Update: Wine prices in 2013

Try wine for free? Doesn't get much cheaper than that

Still lots of confusion about what wine prices are going to do this year, even after the authoritative Silicon Valley Bank report that pretty much summed everything up: ““Wine businesses expect to increase bottle prices in 2013, although SVB believes that will prove difficult.”

Which is what I’m hearing. One distributor said his bosses told him to raise prices whenever possible.The catch, of course, is the word possible.

I don’t think the wine industry has adjusted to the way the business has changed since the recession started. Producers and distributors, looking at their costs, want it to be 2006, when they could do pretty much anything they wanted with prices.

But, in the new reality, that isn’t possible. The best example is the  financial discomfort that the company that makes YellowTail is experiencing. It’s still selling tankers and tankers of wine, but it’s losing money because the Australian dollar is so strong. The obvious solution would to be raise prices, but the company hasn’t done that. And why not? Because it’s likely terrified that consumers would switch to Barefoot or Cupcake or whatever, and then it would be in even worse shape.

In fact, consumers are more price resistant than ever before. A clerk at a Dallas World Market practically snorted when I asked if her customers were paying more for wine. They’re still looking for value, she said, and are just as stingy as they were during the recession. (She also said a couple of things about scores and wine writers, but this is a family blog.)

The other thing that has changed dramatically since 2006 is that the biggest producers are even bigger, and have that much more pricing power. This has been difficult for many in the business to see, given wine’s traditional Mom and Pop nature.

But companies like Constellation and E&J Gallo dwarf even YellowTail. And, when you’re that big, says Michigan State’s Phil Howard, who has written the definitive big wine producer study, you can do all sorts of things, including better volume discounts for the distributors and retailers who are your best customers.

Case in point: The neck hanger at the top of this post, courtesy of Treasury Wine Estates (which owns Rosemount). Even if no one asks for their money back, the cost of this kind of program is prohibitive for all but the biggest multi-nationals. Remember what I wrote about Big Wine and marketing? Prescient, wasn't I?

Understanding these changes also helps identify those wines that could increase in price. They have limited availability, are usually made by smaller producers, and are in higher consumer demand. But that’s a small portion of the wine world – some higher-end Napa Valley reds, well-regarded French wine, and the like. But even that’s no guarantee, as the Champagne pricing crisis demonstrates. When consumers have a choice, they’re voting cheap.

Comments

[burnsey]

Disclaimer; I worked for Gallo back in the early eighties. The big stores would routinely sell 3 liter bottles at cost, and sometimes below cost, because they knew it would bring customers in the door. Of course, we had to put the case stacking in the furthest point from the door so the stores could pick up some more higher margin impulse buying. We would sometimes drop as many as 800 cases in one week at single locations.