Basic Math – Part the Second

Lying by omission. One of my least favourite concepts ever.

Especially when perpetrated by people in the wine game, who are trying to sell wines, but who manage to utterly denigrate the producers in the process.

There has been a bit of this lately – cost of production on a wine, and why shouldn’t it really cost less than $10 a bottle?

So, Basic Math. Part two. Because manipulating the facts to fit like this simply does not add up.

This, from a recent selling email:
‘Good quality grapes – about $5 a bottle.
– Top winemaking, about $2.50.
– The glass, label and something to stop it pouring out another $1.50.’

Ok, let’s ignore the mean, slightly snarky approach, and deal purely with the numbers: WHERE DID THOSE NUMBERS COME FROM? One producer? Two? A hundred? A thousand? Because I know if someone called me up and randomly asked for a breakdown on the cost of my goods, I’d just hand that right over. No problemo. Except I am not stupid, and I wouldn’t.

Maybe they have a winemaker on staff. Many of these businesses do. So, are they simply using that person’s figures? And how do those figures even begin to relate to mine? 

1. Size of production
Economies of scale definitely kick in. Producing ten thousand cases of a wine is naturally a cheaper prospect than making a hundred six packs. And there are countless differences within production. Your own winery? Contract winery? Size DOES matter.

2. Style of production
Every wine has a different input. Some are simply crushed, and into tank, then into bottle. Easy. Mostly. Except when it isn’t. Some use old oak. Some new. Some use super duper pieces of equipment. Some don’t. The costs involved in each of these processes go INTO the cost of the wine. Mostly because wineries exist as businesses. And as such we need to make money. Ignoring any of the costs of production does not make financial sense.

3. The people
What, you mean that winemaking sum of $2.50 doesn’t pay the winemaker?! No. It doesn’t. Nor the other people involved. Viti. Vineyard hands. Logistics. Sales. Marketing. All paid jobs, which do NOT exist outside the vacuum of the wine made and the price at which it is sold.

4. The labels – existing, new, client-designed, other….
ALL COST MONEY. Well, less so with cleanskins, naturally. But labels require development, adherence to regulations, print costs, plate costs if it is the first run of that label, add to that if you want metalllics, foils, high build, or maybe even branded capsules. Or any of the myriad of additional extras. Which all, surprisingly enough, cost money.

5. The brand
A brand does not exist in a vacuum. It requires input. Investment. Development. Or it will join the carcasses of other brands strewn carelessly by the side of our path. Never to be seen again. Which is an awful waste for everyone, really. If it is a brand going into one channel, it may require less or more input than another. This cost must be accounted for somewhere.

6. How we get to you
Sometimes you come to us and buy direct. We have someone sitting in an office, paid to deal with this. We have warehouse staff, and fees. We have bank fees. AND a whopping percentage of that sale? Is tax. It most certainly does not line our pockets with gold. But we do love you coming direct to us, because we get to talk to you, and engage. So, thanks!

Sometimes, you go into a shop, and buy it there. To get it there, we generally use a distributor. Who naturally takes a cut to pay for the reps, infrastructure and logistics involved getting that bottle onto the shelf for you to collect. And the retailer has to make a decent margin too, to pay for staff to work in the store and the rent to actually BE a shop where you can spot that bottle on a shelf and pick it up. And again, a whopping percentage is paid in tax. Not to the retailer, nor the distributor, nor the winery. But we love you picking up that bottle of ours, paying for it, and taking it home. So, thanks!

Sometimes you buy a bottle in a restaurant, and if you were not paying attention, check out Basic Math (the first one) for an explanation on how that all works. And we love that a restaurant chose our wine to be ready and waiting, and that you ordered it. So, thanks!

Sometimes you buy online. Most of the online business is pretty sharp, pricewise. It helps that most of it comes direct from the winery, and skips the distributor step (and associated margin). But they have costs too, with staff, warehousing, web and server costs, not to mention the brilliant (and equally expensive) IT person who is probably on call pretty much 24/7. And in order to be competitive, their pricing must be substantially lower than the next nearest offer. So you can CLICK, and purchase. Which is great. These sites are a brilliant way to find something new. So, thanks!

Sometimes you are given a bottle. Lucky you! You have awesome friends!

So there are costs involved everywhere. Anyone who has made something and tried to sell it knows this. To be smart, and to be here tomorrow, we must factor in all of our costs. So if my two hectares of pinot vines produce half as much fruit this year as last year, odds are, the price will go up. All those static costs of running a vineyard come into play. We still need to prune it all. We still need to manage it all. And then Nature has a hissy fit, and things go pear-shaped. But the static costs stand. And then processing tiny volumes incurs extra fees. See above. No economies of scale equals higher prices.

So the difference is, once again in the detail: kinda like buying apocalyptic volumes of loo paper at Costco, versus picking up a quaint triple pack at the servo on the way home. Home brand, versus a brand which requires input. Investment. Money. Which, I’m told, does not grow on trees.

So, maybe telling the world that, as a wine industry professional, you are of the opinion that a bottle of wine should cost no more than $9? Maybe this is not the best idea. Because for a start, you ignore the costs of then getting a wine to market. You ignore the layers of taxes. You ignore the fact that wine on my block may have an entirely different set of costs to wine from that block over there. Ignoring the detail and just presenting a somewhat random number with nowhere close to enough explanation? Dangerous. And dangerously close to being a race to the bottom of the wine world, where ‘cheap’ and ‘deal’ are the watchwords, and the brands, the people and the land all giving this wine to you are nothing more than a commodity.

I remember when wine was about delight and enjoyment of what was in our glass. Not a battle over who got the best deal. And for the sellers, and the writers, identifying the highest price they see a wine costing to produce? Leave me out of the equation. Because you have no idea how much it cost to make my wine this year. And you won’t know next year, either.

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4 comments on “Basic Math – Part the Second

  1. Hear, hear! So well said. If the original remark were true, we should all be buying coca cola for $0.40 a litre.

  2. Jim Schwilk says:

    Happy to second that and here’s to a well thought out and logically presented case.
    Wine should be about enjoyment, first second and third at whatever cost you are prepared to pay for a bottle.
    There are bargains and crap at all levels, don’t let price be your sole reason for purchasing that next bottle of enjoyment!!

  3. Len says:

    You are correct about “bargains and crap” and especially so about the oversimplification that some make of wine production costs. I suppose these people must have been in the Hunter in 2014 when the bumper harvest came off in perfect conditions but forgot to go back in 2015 when hundreds of tons of reds and whites were left to rot.

    Price setting is about many things. Sometimes it is just about very good marketing and salesmanship. Other times it reflects quality or scarcity. Best solution is to try the wine and see if you want to pay for more of it.

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