TN: Last nights Syrah/Shiraz and Tokaj

[Thor]

I think US$15 for Pegasus Bay Riesling is well below landed cost.

That's even low for their cheaper Main Divide Riesling. For $15, I'd buy a lot of that wine. (In fact, for $14, I did...on closeout in Boston. It served a lot of parties, with success. Even if you weren't impressed.)

I wouldn't be surprised to see more discounted Giacosa.

 

[Yixin]

originally posted by Thor:

I think US$15 for Pegasus Bay Riesling is well below landed cost.

That's even low for their cheaper Main Divide Riesling. For $15, I'd buy a lot of that wine. (In fact, for $14, I did...on closeout in Boston. It served a lot of parties, with success. Even if you weren't impressed.)

I wouldn't be surprised to see more discounted Giacosa.

Still not cheap but first time I've seen Santo Stefano south of USD100 for maybe a decade in an Asian market?

Re: Pegasus Bay, didn't like the '08 enough to buy it. But I was shocked by the pricing; usually it's closer to twice that price.

 

[Cristian Dezso]

originally posted by Thor:
I wouldn't be surprised to see more discounted Giacosa.

Again, as I mentioned before - and I hope Nathan read that post (3:45pm) - it depends what the starting price from which you see the discount. Yeah, if the 04 Giacosa RdF Riserva is not moving at $500, then you can see discounts of 30%, and this brings the wine to $350.

But again, when first offered, there is a broad dispersion in prices, with some merchants offering it at $500 and some at $350. I have no means of figuring out whether the $350 is the discounted price or it includes the normal markups, and then the $500 includes a more than normal markup.

My question is this: when you expect discounts, which price do you take as your benchmark, the $500 or the $350?

Also, I am wondering if merchants might play the nightclub game (keeping people in line outside, even though the club is empty). You see every now and then the 2004 Giacosa RdF Riserva at mind numbing prices ($400+) and it disappears within a day or two from the merchant's site. Is it possible that they try to create the impression that the wine is selling out quickly when in fact it does not, and then they can bring it back later?

 

[David from Switzerland]

It's interesting that this whole discussion started from a tasting note on a wine that as far as I know, is rare. I believe the whole point, when I was told "there is no recession for wines like this" is that the assumption is one needs only a handful of wealthy customers to sell a small quantity of a wine that at any rate, no one else buys anyhow. This wine (this particular vintage, that is), by the way, hasn't got an "official" rating by you know whom, but then, no one in their right mind can be buying this thinking it's an investment - at this price, how could it be? But I may be wrong. Maybe that mere handful (?) of customers does indeed believe it's a safe bet. Be that as it may, it's apparently sold out in this country. And I'm still waiting for anyone to discount rarities. The discounts I keep seeing are usually of the manipulated sort, what we in German call "moon prices", i.e. unrealistic suggested retail prices quoted in deceptive advertising, where every collector worth their salt knows the wine in question never cost that much.

Greetings from Switzerland, David.
_________________

J'ai gch vingt ans de mes plus belles annes au billard. Si c'tait refaire, je recommencerais. Roger Conti

 

[Thor]

Again, as I mentioned before - and I hope Nathan read that post (3:45pm) - it depends what the starting price from which you see the discount.

Note that I didn't specify at which level of the trade one might see any theoretical discounts.

Nor will all discounts, depending on where and how they happen, benefit all consumers. For example, Yixin might see discounts that you will never see, or vice-versa, because of where each of you live.

My question is this: when you expect discounts, which price do you take as your benchmark, the $500 or the $350?

It seems to me that what matters is at what price the wine actually sells, and whether each involved entity is making enough money at that price. If Bob's Wine Hut offers Clos Ste-Hune at $500 or $350, it's not going to sell and neither is the "benchmark" as you term it, merely an aspirational number that may, in some theoretical boom market, have been considered reasonable. But there is also a number below which Bob's Wine Hut is not making any money on that wine, nor is any entity upstream from them, potentially including Trimbach. That will, unless it's very temporary, break the relationship (at best), and might break one of the entities in that chain (at worst). And though you may see discounts and closeouts as a result, this will be a temporary and somewhat Pyrrhic victory if the next vintage is either unavailable or doesn't exist.

