Wineconomics 101

An article recently appeared in the New York Times addressing some changing trends in wine sales due to the current weak economic climate.  You can click here to read the article. The author identified a couple of interesting trends:

People are buying cheaper wine, but making it up on volume.

The article cites two retailers who say that their revenues remained largely unchanged in 2008.  While the average sale price was down 17% versus 2007, the number of bottles sold was up 15%.  The article also quotes a wine industry consultant who believes that people may be buying more wine at retail stores because they aren't spending as much at restaurants.  Despite the tone of the article, I'd bet that things are not all rosy for wine retailers.  Some quick math using the numbers provided by the Times reveals that retail revenues are down about 4.5%.  If you then factor in the higher cost of sales due to the volume (needing more staff, storage space to accommodate more bottles, etc.), I'd bet that bottom line profits year-over-year are down somewhere in the area of 15%.  Of greater long term concern for the retailers would be the continued shift to lower priced bottles where profit margins are smaller.  I'll guess we'll have to wait and see how 2009 shapes up for these guys.  As for the restaurants, it's been a tough time all around.  We've had a couple of neighborhood restaurants go out of business in the past few weeks, and I suspect that more will follow suit.  If people are not going out as often to eat then that's a problem.  If people are going out, but not ordering as much alcohol, then that's a big problem.  Restaurants make most of their money on alcohol sales, and if people are pulling back on boozing it up while out on the town, then I suspect a tough environment for restaurateurs is going to get even tougher.

A number of party hosts are now serving one wine (cheap) to guests and serving another (expensive) to themselves.

Really?  People have the audacity to do that?  That's pretty shitty amazing.  Why bother?  There are literally hundreds of inexpensive wines that are absolutely wonderful.  All of the major wine publications put out annual lists detailing the top wines under $10 or under $20.  Pick some up, and try them.  They're often better than wines that cost two or three times as much.  That said, my favorite line in the whole article concerned this topic, "the host was drinking Bordeaux; the guests were drinking Chianti."  Umm, I've had a number of really crappy Bordeaux and a number of ethereal Chiantis.  Quite frankly if you give me a budget of $50 or $100 for a Chianti and the same for a Bordeaux, I'll have my Chianti running circles around that Bordeaux.

Vodka sales spiked in October.  No one knows why.

I found this to be really amusing.  Why would vodka sales "skyrocket" during the worst market period in our lifetimes?  Any sorority girl worth her appletini will tell you that vodka has a wonderfully unique characteristic - it is very hard to detect on the breadth of the imbiber.  So, you can drink as much vodka as you can handle at lunch and go back to watching your portfolio fall off a cliff and no one will be able to smell it on you (the alcohol that is - the smell of fear is palpable).

What does this all have to do with Bruliam?  Well, at some point we're going to have to sit down and figure out a pricing strategy for our wine.  When we launched the brand, our primary pricing indicators were wine comparables.  We checked out how other premium boutique wineries were pricing their pinots and that gave us an idea on the market's acceptable range.  Now it looks like we're going to have to factor in the general economic conditions, the retailers shift to stocking lower priced bottles, falling alcohol sales at restaurants, and, apparently, competition from olfactorily undetectable spirits.

Or maybe we'll just keep it in the barrel until the market rebounds.