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walmart liquor store

Wine sales in Texas after the Walmart lawsuit

Walmart lawsuit

Oh no! These shelves will be empty! Poor, poor pitiful us.

We’ll still be able to buy quality wine in Texas after the Walmart lawsuit, no matter what the panic mongers are telling us

Yes, it’s doom and gloom here in Texas after last month’s ruling that ended the unconstitutional monopoly that the state’s liquor store owners have enjoyed for more than 40 years. How will we ever be able to buy something besides Barefoot ever again?

“So while these new rulings, if enacted in Texas, might free up the market and lower prices they could ultimately harm the overall quality of the Texas wine market by lessening the overall total wine selection.”

Which, of course, we will. The naysayers, prominently quoted in the Wine-searcher.com piece quoted above, make it sound like allowing Walmart to open liquor stores is the beginning of the end: “Some of the most-legislated markets – such as New York and Texas – also have the most vibrant wine markets because these laws have forced owners to specialise and have steered fine-wine buyers to wine-focused independents and chains.”

Excuse me while I reach for my hyperbole eraser.

Nothing will change in Texas if and when Walmart, Kroger, and any other national chain opens standalone liquor stores. Yes, I’ll be able to buy a fifth of bourbon when I go to the grocery store, but that’s about it. I’m not even sure prices will go down; has anyone noticed the foolishness behind supermarket wine pricing?

Some independent retailers, shorn of the monopoly that has protected them since the state’s retail lobby “convinced” the Legislature to pass unconstitutional legislation in the early 1970s, might go out of business. But it’s difficult to feel sorry for any business that stays afloat because a law was designed to stop it from failing.

Know three things about Texas wine sales after the Walmart lawsuit:

• Supermarkets sell spirits in Florida and California; I haven’t heard anyone complain they can’t buy a quality bottle of wine in either state. Right, Kermit Lynch?

• Some small Texas retailers don’t need the monopoly – they have thrived selling quality wine and offering quality service, knowing those are more effective weapons than an unconstitutional law. Pogo’s in Dallas, the not-related Wine Merchants in Austin and Houston, and Put a Cork in It in Fort Worth don’t need the Legislature to protect them.

• The independent pet store was supposed to go out of business in the early 2000s, thanks to national chain retailers like Walmart and PetsMart and more pet products in grocery stores. Sound familiar? But there may be more independent pet stores in the U.S. today than there were then.

So no, I’m not worried about Walmart or Kroger or Target or whatever opening a liquor store and destroying my chance to buy quality wine. And anyone who reads the blog knows that if there was a reason to worry, I’d be the first one to write about it.

The other thing to know? If and when three-tier reform hits your state, you’ll read and hear the same dire warnings. And there won’t be any reason to believe them, either.

Expensive wine prices in the real world

expensive wine prices

“There is no way any bottle of wine is worth 10 times more than one of my performances.”

I can see Glenda Jackson and Justin Timberlake for $150, but the best I can do in wine at that price is far from legendary

For $150, I can watch Glenda Jackson do Edward Albee on Broadway. For $150, I can see Justin Timberlake perform in Dallas. But for $150, the best I can do in wine is hardly legendary – labels that even the cheerleading Winestream Media considers good, but not great. Legendary costs four or five or even 10 times Glenda Jackson, and that’s difficult to believe.

How did we get to this point? Most of us will never taste the world’s greatest wines, which have been priced out of our reach for decades. The 2005 Chateau La Tour costs $1,000. And maybe that makes sense, in some warped supply and demand way. But it doesn’t make sense that wine that isn’t close to being the world’s greatest costs more than watching a legendary actor or musician. And this, as I have noted many times, does not bode well for wine’s future.

Or, as the wine economist Mike Veseth has warned us: If we keep this up, wine will be like opera, something that interests only the rich and the privileged.