Also, I am wondering if merchants might play the nightclub game (keeping people in line outside, even though the club is empty). You see every now and then the 2004 Giacosa RdF Riserva at mind numbing prices ($400+) and it disappears within a day or two from the merchant's site. Is it possible that they try to create the impression that the wine is selling out quickly when in fact it does not, and then they can bring it back later?

Not everyone is Bordeaux and can play a game of artificial scarcity and alternative markets. I'm aware of one Italian producer who is doing this because they can, but they admit they can't afford to do it forever. Eventually, the wine has to move. But at what price? Too cheap, and it could destroy the brand. That, too, has to be a consideration.

when I was told "there is no recession for wines like this" is that the assumption is one needs only a handful of wealthy customers to sell a small quantity of a wine that at any rate, no one else buys anyhow

Maybe that's true in your market, I don't know. But that particular category and others like it might as well be lead paint in the U.S. market. Heavily-pointed wines just sit there, waiting for customers that no longer exist. Were it more regularly legal, I think you'd see below-cost sales just to get rid of the stuff. Maybe they should all be gray-marketing it to Switzerland.

...and Christian, part of the answer you're not receiving is in this conversation, too. Lots of things conspired to kill high-dollar Aussie wines, and one of them was low-dollar Aussie wines. One of the things that mostly ruined Marlborough sauvignon blanc was $9.99 Marlborough sauvignon blanc. (In neither case was this the only factor, obviously, or necessarily even the major factor.) One way to hasten the demise of Barbaresco would be $23.99 cru Barbaresco from a top producer. Which is why no one wants to do it.

 

[Ned Hoey]

No doubt that the international wine trade is complex and diverse. It can a bit problematic to discuss in generalities, BUT when it comes to these top Euro regions, isn't this just the collapse of a bubble. For roughly the past 10-12 years there an unsustainablely rapid run up in US retail prices. That's what I saw anyway. I expect the increases were smallest at the producer and grew exponentially from there. Costs didn't mandate the rise, demand did. It seems foolish at this point for the trade to stubbornly hold out for price levels that were recent and relatively short lived. It isn't hard to understand that everyone went along with that program, but it's a little surprising to see how quickly and completely they got attached to it.

 

[Thor]

Whether it's a bubble or not, as VLM and Jonathan were suggesting it isn't just a matter of theoretical money and elevated lifestyles, though. Trimbach...yeah, everything except the grapes for the yellow labels is long paid-for and they can weather a downturn; nothing new there except for this year's bottles. Angelino Boo-Yeah in some hilltop Piedmontese town, with his shiny new facility, shiny new barrriques, and sprouting new hillsides of cabernet nebbiolo, all of it financed...if there's enough hurt for long enough, someone other than Angelino is going to own all that stuff, holding/disposing of it as they wish. But it probably means no more Ca'Bernet Langhe Rosso.

This is just a less Wine Blog Awards-grasping version of this, and though I think some parts of that article were irresponsible, it's probably not wrong either.

 

[Yixin]

The Rooenfeldt is available at a HK broker (Altaya Wines). They have cases of it.

 

[David from Switzerland]

originally posted by Thor:
Maybe they should all be gray-marketing it to Switzerland.

They obviously should - they'd easily find a buyer (although: at our prices - no idea what that wine goes for elsewhere, and experience tells me, it's rarely less expensive than it is here).

Greetings from Switzerland, David.
_________________

J'ai gch vingt ans de mes plus belles annes au billard. Si c'tait refaire, je recommencerais. Roger Conti

 

[David from Switzerland]

originally posted by Yixin:
The Rooenfeldt is available at a HK broker (Altaya Wines). They have cases of it.

Curious: how much does it cost?

Greetings from Switzerland, David.
_________________

J'ai gch vingt ans de mes plus belles annes au billard. Si c'tait refaire, je recommencerais. Roger Conti

 

[Cristian Dezso]

Jonathan: yes I understand now your argument that some wines will be disappearing. But just imagine that CdP would be in this situation not Piemonte. Do you really think that the producers that you buy vintage in vintage out would go under?

