The past few summers, wholesale lobster prices have plunged lower than the ocean floor. Yet lobster prices in restaurants have remained unaffected, a disconnect I have pondered over many a lobster roll washed down by Chablis or Champagne.
Apparently, James Surowiecki, who writes the New Yorker’s The Financial Page, has also stared down the same disconnect but he has taken it one step farther: he has written this week’s column about it.
In short, he finds that commodity pricing doesn’t apply to lobster since it is entrenched as a luxury good in the food world; cut the price and people may actually be turned off as they think it’s inferior quality. In the world of luxury products, psychology matters more than than the cost of raw materials.
He also notes Simonson and Tversky’s work on context-dependent preferences and choices. They found that if consumers were presented with a low-priced and mid-priced object to choose between, the selections would be split. But if a third, higher-priced object was added to the product mix, then consumers chose the mid-priced item 40% more often.
Lobsternomics has some application to the wine world. If input prices were to fall for high-end grapes, it’s unlikely producers would cut wine prices for the similar psychological reasons (indeed, we saw this with the flash sales after 2008 instead of outright price cuts).
Also, Simonson and Tversky’s work is applicable to wine lists where the mere presence of DRC on a wine list may move more malbec. What do you think about the effect of relative pricing on wine lists (or stores)?
But one way that the law of supply and demand is not repealed in the world of wine is when the cost factors go up. Then, as when hail vastly reduces supply, the relative scarcity forces prices up; whether they fall again remains a matter for empirical research–and consumer psychology.
The Daily Show’s Jason Jones heads California to examine the National Raisin Reserve.
I hope he also got a chance to tap into the nation’s wine reserve, while on location!
The famed Eisele vineyard of Napa Valley has a new owner: Francois Pinault, number 74 on the Forbes billionaires list. Pinault’s Artemis Group, which owns Chateau Latour among other wine properties, has agreed to purchase Araujo Estate Wines from Bart and Daphne Araujo. The price for the 162 acres, including the 38-acre Eisele vineyard, was not disclosed in this statement.
“Araujo Estate and its jewel, the unique Eisele Vineyard, have been producing consistently one of the very best wines of Napa Valley,” Frédéric Engerer, CEO of Chateau Latour, said Read more…
A financial blog posted that the private equity firm backing wine.com is “dumping their failed investment” in the company. Wine.com CEO claims the company “is doing fine” and has grown revenue to $75 million although he cites the “challenging” space that is wine online retail.
The blog, Growth Capitalist, reports that Baker Capital has retained Credit Suisse to shop their stake. One prospective buyer took a pass they report. The blog confirms the top-line figure but says that the company has yet to make a profit, so “bankers are left with little more than a nifty domain name to sell.” Venturebeat.com picked up the thread and says that the company’s “most reliable revenue model” involves the sale of gift baskets.
CEO Rich Bergsund hit back at the sale rumors, saying that the company hasn’t received outside funding since 2007 and has been cash-flow positive since 2009. He did elaborate on the difficulties endemic to the space: “wine is a challenging category online, due to regulatory constraints, shipping heavy glass bottles, extreme weather concerns and adult signatures required for delivery.” His full reply follows after the jump. On Venture Beat, Bergsund denied that the company was worth little more than the domain name–if it were true, he joked, he’d be the first to buy it. Read more…
Consolidation strikes the Empire State: The Vintner Group, the Virginia-based distributor, is acquiring Martin Scott Wines, a distributor based in Lake Success, NY.
Founded in 1990 by Martin Gold and Scott Gerber, Martin Scott Wines has grown to have a thick “book,” distributing wines from about 450 wineries, ranging from Domaine de la Romanée Conti, Bonneau du Martray, and Jacques-Frédéric Mugnier in Burgundy to Ponzi Vineyards and Chateau Montelena from the US.
The Vintner Group, formerly known as The Country Vintner, is an importer and wholesaler of fine wine and spirits. CEO David Townsend has led the company on an acquisition spree of late and the company now has operations in nine states in the mid-Atlantic and southeast. They now add New York, New Jersey, and Connecticut to that list. According to Shanken Daily News, the company recapitalized in the mid-2000s and now have Brockway Moran as a private equity partner.
