FOOD & DINING
This Wine Costs What? At least now you’ll know why. By Joshua E. London Ever wondered why a bottle of wine costs what it does? One of the perennial complaints amongst kosher wine consumers is the general rise of kosher wine prices. There is, of course, a school of thought that maintains that most complainers engage in complaining because, well, the “complaint” is simply their preferred mode of expression. Like the old joke about the elderly Jewish man who kvetches “Oy, am I thoisty!” until a bystander who can no longer stand the complaining fetches him water to quench his thirst, to which the old man responds, “Oy, was I thoisty!” Whether those who query rising prices are merely kvetching, or genuinely desiring an answer, isn’t so essential. The question remains a good one: why does this wine cost what it does? Jeff Morgan, the vintner and co-owner of the kosher Covenant Winery, in California and Israel, recently addressed this question in a blog-journal post on the Covenant Winery website, in a short essay: “Truth in Wine: what is a bottle of wine worth?”
Morgan began by offering the safest and surest advice on wine buying—his secret to success as a wine consumer is first, “not to buy wines I can’t afford” and second, “not to drink wines I don’t like.” Exactly so. I’ve advocated the same for as long as I’ve been scribbling about booze. At any rate, Morgan tackles the “truth” about wine prices by clearly explaining some of the factors involved.
For the first 10 years of Covenant, I made no salary. Instead, I made wine for other people and wrote books to make ends meet. The United States market for alcoholic beverages is structured around what is called the “3 tier system” of distribution to the consumer—the late great importer Joe Dressner used to call this the “three tier schnook system.” The three tiers are 1.) importers or producers, 2.) distributors, and 3.) retailers. Typically, the producer or importer sells to a wholesale distributor, who in turn sells to restaurants and retailers, who then sell to consumers. Each tier obviously needs to make a profit, so each tier prices the wine based on the cost of the previous tier, with the increments determined by market forces. As Morgan explains, wineries typically sell to distributors at half of the final retail price. This is known as the FOB, or “freight on board”, and represents all the costs associated with the product until it is delivered to its designated destination, which in this case is the distribution tier in the three tier system. So the FOB price is all that the winery will get per bottle out of the entire arrangement, and so must encompass all the winery costs—from vineyards to facilities and equipment, staff, any loans, costs of maintenance, general administration, and, of course at least some margin of profit. Putting the proper FOB together can be as much art as science, given the many variables of the wine industry. So, for example, if the FOB is $20— that is, the distributor pays the winery about $20, the distributor will then sell to the retailer or restaurant at about a 33% markup, or $27. The retailer will then add roughly a 50% markup on his cost. So a $40 bottle of wine at your favorite wine shop represents only around $20 to the winery. Restaurant markups vary widely as determine by their costs, but are often twice the retail price—so that $40 bottle might be $80 or so in a restaurant. The winery will still only clear $20 for the bottle.
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In practice, of course, this tends not to be so neat and tidy. “With all the variables,” notes Morgan, “it’s impossible to say with any certitude what profit a winery is going to make on this wine. But it’s very possible that the total investment in that bottle—given all the costs of doing business—is perilously close to the price that the winery charges for it.” This is to say, it’s a tough racket to do well in. Elsewhere online I’ve seen estimates that when demand is very high, and business is booming, a commercially successful winery’s profit margin could be 30-50%, but when business is low and slow, the profit margin could be 0-15%. Even still, the variables can, alas, be high and punishing. “Suffice it to say,” Morgan adds, “that I’ve been in the wine business for nearly 30 years, but I have yet to make any ‘easy money.’ In fact, for the first 10 years of Covenant, I made no salary. Instead, I made wine for other people and wrote books to make ends meet.” Even though some wineries get lucky and make good money quickly, “the rest of us,” he says, “are generally happy to stay afloat and make wines we are proud of—at a number of different price points.” As I write all this, I drown my complaints with a glass of Covenant Napa Valley 2014 ($100): A superb blend of 57 percent cabernet sauvignon, 31 percent merlot and 12 percent petit verdot, this complex wine offers a bit more upfront finesse than more usual 100 percent cab offerings, with notes of black currant,
Jeff Morgan, Winemaker and Co-Proprietor of Covenant Wines
black cherry, blackberry and thyme, a little spice, subtle espresso and delicate vanilla oak. Very drinkable now with a little air, but should cellar for the midterm. Absolutely worth the price, if you can afford it or, like me, have generous friends with deep pockets who share. L’Chaim! Joshua London writes regularly about kosher wines and spirits for a variety of Jewish publications around the country. He lives in Potomac, Maryland.
February 16, 2017 • 20 Shevat, 5777
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