Thor: I understand that a $23.99 cru Barbaresco would destroy the brand. But prices go up and down all the time. Just compare the 2001 and 2004 vintages of Monprivato. Just three years apart. I bought the 2001 for $55 or so, and the 2004 for $96. I doubt that the extra $40 had anything to do with covering new investments, or that it would reflect a more desirable brand. Yeah, some of it might be due to exchange rate fluctuations, but still, it is almost double.

I think Ned summarized perfectly what I've been trying to say.

Yeah some people will go under and their wines will disappear from the market. But I think most of those wines I never really bought, and so probably I would not even observe the phenomenon.

To me, at least, when the discussion turned to the oceans of unsold barolo and barbaresco, I - probably wrongly - was taking a personal perspective and was thinking about the producers I mostly follow. I highly highly doubt any of them will go under. They survived for decades without an inflated american market so this will probably not break them. And suppose that everybody gets used to more elevated prices overall. That is still fine. There still are good and bad vintages and so if a good vintage does not sell, price is like a bad vintage - after all they sold wine from bad vintages in the past as well without going bankrupt. I am sure that all the 04 Monprivato would be sold through if priced at $65 or so.

 

[Nicolas Mestre]

originally posted by Ned Hoey:
No doubt that the international wine trade is complex and diverse. It can a bit problematic to discuss in generalities, BUT when it comes to these top Euro regions, isn't this just the collapse of a bubble. For roughly the past 10-12 years there an unsustainablely rapid run up in US retail prices. That's what I saw anyway. I expect the increases were smallest at the producer and grew exponentially from there. Costs didn't mandate the rise, demand did. It seems foolish at this point for the trade to stubbornly hold out for price levels that were recent and relatively short lived. It isn't hard to understand that everyone went along with that program, but it's a little surprising to see how quickly and completely they got attached to it.

I don't imagine very many companies in the import, wholesale, and retail sectors of the US have substantially increased their margins over the years.

Maybe at a place like Sokolin. But if you are buying from that kind of retailer you are an idiot anyway.

What is it with the wine consumers in this country always thinking they are being ripped off by members of the trade? As both an importer and wholesaler, I have a very simple mark-up scheme that rarely goes beyond 35%.

Is the problem the lack of transparency? What if we make it clearer:

Let's say I work with a producer in Muscadet whose basic Sur Lie bottling costs me 2.40 euros/bottle ex-cellars. I will end up selling this wine to the retailer or restaurateur for $6.67/bottle. I'd like to sell it for more than this, but I can't because everyone has a cheap muscadet and every retailer and/or restaurateur will tell me mine is too expensive if I charge more. What if the quality is better? Doesn't matter because the average consumer shops price, not quality.

How does the price go from being 2.40 euro to $6.67?

Price of the bottle x number of bottles per case x hypothetical exchange rate of 1.5 dollar to euro ratio (I know it is currently less than this, but we also bought a lot of euros at 1.6 so it averages out) = 43.20, or what I will end up paying to the winery converted to dollars ($3.60/bottle).

43.20 x 1.35 (importer/wholesaler mark-up) = $58.32.

Assuming the container is a reefer, the shipping cost per case will end up at around: $7.

Federal Duty for a white wine under 14% abv = $0.063/L, thus for one case = $0.57

Federal Excise Tax = $0.2826619/L, thus for one case = $2.54

Merchandise Processing Fee = .21% times the declared value of the wine = $0.09 for one case at $43.20

Harbor Maintenance Fee = 0.125% times the declared value of the wine = $0.05

Virginia State Tax per liter is $0.40, thus per case is: $3.60

All this adds up to: $72.17.

Might be worth keeping in mind that I have already written checks for the freight ($8000) and another for customs ($5000) BEFORE the wine has ever reached my warehouse facility. (Assuming I bought a 40ft reefer with around 1200 cases at an average bottle price of 4 euros)

So I sell the case for $80. My sales rep takes ten percent, or $8. I pay my delivery driver $12/hour. I have an air conditioned warehouse that I keep between 55-61 degrees year round (been to Virginia in August?).

