The old joke asks: “How do you make a million dollars in the wine business? Start with two million dollars.”
Rob McMillan at Silicon Valley Bank has given the joke some substance. A recent post on his SVB on Wine blog sheds light on the super-premium segment of the market, and the results are intriguing: “… a lot less than the dreamy consumers imagine.” And, I might add, a lot less than dreamy lawyers, surgeons, and entrepreneurs who want to open a winery as a second career might imagine.
The data covers U.S. west coast wineries between 2002 and 2012 that make between 3,000 and 1 million cases a year and where the average shelf price is $30 a bottle. In this, it demonstrates just how poor an investment making fine wine is. Rob was kind enough to let me use his chart, which you can find here (click on the image for a larger version).
The number that interests me is pre-tax profit, which was in the single digits for most of the past decade and still hasn’t gotten back to its 2007 level. The recession, not surprisingly, clobbered that business. Those profits, compared to a variety of well-known companies, are not much of a profit at all.
High-end consumer goods companies like Apple (36.1 percent) and Nike (12.4 percent) do better, and even grocery store consumer goods giants like Procter & Gamble (15.3 percent) and Colgate-Palmolive (22.5 percent) make more money. Isn’t it kind of depressing that laundry detergent and toothpaste are better businesses than wine?
But that’s not the worst. Budweiser was three times more profitable (25.5 percent) in the latest reporting period, as was Coke (24.2 percent). Which leads me to believe that all those lawyers, surgeons, and entrepreneurs looking for a second career should be investing in craft breweries and boutique soft drinks.
But all is not lost. Fine wine is more profitable than the world’s largest retailer. Walmart’s pre-tax profit was only 5.2 percent in the latest period, three points less than wine. Of course, Walmart’s annual sales of $113 billion are 5 1/2 times that of the entire U.S. wine industry, so the people in Bentonville probably aren’t too worried.