In fact, supply and demand does work for plays and music. It’s one reason why it costs $20 to see a community theater do “Hamlet” and it doesn’t cost more than a cover charge and some beer to watch a local band. There is lots of supply, and not nearly as much demand, compared to stars like Jackson and Timberlake.

So why the divergence between the best wine and the best live shows? The answer, I’m afraid, is that the people who produce the latter want to keep their products affordable. The least expensive tickets for Jackson and Timberlake are about $50, and you can’t get anything close to legendary in wine for $50. If fact, you can buy crappy wine for $50 without any trouble at all. The people behind theater and music understand, in a way wine doesn’t, that the future of their business depends on making it accessible to people who can’t afford the top ticket. In wine, it’s the other way around; if you can’t afford the top ticket, why should we bother with you?

That’s why the pre-teen and teenaged girls who will attend the Timberlake show will be buying his music for the rest of their lives. It doesn’t matter what I think of him, what their parents think of him, or what music critics think of him. It’s why one friend’s daughter, told she couldn’t go to the Timberlake show, has stopped speaking to her mother.

And it’s also why, when you talk to young people about wine, they don’t show anywhere near the same kind of loyalty and enthusiasm. Accessibility is all; otherwise, we’re going to turn into opera.

Update: Wine prices in 2018

wine sales 2018Wine prices 2018: Look for increases later this year and early next, thanks to a weak dollar and the return of inflation

Look for wine prices 2018 to head upward, and not just because of premiumization. Inflation, something that hasn’t been part of the U.S. economy for decades, has apparently returned. In addition, a much weaker U.S. dollar will force up the price of imported wine – one of the few values left for those of us who looking for quality at $10.

I’ve been watching pricing pressures since the end of last year, but I didn’t anticipate this — and the dollar’s weakness in particular. About 18 months ago, it was at parity with the euro, but has fallen more than 25 percent since then. A stronger euro means the cost of wine from France, Spain, and Italy will increase – probably sometime in the next 12 to 18 months, according to several distributors I talked to. The same holds true for Australia, where the Aussie dollar has gained 25 percent since bottoming out at about 50 cents to the U.S. dollar at the end of the recession. The New Zealand dollar is about the only wine-related currency that hasn’t increased in value. It has been stable for about a year.

There’s little we can do about exchange rates; a weak dollar is a political decision to boost U.S. exports to Europe and elsewhere. Inflation is another story, and it’s something that we haven’t really seen in the U.S. since the 1980s. Remember 20 percent interest rates? If not, your parents do – ask them what those rates did to mortgage payments.

The point here is that inflation means producers will raise prices because the cost of their goods increases – bottles, grapes, wages, and the like. We’re already seeing grape prices rise despite yet another bumper California harvest as well as flat demand.

The good news for consumers is that the Federal Reserve, which oversees the fight against inflation, seems ready to try to rein in prices. In addition, inflation will likely hit more expensive wine harder than $10 wine. For one thing, it costs more to make $20 wine – pricier grapes and bottles, for example – and many expensive wine producers are smaller and less able to absorb cost increases. That’s much different from the companies that make cheap wine, which can accept higher grape and production costs without raising prices because they’re so big. Massive, in fact. They’ll put up with smaller margins rather than lose sales and shelf space.

The other thing in our favor? Tremendous – and probably unprecedented competition – among retailers. Never have so many stores sold wine, whether supermarkets, independents, chains, warehouse and club stores, and big boxes. Price matching and discounting are key parts of post-modern retailing, and giving them up to raise prices may be difficult.

Winebits 525: Blind pricing, legal weed, wine theft

blindpricingThis week’s wine news: Blind pricing, or why retailers carry expensive wine you can’t buy elsewhere, plus legal weed goes after booze and a rare wine theft

• Blind pricing: This blog post by distributor Olivia Schoenwise is aimed at small retailers and how they can compete against their biggest competitors. But it also explains why it’s so difficult to find so much wine, even without the restraints imposed by the three-tier system. The idea, writes Schoenwise, is for small retailers to find wine to stock so they have “a competitive advantage against big retailers; and many are turning to blind price wines” – wine that we can’t price shop on phones or on Winesearcher.com. That’s because these wines are a form of private label. And since they’re only carried by one retailer in one area, the retailer can charge more for it, unburdened by competition. Writes Schoenwise: “[B]lind price brands are where the big profit margins are made.”

