Winery Price-Maintenance Tactics

Faced with slowing demand in the high end of the market, and the immutable fact that another batch of juice is coming down the tracks, ready or not, some wineries are implementing tactics designed to move product while maintaining pricing integrity.  I spoke to a number of area retailers in order to gain a better understanding of some of these tactics and the underlying strategy.

On the winery side of the coin, we have seen the introduction of second labels, and fruit redistribution between labels where the winery already has a multi-label distribution strategy.  For example, Bryant Family Vineyard has introduced Db4 as a second label, as has Sloan Vineyards (Sloan Asterisk) and Blankiet (Prince of Hearts).  Broadly stated, these are strategies designed to reduce price while maintaining the pricing integrity of the flagship product.  Chappellet already had a three-label distribution strategy and, in the current market, it has made smaller amounts of its mid-price label -- Signature -- and allocated more fruit to the lower-priced Mountain Cuvee.

On the distribution end of the three-tiered distribution model employed in the US, the tactics are more diverse. Rather than reflect glut conditions by passing lower prices on to the consumer, wineries are maintaining their retail prices and pushing product through the restaurant by-the-glass channel.  The typical scenario for a restaurant is that the per-glass price offered to a customer is the restaurant's wholesale per-bottle cost.  Making deals with restaurants in order to move product allows the winery to mask price reductions from the general public.  As a consumer, you may have a better selection of by-the-glass wines in the restaurant but you are also supporting a 4 times markup versus the 30% plus markup that is synonymous with the retail channel.

Another tactic being employed is to provide great deals to volume retailers but to either set a floor price at which it can be moved through the channel or to stipulate that the deal be marketed selectively by the retailer.  One retailer that I spoke to said that, on two occasions, distributors had picked product up from his dock rather than allow it to be sold at the price that he proposed.  Another retailer indicated that he was given pricing flexibility but could only market the deep-discount deal via email.

According to the retailers, they are kept in line with the threat of being "listed."  If a distributor makes a complaint to the State licensing authorities that a retailer is delinquent in paying invoices, that retailer is "listed" and cannot source product from any other distributor in the state until all debts to all distributors have been settled.  There is pretty powerful motivation for retailers to play ball.

As the top end of the market continues to stagnate, and as grapes continue to ripen and force harvesting, it will be interesting to see how long the wineries can continue keeping the price-reduction bogeyman at bay.