Tag Archives: wine sales

Making money in the wine business

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.

Winebits 237: Wine scores, wine auctions, wine pairings

? Decanter goes to 100-point system: Decanter, the British wine magazine, will start scoring wines with the 100-point system in its annual buying guide. ?Introducing the 100-point system is essential as Decanter is now a global magazine with more than half its readership outside the UK, ? said the magazine. This is shocking news, not only because Decanter is giving in to something that continues to lose favor, but because it has always been the most sensible of the Winestream Media (for what that ?s worth). The reason for this, I think, is the Chinese market, which has everyone in the wine business salivating (though there is no truth to the rumor that a Chinese language Wine Curmudgeon will soon launch ? the Wine ju l ot u). The Chinese may not understand the Decanter review, but they ?ll recognize the 100-point system ? another of the legacies the U.S. has given the world, like fast food and Coca-Cola.

? Wine prices slump: Those investments in fine wine continue to look like Florida swamp land. Wine sales at the world ?s top five auction houses were down 25 percent in the first half of 2012, which coincides with the slump in the fine wine stock market. I mention these things not because it ?s actually important, but because anyone who buys wine as an investment instead of drinking it — it's the world's best wine, after all — deserves whatever happens to them. Which, frankly, I kind of enjoy watching.

? Vegetarian food: It ?s summer, it ?s hot, and we ?re eating lighter, which includes vegetarian meals. My pal Dave McIntyre looks at the difficulty of finding wine to go with vegetarian dishes, since it would seem to exclude red wine. Writes Dave: ?On the whole, I ?d say don ?t sweat it so much and feel free to experiment. ? One key ? choose wines from cultures, like Greece and Italy, that do a lot of vegetarian food.

Winebits 228: Wine experts, wine sales, phone apps

  ? "Why do they buy wine?" The wine business would benefit if it listened to experts outside the industry on marketing its products. That's the opinion of Helen McGinn who used to buy wine for the British Tesco supermarket chain, who told a conference that the wine business is too insular in its approach.  ?The golden ticket," she said, "is thinking why does someone want to buy a bottle of wine in the first place? Who are they drinking it with? Is it a celebraion or special dinner? And then giving them options. ? This will not come as a revelation to regular visitors here, and I think it's especially significant in the wake of the industry's shock that the wine buyer for Costco isn't awed by wine as much as they think she should be.

? Direct-to-consumer wine sales: Wine drinkers buying directly from the winery could well be a key part in the future of the wine business, says the Wine Intelligence consultancy, tripling over the next decade. But there are a couple of caveats. First, the indsutry must still struggle with draconian shipping laws left over from Prohibition. Second, it's a tiny, tiny part of wine sales — just 30 million Americans buy direct in a six month period, and it accounts for just one bottle in 50 sold in this country.

? The failure of iPhone apps: Writes Paul Mabray of VinTank in Palate Press: "Why are wine iPhone apps not succeeding when other niche apps like Foodspotting are doing so well?" The piece offers a couple of good reasons, including and most imporantly the lack of wine drinkers who want to use them. It's not so much that wine drinkers are interested, says Mabray, but that there just aren't a lot of wine drinkers to use them, and especially when compared ot food apps. Since everyone, after all, eats and only 60 percent of the U.S. population drinks wine.

Costco and its role in the wine business

CNBC, the cable network, is running a documentary later this week about what it calls “The Costco Craze: Inside the Warehouse Giant.” Part of this is a very quick look at the role Costco plays in the wine business as the largest importer of high-end French wine in the U.S. and as perhaps the largest wine retailer in the world.

The clip, which is after the jump, is revealing if only for the interview with Annette Alvarez-Peters, who oversees Costco’s wine buying — and rarely gives interviews. It’s not long, only a couple of minutes, but worthwhile for Alvarez-Peters’ reaction when reporter Carl Quintanilla asks her if she is the most powerful person in the wine world.
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Wine trends 2012: What we’re drinking

wine trends 2012

Does this woman know that the wine she's drinking is inferior because it's cheap and popular?

There are two wine communities in the U.S. — the regular, ordinary wine drinker, who buys almost all of the wine sold in the U.S., and the elite wine drinker, who represents a tiny, tiny fraction of the wine drinking community but who is catered to by the wine business and, especially, by its allies in the Winestream Media.

Read the latter, and one would assume that wine has to cost a lot of money, that one needs a PhD in wine geek to appreciate wine, and that anyone who dares to argue with them is a crude boor.