What does this mean for the New York City wine market? If you’re in the trade, share your thoughts in the comments. Here’s a link to the press release.
The Senate is likely to pass a measure to have retailers collect sales tax for orders shipped out of state. The issue has been a hot-button issue since many big-box retailers perceive that online-only retailers have an unfair advantage and they have brought their largesses behind this tax equalization issue at the federal level. How would the Marketplace Fairness Act affect wine sales?
The answer is: probably not much.
Although wine e-commerce (hello, 1990s term!) has been growing, it is still hamstrung by regulations. Wineries can only ship to 36 states while retailers, who have much broader and more compelling offerings, can only legally ship to 12 states.
The other factor is shipping. If you buy a few bottles on the way home, you pay sales tax. But if you poke around online and throw some items in your virtual cart, you have to pay shipping even if you don’t have to pay sales tax currently. Let’s say the store charges $20 a case shipping, which is customary in the northeast for in-region shipments. If you’re buying $10/bottle wine, shipping is 16%, so it is almost prohibitive (unless the deal is extraordinary). If you order more than $300 worth of wine to have the shipping be less than the sales tax (assuming 7% sales tax). (Still, the online price may well be a lot cheaper than the in-store price, a phenomenon we have discussed before so it could be worth it.) If you’re ordering $300+ cases of wine, paying 7% sales tax is probably not a deal-breaker.
Such a law would therefore stand to impact wines north of $25/bottle and stores in New Jersey. Why sotres in New Jersey? Because if you do an online search for a wine, one from the Garden State usually is one of the cheapest available. Maybe there would be more shipping discounts in the wake of sales tax collection? But some of the lowest-price retailers are already extremely lean margins.
What do you think–how would the proposed sales tax bill affect your wine purchases? Or the wine industry writ large?
What has one end go down a little while another end pops up? It’s not a seesaw; judging by recent data, the answer to this riddle is Champagne.
Champagne sales fell 4.4% last year to 308 million bottles but were flat by value according to data released by the CIVC last week. France and the rest of the EU popped fewer bottles of bubbly by 5.6% and 7.1% respectively; together, they comprise 80% of Champagne sales. The official press release highlighted strong sales in Japan and Australia as well as growth in emerging markets.
Sales in the US market were not released but Shanken Daily News reported, presumably from their own data, that sales of Champagne fell 16% by volume and 25% by value in the first half of 2012.
I spoke with a representative at a leading importer of grower champagne who said their sales surged 20% last year. In fact, their Champagne portfolio is what is drawing new accounts for them as buyers are attracted to champagne from small producers who have a link to the land. Wine shop managers have also told me about strong interest in grower champagne at the retail level. Grower champagnes clearly represent only a niche in the bubbly market but it is a growing niche. Will the big houses take heed and start focusing more on site-specific wines?
Maybe the sluggish economy is causing brand-oriented champagne consumers to switch some purchases to Prosecco. Or they are following instructions from hip-hop artists and dabbling with Moscato.
A wine club whose profits benefit the NRA has triggered outrage: Yalumba of South Australia has requested their wines removed from the club’s wine shop.
“Philosophically, I’m not disposed towards the NRA, which runs counter to my family’s, and I would think all my employees’, positions on gun laws,” CEO Robert Hill Smith was quoted in Australia’s Herald Sun. He is taking steps to remove the four Yalumba wines offered on the site. This incident underscores the mediated nature of sales in the wine industry where a winery may not even fully realize the final points of sale of their wines.
Profits from the wine club benefit the NRA. In a signed welcome letter, NRA Executive Vice President Wayne LaPierre writes, “Your purchase will directly benefit the NRA’s continuing support of America’s Right to Keep and Bear Arms and the other basic freedoms of the American Culture.”
The wine club is run by Vinesse, which operates several wine clubs. This club raises several questions: which types of organizations should (or should not) profit from the sale of wine/alcohol? Do other wineries know that their wines are among the 476 offered on the site and will they follow Yalumba’s lead and seek to have them removed? A smattering of selections follows after the jump: Read more…