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Dublin, Ireland
Hi, I'm a Master of Wine (MW) having passed in 1997. I am about to open a wine shop in DĂșn Laoghaire, Ireland, called The Wine Library and this is my wine blog. There should be no conflict of interest between my work with The Wine Library and the opinions expressed herein but I will do my utmost to be fair and responsible in my posts – please read my Who Pays article. I have worked in wine education, retail, and consultancy. From June 2013 until May 2017 I was the Retail Manager for The Wicklow Wine Company. I was a member of the Council of the Institute of Masters of Wine (IMW) from 2008 to 2014 and was also a member of the Events, Trips and Governance Committees Having had problems with potentially libellous comments from unidentifiable posters, I now require that if you post a comment, you must identify yourself properly or it won't be published. Please note that I do not review products or services on request so kindly don't ask. I value my independence and I believe my readers (few that they may be) do so also.

Monday, January 3, 2011

How low can you go?

One of the best wine bargains I've seen this year is in Tesco, where Mount Pleasant's two excellent Hunter Valley wines, Elizabeth and Philip, are currently available at €10 per bottle, down from €19.99. These are, respectively, a classic semillon and shiraz and are wines of great quality, with Elizabeth certainly capable of aging for 20 years or more (good job there's no wine called Charles, then!). However, it's worth wondering how a wine can be sold at half-price and still be profitable.
Well, a report today on RTE suggests what is happening. I am certain, from what I have heard from small-scale retailers, that many recent closures are due to the fact that off-licences cannot compete with below-cost selling. Now I can't prove that the two wines in question are being sold below cost but let's look at some numbers.
If we assume a standard margin of 25% on return then a wine selling at €19.99 would cost the retailer about €149.18 per case and the profit per bottle is about €4.09. We'll forget for the time being what happens when the retailer is also the importer. Now, let's look at a wine retailing at €10.00 and assume a simple 1 cent profit per bottle; then, the cost of that wine to the retailer drops to €99.05 per case. To then sell that wine at €19.99 would generate a profit of €8.27 (!) at a margin on return of 50%! So, either the wine's stated RRP of €19.99 is way too high or the current sale price of €10.00 is below cost. For what it's worth, according to wine searcher these wines retail in the UK for about £8.13 and about AUD 15.50 in Australia - equivalent to €9.45 and €11.80 respectively.
Now, this muddies the waters somewhat as it would appear that the €10.00 price is reasonable but makes us wonder about the stated €19.99 price - has anyone ever seen it on sale for the mandatory three months at this price?
So, suppose these wines are not being sold below cost is there then a problem? Well, there is if the effect of the €19.99 marked down to €10.00 tag is such as to cause consumers to try to get their local small retailer to knock similar amounts off their prices. And what of the deals on spirits in many of the supermarkets including local brands such as Super Valu? When I was a small retailer in the early 1990s a bottle of Irish whiskey cost us £11.98 to buy from Irish Distillers and some supermarkets sold these at £11.99 at Christmas - technically legal as it was above cost (never mind losses due to VAT etc). Now, I have seen offers similar to this in Euro prices and I cannot believe that these are being sold at anything close to a profit, even allowing for any bulk purchase arrangements.
Somewhere along the way we all have to realise that many bargains come at a price that should not be paid - the price of people losing their livelihood and not being able to put food on the table or pay for their children's education. If a retailer is inefficient or doesn't offer a decent service then, fine, let the market force them out of business but why should we expect our local small shops who often offer more than the products they sell to try to match the bullying (that is what it is) of the large volume retailers?
If you want wine at €5 per bottle are you prepared to face the fact that many of the workers who helped make that wine are getting a pittance for their labour, especially at a time when we are complaining of cuts to the minimum wage here? If you want cheap booze, are you prepared to have many good people lose their jobs for your high? How low are you prepared to go?

2 comments:

DermotMW said...

Actually they shift a lot - UK supermarkets stock nothing that doesn't sell. Furthermore, you're missing the essential point which is that a wine such as Elizabeth, discounted, may encourage shoppers to buy other, less expensive wines AND cause the same shoppers to put price price pressure on local retailers. I've experienced this personally and I can think of a few recent closures where an inability to compete with supermarkets was one of the contributing factors.

DermotMW said...

By the way, I'd prefer if people who comment identify themselves fully - redoubtable or otherwise. If not, I'll delete the comment.