We know where the Wine Curmudgeon fits, no?

Nothing demonstrates this better than sales figures. I have a copy of a report from an important U.S. distributor, detailing sales from March 2011 to March 2012 in the Dallas market. It was given to me by someone who asked to remain anonymous; hence, I can't reproduce it or link to it. And, though, it's not a perfect fit for what's going on nationally, it's still a revealing look at what the real wine market — and not the Winestream Media's wine market — is like. More, after the jump:

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What we’re drinking, and why no one wants to write about it

Two of the leading wine tracking consultancies have released their 2011 top brands surveys, at more or less the same time that one of the most influential wine bloggers in the cyber-ether asked if it’s true that wine writers don’t write about wine that people drink. Needless to say, the conclusion in the latter’s post was that yes, it’s true, and, more importantly, said the comments, why would we want to?

Let it not be said that the Wine Curmudgeon doesn’t appreciate irony.

The surveys were from Impact DataBank and SymphonyIRI. The wines that made the lists (and there is a surprising amount of overlap) were many that the Winestream Media goes out of its way to ignore: Cupcake; Apothic, the sweet red; Barefoot and its 10 million cases; and even YellowTail, which has shown amazing staying power given how old the brand is and how quickly brands fade away. The 2010 Symphony list is also worth noting.

I’ve written about this before. Actually, many times. But it’s worth repeating: The gulf between the wines that most Americans drink and the wines that most wine writers write about is stunning, and it’s a contradiction that exists in almost no other industry. What car magazine ignores entry level cars?

What’s even more amazing is that so few in the Winestream Media realize this, which is what made the Dr. Vino post so noteworthy. It’s not often that people with his credentials ask that question:

While it ?s true that a reader can pick and choose from a list of recommendations, it ?s still worth bearing in mind that if a reader were to have a $15 bottle of wine every other night, the total spend on wine a year would be $2,730, a significant figure for most household budgets.

This elicited a lot of hand wringing in the post and comments, because, obviously, cheap wine is not worth writing about. So what are wine writers to do? Or, as one comment put it, “Wine writers are in a tough spot. The elite vintners are the ones that pay their bills either directly or by allowing them access to wines that give them credibility. If they don ?t kiss their butts, they won ?t be relevant or worse won ?t have work.”

And people think I’m a cynic.

I’d like to suggest another possibility: That it’s OK to write about wines that people drink, even if they’re sold — shudder — in grocery stores and made — tremble — by huge multi-national corporations. There is plenty of terrific $10 wine available (though it requires a bit more effort to find than waiting for samples to show up at the front door). I’ve been doing it for almost four years, and I’d like to think I’ve had some success with it, to say nothing of being relevant.

But then again, what do I know? I write about cheap wine.

Winebits 215: Moscato, natural wine, wine trends

? Love that sweet wine: Moscato sales increased by what one trade magazine called "a staggering 73 percent" in the 52 weeks that ended Jan. 7, 2012, and the wine business wise guys are trying to put all sorts of spin on that news. The report in the link credits pop music stars like Kanye West, who sing about moscato, but the Wine Curmudgeon has another, more likely, theory. Americans like sweet wine. Which, of course, none of the wise guys want to admit. My electrician, who wouldn't know Kanye West from Cornel West, has become a big wine drinker. His favorites: Pinot grigio and moscato, and his wife likes sweet red wine. Not coincidentally, buried at the bottom of the story in the link, was this: "… small but growing categories included unoaked Chardonnay and sweet reds."

? Natural wine backlash: Renowned Rhone producer Michel Chapoutier has denounced natural winemakers as out-of-touch hippies making defective wines, reports Decanter magazine. Chapoutier told the magazine that natural winemaking ? which doesn't allow techniques like adding sulphur dioxide to stabilize the wines ? "…is a connerie. It is rubbish. It ?s like making vinegar, bad vinegar. How can anyone allow toxic yeasts to develop so that these inhabit the wine?" This should make for an interesting back and forth, since proponents of natural wine are equally as shy as Chapoutier about advancing their cause.

? Annoying restaurant wine practices: Two of the most annoying restaurant trends in the Zagat Survey's 2011 list were wine related, which should come as no surprise to regular visitors here. Overzealous wine pouring, when the waiter or waitress won't let you sip wine before they show up for a refill was No. 3, while No. 5 was wine glasses that are too big. Interestingly, inflated restaurant wine prices didn't make the list. Perhaps, like death and taxes, we've just accepted those something we can't do anything about.