Wine Economics 101

I'm not sure what the hell is going on in Modesto, California but is has to be one of two things: 1. A slow 'news' day. 2. The public school system is circling the drain. Need proof? Here you go.

"Most people buy wine at the grocery store. Some go to high-end wine shops, and many look for bargains at places like Trader Joe's, Beverages & More and Cost Plus."

Well, this pretty much covers the bases, doesn't it? Most people, who buy wine buy it somewhere. Brilliant! I do take exception to the 'high-end wine shops' thing. Not only with this article, but with the average joe schmoe on the street. Why is the assumption made that if you're not Piggly Wiggly or Sam's Club, you are obviously 'high-end'? I understand that a small shop dealing exclusively in Old World wines, seeking out the finest examples of price/quality ratio with a completely obsessed monkey at the helm is a novel concept but 'high-end' this does not make! Furthermore, I am growing increasingly tired of hearing the old 'He's a 'French cheese and wine' kind of guy. What the hell is wrong with French cheese and wine? If more people ate French cheese and drank French wine (or any wine for that matter) the world would be a far better place. I digress.

"But the most profitable and fastest growing source of revenue for wineries is direct sales — consumers buying directly from the winery."

Somebody call the president, this guy's a genius. But wait, it's not just him alone. He's got proof.

"That's according to an MKF Direct Sales Survey. MKF is a wine industry consulting firm based in St. Helena."

Maybe I'm in the wrong business. How sweet it is to get paid for stating the obvious. There was a similar 'study' done here in Savannah to determine whether or not a 'water taxi' would work on the river. The result? If you buy a boat, put people on it, point the thing towards the other side and hit the gas you've got yourself a water taxi. Cost = $25,000. I would have told the City that for $25 and twelve pack of beer.

"Direct sales shipments by California wineries grew by an average of 6.5 percent from 2002 to 2003, according to the MKF survey. By comparison, winery shipments through traditional distributors and retailers grew 4 percent in the same period.

The revenue difference was even more dramatic, MKF reported. Average revenue from direct sales grew 9 percent, while revenue from traditional sales grew just 2 percent."

No shit! Why do you think this is?

"That's because the direct sales cut out the infamous middlemen — the distributors, wholesalers and retailers that all take a cut of profits."

That's right, it's those bastards at the distributors, wholesalers, and especially the retailers that are sticking it to you. Does anyone honestly believe this?? I'll let you in on a little secret. The wineries are charging 'retail' prices or damn close to it. And why shouldn't they? If you're willing to spend the money at the shop, why not get it from you at the winery? Oh yeah, don't forget about the shipping costs to get that case of wine to your door. A case of Turley runs $60 - $70 in shipping alone.

"The MKF survey found that while direct sales averaged 7 percent of sales volume across all winery sizes, it reached 31 percent in wineries that produced 50,000 cases or less, and nearly 40 percent for wineries producing less than 5,000 cases.

I'm going to try and show some restraint here and put it very simply. The reason the numbers grow higher with the smaller wineries is because when you don't make any wine, it is very difficult to sell it. This would seem to common sense but maybe not. The distributors aren't going to try and 'build' a brand knowing that as soon as Parker gives it 97 points, the price is going to double and there will be even less for them to sell than before.

"In the traditional sales system, it's the retailer who has a relationship with the customer — and the retailer may be trying to sell the customer someone else's wine, Motto said."

This is a riveting statement. What's the definition of 'retailer' again? And why is this a bad thing? In a perfect world, everybody would have a tight, working relationship with a local retailer. And by that, I mean someone who actually tastes, critiques, buys and sells wine, themselves. Regardless of ratings or reviews.

How many wineries are going to readily admit that whatever single vineyard crap they're peddling is from a terrible year? I don't necessarily blame them for this, but that is precisely my job. Weeding out the inferior wines so as to prevent you from wasting your time and money.