In addition, I have to pay $30 to submit labels for approval to the state.

If I want to ship to DC as an out of state wholesaler then for each delivery to every single account I have to apply and pay for an out of state import permit which costs $5/per permit + $0.40 per gallon of wine (this regardless of whether it is one case or twenty cases).

If I only sell two pallets of this muscadet per year, I'm fucked because I haven't done enough volume to make it worthwhile.

So if I take an extra dollar or two/per bottle of Roagna Barbaresco Paj (of which I might sell 20 cases/per year) to make up for it, I hope that you'll forgive my price gouging...

 

[Jonathan Loesberg]

Cristian, without knowing any details, I'd say that any maker of CdP that wasn't bottling his own label prior to 2000, and now sells wine for north of $40 based on Parker points is vulnerable. Add on to this, makers of CdP that started selling their own wines around 1990 and based on their established reputation, have built themselves a large business with the ensuing debt that building large businesses entail. And then add old names whose wines have only recently started to command prices north of say $75 but have invested in themselves accordingly, and you could lose a lot of CdP names that you thought would go on forever. Remember that while many winemaking families have been making wine there for umpteen generations, few labels have been around for more than 25 years, and many fewer for more than 50. Piedmont is different to the extent that that regions recent economy wasn't constructed on Parker reviewing, but the principle I'll guess is the same.

Maybe ten years ago, at some wine event or fete or another, I was talking to a winemaker, one of whose wines had gotten a 90 from Parker for the first time. It was not an unmixed blessing for him since his importer suddenly wanted much more of that wine and if he gave it to that importer, although he would get higher prices, he would have to short established and longstanding clients who supported him before Parker knew his name. Choosing to do that meant choosing a new, more profitable but more uncertain business model since if Parker ceased to notice him, his old clients might have ceased to think about him as a source and he would be nowhere. In different ways, and for good and sufficient reasons, a lot of domaines who are not large industries, made the choice to go with a world market and they may suffer from that choice. I doubt that, different circumstances of how that market was built being taken into account, Piedmont is different.

 

[Cristian Dezso]

Nicolas,

this has been a most helpful post and, I think, consumers would be appreciative of this information.

Should I take your post to mean that if I see the price in VA for the 2000 Roagna Barbaresco Paje to be $67 and in CO to be $53, the difference is due to the retailers? As I said before, I see a fairly broad dispersion in prices, and I am trying to understand what drives it. Like you rightly said, your Roagna can be found for say $50 in some place - which I am willing to pay - but also for $65, which I am not. If I would have bought it for $65, and see it for $50 later, I would like to understand who pocketed the difference of $15 - the state/federal government, the retailer, the wholesaler, the importer, the producer? The point is, I don't have a problem if the difference is spread across the value chain, or perhaps goes to the producer whose wine I actually consume. But I would like to know if someone is actually "ripping off" the other links in the value chain. To give you an example. Suppose all retailers apply a 20% markup. That is perfectly fine with me. But my local retailer is able to sell me a bottle of barolo for $120, and in fact pays more for it than the price I can get from another out of state retailer. In fact, my local retailer could have bought it himself AT RETAIL from that store and be better off. So I assume then that the wholesaler, or someone upstream, is "ripping off" both the retailer and the final consumer. Am I just not understanding this whole situation?

 

[Nicolas Mestre]

Cristian,

There are a variety of factors at play:

I originally sold Roagna's 2000 Barbaresco Paj for $46 wholesale, meaning I would expect to see it at a local wine shop for $70.

What happens when the bottom drops out of the market?

I decide that having ten cases of this Barbaresco is no longer an asset but a liability. So I approach my better accounts and say: would you be willing to take this wine at 10 or 20 or 25% off. If they refuse then I offer anyone interested such a discount. If still no one buys it and my financial situation is getting progressively worse then I will offer it on close-out at my laid-in cost or less.
This would lead to a lot of variation within a regional market.