• Wine is evil: That’s the theme of a campaign from legal weed, targeting alcohol, says the New York Post. “’ ‘Marijuana,’ blares a billboard in Arizona. ‘Less Toxic! Less Addictive! Less Scary Than Alcohol!’ ” The Wine Curmudgeon has been warning the wine business about this for a couple of years, but with little success. Maybe, now that legal weed is hurting alcohol sales in some legal weed states, says the story, wine will notice. Otherwise, reports the Post, “Hello Marijuana, Goodbye Hangover.”

• Good help is so hard to find: An employee stole $1 million of wine from New York investment tycoon David Solomon, including some of the rarest bottles in the world. The employee was supposed to collect wine shipments at Solomon’s Manhattan apartment and then take them to the banker’s wine cellar in East Hampton. But the wines apparently never got to the Hamptons; instead, the employee sold them to an Internet retailer in North Carolina.

Wine prices 2018

Wine prices 2018: Price creep, price confusion, and crappy wine that costs more money

Wine prices 2018 will be even more confusing than wine prices were in 2017, and that was confusing enough. This year, expect producers and retailers to use even more sleight of hand to get us to pay more money for the same quality wine — or even wines of less quality. My look at wine trends in 2018 is here.

There are four reasons for this:

1. The end of standard pricing. Traditionally, a wine cost about the same at every retailer in the country, whether it was $10, $20, or $50. No more. Today, as long-time reader Rex Warburton and I discussed, “the price spread is incredible. This is not a big problem for regular wine drinkers, but a nightmare for beginners or occasional buyers.” Which is the point. Expect to see a wine at $11 cost as much as $18 elsewhere (which was the case with the Ferrari Carano fume blanc I reviewed in the fall).

The reasons revolve around consolidation in retailing and distribution, and which are too complicated to explain here. It’s enough to know that the biggest retailers get incredibly better pricing than a neighborhood independent or even a small chain, so they can afford to sell wine for much less money. The catch for consumers is that the big retailer’s pricing is a one-off, and there is no guarantee it will sell the wine again, let alone at the same price.

2. Price creep. Or, when a $10 wine costs $12 for no particular reason. It’s not necessarily a price increase, since the wine can still be found for $10 elsewhere (and most retailers remain reluctant to raise prices). It’s just a retailer testing the market.

3. Price positioning. Look for wine to be made so it will cost a certain amount, probably between $15 and $20, and not because the wine is worth that much. This is not new for expensive wine, but it has started happening in the past couple of years with cheap wine.

The textbook example, which should be studied at every business school in the world, is E&J Gallo’s La Marca Prosecco. It’s probably $10 or $11 worth of wine, but its average retail price is $14 – and consumers are happy to pay it, turning La Marca into the top-selling Prosecco in the world.

I saw the same thing recently with a cabernet sauvignon from California’s Lodi region, listed at $17. This is twice what it was worth (and about six or seven times what the grapes cost), but the producer figured the consumer would bite. Because wine has to cost more than $15 to be good, doesn’t it?

4. Price confusion. This is more of what grocery stores and the World Market chain have been doing for years – three, four, or even five prices for the same bottle of wine. This is called fake front end pricing; the producer suggests a retail price that is artificially high so that the retailer has lots of room to “cut” it. My Kroger, for example, listed the Layer Cake rose for $21, and then put it on “sale” for $10, when $10 should have been the price all along. This practice will expand to other retailers, and it will be almost impossible to believe any wine price listed in a supermarket or World Market.

