Following up on last month’s column about low-end and mid-priced wines, I better give the high-end or luxury wines their proper respect. What does it take to be considered a luxury wine, besides a big-ticket price tag? I’ll use any wine over $40 to fit this category, although you might have a different figure in mind.
At a seminar in Napa a few weeks ago (and reported in Wines and Vines magazine by Tina Caputo), several speakers on a workshop panel addressed the topic of how to reach the “modern upscale consumer.” What came out of the workshop was the opinion that there’s a new breed of buyers out there in consumer land. The old luxury buyers preferred Rolls Royce and Bombay Sapphire gin, according to panelist Taylor Bryant of Massachusetts-based Mullen Agency, whereas the new, affluent luxury consumer prefers BMW and Belvedere vodka. “They prefer to pamper themselves with high-end experiences.”
It’s also interesting to note that the speakers stated these new consumers aren’t choosing products for the purpose of status. This isn’t to say that status seekers aren’t still out there. They definitely are. So all we’ve done is add a new group of those wanting pampering not necessarily status. This whole concept of an affluent group wanting pampering is relived everyday in Healdsburg…twice on weekends.
Then along comes the various weekend events featured by the various appellation areas functions such as “Dry Creek Passport” and the Russian River “Vine to Glass.” Just looking at the cars and limos, packed restaurants and crowded streets will tell you how large this new group of consumers really is. I guess I need to say that Napa has been like this for years, because it’s the classic example of how to nurture this new consumer. The Central Coast of California is learning this also, as well as the Sierra foothills.
One speaker stated that what these luxury consumers want is “brand authenticity.” It’s described as “the perception that a product is crafted with integrity, using non-industrial methods.” The larger the winery, the harder it is to get that “artisan, non-industrial” feel. That explains a couple of other practices: the perceived shortage technique practiced by a couple of local wineries (make 250,000 cases and convince the public you only produce about 50,000 or less cases, so better hurry up and buy), and buy and/or start a whole lot of little wineries (a la K-J, hence the name “Artisan & Estates” for all its little guys).
Bill Amspacher, a professor of agribusiness at dear ole Cal Poly, San Luis Obispo, discussed what the thought process needs to be when a producer desires to push for a price increase of luxury wines. He brought up questions such as, “Will the consumer respond to a price increase by buying less of your product, or by buying someone else’s?” For all of you business majors out there, the term “elastic” comes into play. As in: “How elastic is the demand for your product?”
Not mentioned in the seminar was, “Why does the winery want to raise the price of wine when it’s already very high?” Maybe that’s where the status factor really is. A winery will take great pride in letting everyone know its wine sells for, let’s say, $50 a bottle. I find it very difficult to believe that a wine can cost upward of $30 per bottle to produce, so anything above that is pure gravy.
Just for fun, let’s look at a $30 per bottle of wine. That’s $360 per case retail and even more if sold in the tasting room (which most small wineries prefer, since all sales are gross and require little or no merchandizing costs except a light bulb and an employee at maybe $15 per hour). It should be pointed out that many tasting rooms also look like Macy’s, with everything for sale but underpants, and maybe even those, too, with a 50 to 66 percent markup. One bottle per hour pays that wage, since wholesale through a distributor would be only $15 per bottle. Selling wine through a broker or distributor costs either one-third or half of retail, so you can see why it’s a lot more fun to sell through your tasting room. If you made 1,000 cases, your gross would be $360,000 or, as one winery I know very well makes about 10,000 cases and averages about $60 per bottle–$720 per case. You can do the math, because I get jealous doing it. Not bad for a year’s work.
With tourism so big in this area, many wineries are doing their best to entice people into their tasting rooms. Many are even opening up second ones in downtown areas to take advantage of the foot traffic generated by the starving businesses that are trying to stay alive as rent continues to go through the roof. (Pun intended.) It seems that if you can’t eat it or drink it, it’s hard to stay afloat in tourist destination towns. (It’s also impossible to find a parking place!)
The very close proximity of wineries in Napa makes Highway 29 a parking lot on weekends, and Sonoma and Healdsburg aren’t far behind. It seems that anybody who owns a vineyard in Dry Creek is suddenly building a winery—creating a great deal of traffic. Throw in a raft of bicycles, and it really becomes a circus. I remember when all of the growers in Dry Creek were adamantly opposed to the Warm Springs Dam because it would increase traffic. Hey look, we’ve found the enemy—and it’s us. Amazing how attitudes change with time and money! At least fishermen haven’t crowded the road, since between the jet skis and water skiers, and very few fish, it isn’t worth the trip.
Well enough of this for today. Get out and do your homework now and pamper yourself with a couple of $50 wines (or four cases of Two Buck Chuck).
