leaps and bounds as a tasty beverage that goes well with food and does not have the alcoholic clout of the heavier liquors.
The selection variety proves it. Ten years ago there were only a few zinfandels or shiraz being offered. Today they sell in volume. No one bought Australian wines then because there were so few to buy. Today they are among the store's most popular.
But in all fairness, the increased costs have more to do with marketing than with making the product itself. The Wine Spectator broke down the profit and loss involved in wine making and discovered the cost of the grapes for each bottle runs about 7.5 percent.
In a $24 bottle of wine that would be $1.80. The actual process of making the wine from those grapes accounts for 9.1 percent of the bottle cost or $2.20 for our $24 bottle.
There is a 3.8 percent packaging expense, 2.5 percent for marketing and 12.5 percent that goes to sales. Distribution, taxes, interest and administration eat up another 9 percent.
That still leaves almost 46 percent and profit is where it goes. The wholesale markup on the average bottle of wine is 19 percent or $4.56 of that $24 price.
The biggest share is claimed by the retailer. The magazine says the average retail markup is 31 percent of the bottle's price or $7.44 of our example.
At the bottom of the scale is the winery that started this chain of creating and marketing. Wine Spectator says the net winery profit on a $24 bottle of wine is 5.6 percent or $1.35.
The yield to the winery on a 12-bottle case of our example wine is only $16.20. That's why nothing succeeds like volume in the wine business and why a boutique wine with a production of only 2,000 cases or less will never make any winemaker rich.
Production of 5,000, 10,000 or 20,000 cases is a nice business. When a winemaker produces only a few hundred or even a few thousand cases, it's a hobby.
Next week we'll go bargain hunting with our recommendations of wine bargains that combine excellent quality at reasonable prices. You can find some, you know.
You just have to know where to look.
