I was wandering through the wine department of a national grocery store chain with a marvelous reputation over the weekend when an employee asked me if I needed any help. No, I said, I’m just looking to see what’s here and checking prices. Oh, she said, we have some of the best prices in the area.
I just grumbled and moved on. I didn’t think it would be proper for the Wine Curmudgeon to lecture her on why that wasn’t true. Instead, I decided to do a post about retailers, cheap wine, and why so many of them don’t like it. More, after the jump:
This is not an indictment of all retailers. Some, like Cost Plus World Market and Beverages & More, do a terrific job with cheap wine. (Though the latter’s obsession with scores makes me crazy.) But too many retailers, and especially some of the biggest national and regional chains, don’t like to sell cheap wine. In fact, when I visit stores -- and I visit a lot of them-- I find that you really have to look for the $10 wine.
The reason? The margins – the difference between what they pay for the wine and what they sell it for – are so small. Depending on the retailer and which part of the country they’re in, the store would have to sell three bottles of something like Kendall Jackson chardonnay to make as much profit as they would by selling one bottle of a more expensive wine. So the incentive? Focus on more expensive wines.
Why are the margins so low on cheap wine? Mostly because of Costco, the national warehouse club store with 407 U.S. stores. It is, depending on who is doing the counting, the largest wine retailer in the country. Hence, it can afford to sell cheap wine at low margins, and make up the difference by selling massive amounts of it. The competition, and especially regional chains with Costcos in their market areas, is forced to match prices with Costco. That means they have to sell the wines that Costco sells for the same prices that Costco sell it.
They don’t like this. So they have adopted a variety of strategies that raise the prices that you and I pay for wine:
• They don’t carry the same brands that Costco carries. I can’t tell you how many retailers have told me that is one of the keys to their business plan. Costco, for example, sells Clos du Bois chardonnay for $8.50 a bottle. The suggested retail price, from the winery, is $12. That means most retailers that aren’t Costco sell the wine for $10.99, and lose sales to Costco.
• Sell private label brands instead of national brands like Clos du Bois. I have written about private label and store labels; what’s worth noting here is that more and more retailers are doing this so they don’t have to match Costco on price. They can find a private label chardonnay and charge $10.99, or even $11.99, and not worry about selling Clos de Bois. So we end up paying more.
• The dreaded endcap. An endcap is a display at the end of an aisle with a featured product, and the price always seems to be $12 to $15. The product may or may not be on sale, and it may or may not be less expensive. But the store sells the product that way. This happened during my visit to the national chain over the weekend. There was a 14.1 percent alcohol California sauvignon blanc with a label I’ve never heard of in an endcap for $13. It was probably no different, in quality, from the similarly priced wine in the sauvignon blanc section on the other aisle. But put it in the endcap, and the consumer thinks they’re getting a deal and the store makes out like a bandit.
Which is why I didn’t say anything to the employee who asked me if I needed any help. She wouldn’t have believed me anyway.
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