Ever wondered about wine pricing

Anyone noticed that frequently when you walk into a bottle shop the prices of many of the premium reds have gone through the roof, in worse still, are no longer stocked. There are many reasons and whilst it’s impossible to cover them all here, I would like to explore just one reason; and that is the increasing dominance of a couple of retailers – Coles Meyers (CM’s) and Woolworths.

Only a few short years ago, there were many independents and chains. Over the past few years a fair proportion of them have been taken over by the big two retailers. The name over the door may read Porters, Figtree Cellars, Dan Murphy, Safeways, Mac’s Liquor, Vintage Cellars, Cheaper Liquor, but Woolies or CM’s owns all of them.

So why have these two been on a grog shop buying spree? The answers are simple, increased market domination and increased profit. The greater the purchasing power, the greater the opportunity to negotiate prices, nothing wrong with that business fundamental.

So what does that mean for consumers? The news is not all good. Sure there are some super doper specials, but there have always been those deals around. Are there more of them or are they any better now than they were a few years ago? I doubt it but you can judge for yourself.

These stores generally appear to aimed at the average wine buyer, not the enthusiast. Most are located in high traffic shopping areas where the reliance on business comes from passing trade, not customer loyalty. Stocks include some low cost leaders, a pretty generic range of ordinary wines and a some Premiums. (There are a few stores where this is the exception.) In many cases the prices of the better quality wines are at the “top end” and savvy shoppers have worked out they can obtain better prices from alternate retailers (like this one.)

And that pricing point is important, because many of these larger retailers are setting the “top end” street price. Not long ago, most wine retailers worked on what was pretty much an “industry standard” profit margin. In the last couple of years this seems to be changing, and many stores are trying to increase that margin by increasing prices. For (a simplified) example, lets take Brand X Shiraz with a cost price of $20 which the retailer marks up to $26 using what used to be the industry standard calculation. Now, frequently in shops you may see Brand X Shiraz for $32, although in some places its still $26. Why you ask? The answer is simple, because some retailers can sell it at $32.

As mentioned previously many of the stores in the shopping centre are aiming at “the average buyer” and these purchasers by definition wont know what is a “good price” for Brand X Shiraz, because they only buy a bottle of wine at that price point on very rare occasions or for gifts etc. That same shopper will know that their favourite Chateau Vinordinary should not cost more than $9.65 a bottle, because they buy a bottle at least 4 times a year.

Range of wine sold in many shop has also not escaped head office dominance. It has been reported in the papers and elsewhere that in a number of stores managers have been told they are only allowed to stock a restricted selection of wines.

Do consumers benefit? Many of the average wine buyers don’t care so for them it doesn’t matter; those that do shop elsewhere. It has assisted some retailers profits because they no longer have to rely on what was the old industry standard mark up. The shareholders are happy too. J J

Keep drinking,