Finally, as a corollary to all this pricing foolishness, availability – already awful – is going to get worse, and it will be more difficult to find interesting wines at a fair price. First, the biggest retailers prefer to buy from Big Wine, since it’s more cost effective, and most quality cheap wine comes from smaller companies that don’t sell to grocery stores. And grocery stores sell more than half of the wine in the U.S.

Second, the biggest retailers can demand exclusives for national brands (though that’s technically illegal), further reducing availability. Finally, private label wine – those wines only sold at one retailer – will become even more common, and they will take up shelf space that might have gone to more interesting wine.

In the end, all of this will amount to price increases without there being any actual price increases. Aren’t we lucky?

Illustration courtesy of Fix.com, using a Creative Commons license

Winecast 31: Rob McMillan, Silicon Valley Bank

Rob McMillanSometime in the next several years, the pricing sweet spot for wine will be $15 to $25 a bottle, compared to $12 to $15 today.

Rob McMillan, the executive vice president and founder of Silicon Valley Bank in Napa, may know more about wine pricing — what will happen and why — than anyone else in the world. And he doesn’t see that cheap wine has much of a future.

Sometime in the next several years, the pricing sweet spot for wine will be $15 to $25 a bottle; today, it’s about $12 to $15 a bottle. In this, McMillan sees the increase as the next step in premiumization, the process he has identified as the gradual increase in the cost that wine drinkers are willing to pay for what they consider a quality bottle.

We talked about premiumization, as well as how difficult it is forecast wine prices given the lack of quality information — what McMillan calls the same sort of self-interest that the tobacco companies displayed when they were discussing the relationship between cigarettes and cancer.

Also, he said, don’t expect to see wine price increases in 2018. There are enough grapes in the world so that supply will be steady, while demand looks to be about what it has always been. In this, it will be easier to start a new brand at a higher price than to raise prices for and existing brand.

Finally, we had an intriguing discussion about Barefoot, the $7 wine that accounts for as much as five percent of U.S. wine sales, and how it fits into premiumization.

Click here to download or stream the podcast, which is about 21 minutes long and takes up 6 1/2 megabytes. The sound quality is good; we recorded it using Google Voice.

Amazon, Whole Foods, and wine prices

amazon whole foodsDon’t expect the Amazon-Whole Foods deal to change wine prices for the better at the upscale grocer

Know one thing first – no matter how much wailing, gnashing of teeth, and rending of garments we’ve seen in the cyber-ether, Amazon’s purchase of Whole Foods will mean almost nothing for wine prices or the wine business.

There are a variety of reasons for this, but the three most important are:

• Amazon bought Whole Foods for reasons that still puzzle people who understand grocery stores. Whole Foods has about 440 stores in the U.S., hardly enough to matter against Walmart’s 4,200 or Kroger’s 2,800. The best guess why the deal happened? Whole Foods’ 400-some warehouses, about four times a many as Amazon has.

• Whole Foods is not a wine retailer; it’s a grocery store that sells wine, and does so at higher markups than most retailers because it’s an expensive grocery store. The days are long gone when I went to Whole Foods to find a deal. This is the store that sells the $5 Rene Barbier for 40 percent more than most Dallas retailers.

• Our old pal three-tier, which restricts how Amazon can sell wine through Whole Foods. Again, the couple of high-profile Amazon wine projects that got so much attention recently weren’t about Amazon selling wine, but about Amazon listing the wine for sale and then sending you to another website to make the purchase.

In fact, my most recent visit to Whole Foods reminded me why the chain was in such trouble before the Amazon sale. It’s still pricey, despite all the cost-cutting publicity; $2 for a container of yogurt is three times the usual grocery store price. And a Gascon white wine I bought elsewhere for $10 was $13. In this, it reminded me of the Neiman Marcus department store chain, whose customers aren’t supposed to care about price, either. And Neiman’s is in trouble, too.