The marketing costs for a $50 bottle of wine breaks down in the following way, within the three-tier system:
- 7% – cost of grapes and/or growing ~ $3.50
- 9% – cost of wine making ~ $4.50
- 4% – bottles, corks, boxes, labels ~ $2.00
- 2% – marketing ~ $1.00
- 13% – sales people, distribution from the winery ~ $6.50
- 3% – administrative costs ~ $1.50
- 2% – interest ~ $1.00
- 4% – taxes to government ~ $2.00
- 5% – actual winery profit ~ $2.50
- 20% – wholesaler markup ~ The people who get the wines to wine shops and/or restaurants ~ $10.00 (There’s overhead and payroll costs involved at this level.)
- 31% – wine shop markup ~ $15.50 ~ There’s a lot of overhead and payroll costs involved at this level. Today, restaurants mark up their wine to be much higher than a 31% profit… It’s easy to tell who they are, when you compare what a winery is offering as a retail price on their Websites. This is always their SRP (suggested retail price).
The more often you buy a bottle of wine directly from a winery, the more profit there is for the wine company owners. Because there’s more profit, it allows for those with advanced social consciousness to take better care of their workers, and some of actually do care about their workers… most especially the smaller wine companies. The smaller the company, the more direct contact/relationships exist. This exists even more so if the wine company is also growing its own grapes.
This information was sourced through my wine sales and marketing degree program notes.
and thus why I don’t sell through 3 tier or brokers, I’d be out of business.
A very good point to raise, William. Your great wine and other great wines never make it to most states. People have to come to CA to buy it, or do it over the internet ~ another system designed to keep your great wines out of their states. Who can afford to become licensed in each state, if he or she has a small wine company and just starting out… besides millionaires?
An awful lesson for small production winemakers to learn, as you come into this business wide eyed and full of hope. (I think I’ve started another blog post here.)
Jo,
Either the title is misleading, or you’re asking us to read the entire post only to find cost of marketing is $1.00, or 2%. What your post actually describes is the breakdown of costs, and the resulting profit. So why don’t you say that up front?
Also, your comment about restaurant markups makes it sound like 2x(+) retail pricing is something new where you are “pulling the curtain back” to reveal. I think the exception is those who offer wines at $5 or $10 over retail.
The real crime in here is the wasted 20%. Open up direct shipping, save the boutique wineries!
JO,
ON THE CIRCA 2000 COST OF PRODUCING A “FINE” WINE.
AND THE CIRCA 1988 INPUT COSTS OF PRODUCING A NAPA VALLEY CABERNET . . . WHICH CAN BE USED TO “INDEX” A CONTEMPORARY WINERY’S COMPARATIVE COSTS.
~~ BOB
Excerpt from The Atlantic Magazine
(December 2000, Page Unknown):
“The Million-Dollar Nose”
[Robert Parker profile]
[Link: http://www.theatlantic.com/past/docs/issues/2000/12/langewiesche3.htm%5D
By William Langewiesche
. . . For those in the business, maintaining that [elite drink] image is important not only for commercial reasons but also for reasons of personal prestige. Every stage of the trade is involved in establishing the high prices, but ultimately those prices can be sustained only through the retailers and their sales efforts. The problem for the retailers is that wine — unlike luxurious hotel rooms and other hyperinflated products generally covered as business expenses — is usually paid for directly out of the consumer’s pocket. This makes for a scary business, especially toward the high end, where The Wine Advocate roams.
THE TRUTH IS THAT EVEN THE BEST WINES COST ONLY ABOUT $10 A BOTTLE TO PRODUCE (circa 2000), and they are not inherently rare. If the initial cost is tripled to allow for profits along the path of distribution, one can reasonably conclude that retail prices above $30 are based on speculation, image, and hype. [Capitalization added for emphasis. ~~ Bob]
. . .
Excerpt from Los Angeles Times “Business” Section
(June 15, 1988, Page C3ff):
“Profit a Key Ingredient of Fine Wines”
[Link: http://articles.latimes.com/print/1988-06-15/business/fi-4284_1_wine-market%5D
By Bruce Keppel
Times Staff Writer
[Certified Public Accountant] Dennis Groth prices his Napa Valley Cabernet Sauvignon to sell for $13 retail. That price, he said, will net his family’s young winery here just 34 cents a bottle in profit.
Groth is far from complaining, mind you. After all, he points out, 34 cents represents a 5.2% return on the $6.50 he collects from distributors. “That’s about midway among the Fortune 500 companies and a fair return on my investment.”
. . .
According to Groth, the $13 retail price of his Cabernet Sauvignon provides for a 34-cent profit and 34 cents in federal and state taxes. Payments on the loans taken out to acquire the 165 acres of vineyards take $1.46, and he figures another $1.43 to cover the cost of growing and harvesting the grapes. Producing the wine itself costs $1.19, and marketing it adds $1.74. That, at any rate, is the way Groth allocates the $6.50 wholesale price he receives from his distributor.
The distributor, in turn, will typically take $2.17 for bringing the wine to market, where the wine merchant will add $4.33 to promote and sell the bottles to the public, producing an undiscounted retail price of $13.
“To survive,” Groth said, “I have to be successful at that price. Nobody in the Napa Valley will survive on producing the low-end wines. I want to be in the top third of the marketplace.”
. . .