This is complicated further by a variety of factors. Imagine that there is a lot of stock of this wine at the importer's facility and he has the highly rated 2003s and 2004s arriving shortly. The importer might offer the remaining 2000 vintage at a lower price in order to make space/not have overlapping vintages.

A distributor in CO might have written off the wine as too expensive at its original price, but the discounted price makes sense for his market so he buys it at a discount, marks it up as per usual, and offers it for $36 wholesale. The retailer can turn around and sell it for $54.

So you might find someone in VA selling it for $70 and somebody in Colorado selling it for $54. It is less likely that someone is ripping you off and more likely that someone is losing money.

 

[Yixin]

David - about 500 francs for the '02. They also have the '00 Cab Sauv for under 400 francs. I don't know the market for these wines so have idea whether that is a 'fair' price or not.

Margins are pretty thin in the wine business out here in this part of the world. It's a volume and cashflow game.

 

[VLM]

originally posted by Cristian Dezso:
Just compare the 2001 and 2004 vintages of Monprivato. Just three years apart. I bought the 2001 for $55 or so, and the 2004 for $96. I doubt that the extra $40 had anything to do with covering new investments, or that it would reflect a more desirable brand. Yeah, some of it might be due to exchange rate fluctuations, but still, it is almost double.

I bet at least $20 had to do with exchange rate fluctuations.

I think Ned summarized perfectly what I've been trying to say.

Yeah some people will go under and their wines will disappear from the market. But I think most of those wines I never really bought, and so probably I would not even observe the phenomenon.

If you mean disappear entirely from the market, as in go out of business, probably not in Barolo, but Mascarello could easily not be in the mid-Atlantic for years. If congress crushes interstate shipping, well then...

To me, at least, when the discussion turned to the oceans of unsold barolo and barbaresco, I - probably wrongly - was taking a personal perspective and was thinking about the producers I mostly follow. I highly highly doubt any of them will go under. They survived for decades without an inflated american market so this will probably not break them.

Well, maybe. Unless they thought that this was a permanent move to higher prices and enough demand at those prices to take all the supply. If this was an underlying assumption and they made business decisions based on this model, they could be in trouble. I'm sure this is clear to you.

And suppose that everybody gets used to more elevated prices overall. That is still fine. There still are good and bad vintages and so if a good vintage does not sell, price is like a bad vintage - after all they sold wine from bad vintages in the past as well without going bankrupt. I am sure that all the 04 Monprivato would be sold through if priced at $65 or so.

Bad vintages (or decent) no longer sell at any price.

 

[VLM]

originally posted by Cristian Dezso:

Should I take your post to mean that if I see the price in VA for the 2000 Roagna Barbaresco Paje to be $67 and in CO to be $53, the difference is due to the retailers?

It's due to a complex myriad of factors that Nicholas did a good job of

Suppose all retailers apply a 20% markup. That is perfectly fine with me. But my local retailer is able to sell me a bottle of barolo for $120, and in fact pays more for it than the price I can get from another out of state retailer. In fact, my local retailer could have bought it himself AT RETAIL from that store and be better off. So I assume then that the wholesaler, or someone upstream, is "ripping off" both the retailer and the final consumer. Am I just not understanding this whole situation?

The only retailer that could survive on a 20% markup would have to sell $30MM a year. Or they are a Premier Cru/CWC type Ponzi scheme, and we all know how that ends.

A 35% markup is about the minimum to keep going. 50% at retail is standard for those that offer case discounts. Wholesale is a higher volume business than retail and the spaces are usually cheaper.

 

[VLM]

originally posted by Yixin:
Margins are pretty thin in the wine business out here in this part of the world. It's a volume and cashflow game.

It's a volume and cashflow game everywhere.

 

[VLM]

originally posted by Nicolas Mestre:
So you might find someone in VA selling it for $70 and somebody in Colorado selling it for $54. It is less likely that someone is ripping you off and more likely that someone is losing money.

This is the essence. For the price of that wine to be that low, someone is working a an unsustainable margin, unless there is high volume.

Although, with more expensive wines you can dampen your margin to increase volume because the dollar value is higher.

That also means that on lower cost wines, you should take a higher margin, although almost no one does.