Wednesday, March 10, 2010

Price Pointin' at you

One thing that the general public isn't privvy to are the price battles that go on in the wine industry. Wineries think that their wine is worth a certain pricepoint. If a retailer puts it out there too high, nobody will buy it. If they put it out there too low, the winery feels that their brand is being devalued. This is partially how the wineries price their wines to the distributors. They assume that the distributor will take about a 30-40% increase on the brand, and that the retailer will take another 20-50% increase. For example, say Sippinstl winery decides to release their "Mississippi Cuvee Chardonel" to a distributor at $10/bottle. The distributor will probably sell it to their retailers at $14. The retailer will then put it on the shelf at $18.99. This is a normal markup scheme.

The problem lies with the huge availability of information. With wine searching engines like out there, customers can price shop all over the country, and make decisions based on those searches. Assuming the winery is charging all distributors the same (they probably aren't), most distributors will do the normal margins. However, sometimes, the distributor will drop the price of the product to move it a little faster out of their inventory- let's say they cut their margin and sell it at $12. This means that the retailer has one of two choices- they can either leave the price at $18.99 and pocket the extra $2, or they can sell it at $15.99, being the lowest price in the country. Then Joe Customer sees it on Wine-searcher, and buys it all up.

Situations like this lead to uncomfortable conversations for all involved. In fact, I have to have one of those conversations today. I have a retailer that put a wine online at $24.99. The winery feels that their price point should be above $30. The winery has asked me to talk to the retailer about raising their price. The retailer will complain. I understand both sides. The winery is selling a luxury product. They want to make sure that the price stays up, so the penache of their brand remains high. However, the retailer simply wants to move some product. They cut their own margins a bit, and priced the wine out as they see fit. Heck, this is America. If someone wants to take less margin on a bottle of wine, but sell more bottles of wine, that's their right. The winery just may have to deal with the fact that the fair market value of their wine has dropped. But, then again, if the retailer doesn't change it, the winery might get upset, and cut back our allocation of this fairly hard-to-get wine the next time around.

That, my friends, is a lose-lose for me, and a win for anyone buying the wine this week!

Cheers! Tell your friends about my blog. I'm back.

No comments:

Post a Comment