[Bob’s aside: For those with l-o-n-g memories, Groth’s 1985 “Reserve” Cabernet was the first California wine to be awarded a “perfect” 100 point score from Robert Parker and The Wine Advocate. As I recall, the suggested retail release price was $150.]
Thanks, Bob, for all of your research presented. Some of it is good, some of it is flawed for the reasons of generalizations.
What I’ve presented are the average costs… It’s a starting point. What happens in Napa, stays in Napa. To produce a $50 bottle of wine (or a $200 bottle of wine – which would NEVER happen) with Central Valley fruit, would never fetch the same prices.
I see a flaw in what’s above, because the author isn’t taking into consideration the cost of buying grapes, for starters.
When we were representing Suisun Valley, during their years of being funded by the Solano Irrigation District and the city of Fairfield for marketing the region, I learned the following:
This one: “is usually paid for directly out of the consumer’s pocket.” Business people in meetings can write off the costs of “entertainment,” by a percentage… And, they do.
Somewhere in the middle of everything lies the generalization… I’ve worked with over 100 brands (adding in all of my PSILY members, it’s really close to 200…from Napa, Sonoma, Mendocino, Central Coast, New Zealand, Portugal, the Sierras, etc…. More than journalism, it’s realism… as I work with brands needing to understand what they’re getting into. I’m not on the outside, I’m on the inside, and have been for over 20 years… Including a wine sales and marketing degree program out here.
As I just reminded one client, it takes a large fortune to make a small one in the wine business.
A journalist has a certain amount of time to research his or her story. A publicist with over 20 years in the business, is researching everyday. While we may not be writing for a publication (although I’ve written for plenty and continue to turn down offers, because as a publicist, the pay is much better), we’re writing for clients. They’re telling us what we need to hear, in order to help them with their marketing.
I stand by this story as a good generalization. Yes, Napa is grossly overpriced in many instances. Would I ever buy a Screaming Eagle? My friends don’t need to be so impressed. We’re all in the business and know better. But, the average consumer needs some basic marketing concepts, and the story has it for them… Wine 101…
You have brought out some great exceptions to the general rules. Thanks for your input.
Excerpts from The Sacramento Bee “Business” Section
(February 14, 2008, Page D1ff):
“Full Bouquet on Wine Costs;
From grapes to glass, prices vary by region and quantity”
Alternate links:
http://www.record-eagle.com/news/business_the_biz/article_1d40b347-9132-54ea-bb2d-fc3fbdfa3db9.html?mode=print
By Jim Downing
Staff Reporter
“Breaking Down a Bottle”
The value of wine grapes depends on where they’re grown. While grapes are the primary ingredient in wine, they make up only a splash of a bottle’s retail price.
Here’s a breakdown of the estimated costs in a typical $20 bottle of wine:
Grapes . . . . . . . . . . .$ 1.95 Petite Sirah (Mendocino)
Winemaking ops . . . $ 3.25 medium-volume
Oaking . . . . . . . . . . $ 0.75 American oak barrel
Bottle glass . . . . . . . $ 0.90 Midrange glass
Label . . . . . . . . . . . . $ 0.25 Midsize order
Closure (cork) . . . . $ 0.30 Midquality cork
Capsule . . . . . . . . . $ 0.10 Aluminum
Bottling . . . . . . . . . . $ 0.45
Subtotal . . . . . . . . . $ 7.95
Winery mark-up . . . +75%
Winery mark-up . . . +$ 5.96
Subtotal . . . . . . . . . $13.91
Wholesaler m-up . . +20%
Wholesaler m-up . . +$ 2.78
Subtotal . . . . . . . . . $16.70
Retailer mark-up . . +20% supermarket
Retailer mark-up . . +$3.30
Total . . . . . . . . . . . $19.99
Here’s a breakdown of the estimated costs in a typical $80 bottle of wine:
Grapes . . . . . . . . . . $ 5.75 Cab Sauvignon (Napa)
Winemaking ops . . . $ 6.25 small lots
Oaking . . . . . . . . . . $ 2.00 French oak barrel
Bottle glass . . . . . . . $ 2.00 Heavy European glass
Label . . . . . . . . . . . .$ 0.65 Small order, fancy label
Closure (cork) . . . . . $ 1.00 Highest-quality cork
Capsule . . . . . . . . . .$ 0.18 Tin
Bottling . . . . . . . . . . $ 0.50
Subtotal . . . . . . . . . . $18.33
Winery mark-up . . . +150% Small, renowned winery
Winery mark-up . . . +$27.50
Subtotal . . . . . . . . . $45.83
Wholesaler m-up . . . +35% Low volume = high m-up
Wholesaler m-up . . . +$16.04
Subtotal . . . . . . . . $61.86
Retailer mark-up . . . +30% wine shop
Retailer mark-up . . . +$18.13
Total . . . . . . . . . . . $79.99
Sources: Sacramento Bee; Robert Yeltman, UC Davis; National Agricultural Statistics Service
The top of the comment was inadvertently cut off.
Once again . . .
Excerpt from The Sacramento Bee “Business” Section
(February 14, 2008, Page D1ff):
“Full Bouquet on Wine Costs;
From grapes to glass, prices vary by region and quantity”
Alternate links:
http://www.record-eagle.com/news/business_the_biz/article_1d40b347-9132-54ea-bb2d-fc3fbdfa3db9.html?mode=print
By Jim Downing
Staff Reporter
Yes, Bob, they certainly do. My blog story is a starting point.