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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 Dún 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.

Saturday, February 20, 2016

The apparent price of wine...



A few weeks ago John Wilson wrote a piece for the IrishTimes in relation to the price of wine in Ireland vis-à-vis other countries. In it, he stated that generally wine in Ireland is more expensive than other markets and he used Sweden, Canada, Australia, France, Denmark and the UK as comparators.
While it made decent reading I would take issue with a number of aspects – John failed to take into account economies of scale, different trade channels as well as not really looking at a simple question – is wine more or less expensive in Ireland now than ever before?
We Irish consume about 8.5 million cases of wine per annum (source Irish Wine Association (IWA)) which is 102 million bottles. Much of this is sold through independent off-licences, of which there are about 13,000 in the country, as well as through supermarkets, restaurants etc. According to the IWA some 81% of wine sold in Ireland is through the off-trade so that’s about 83 million bottles.
Now John used the Liquor Control Board of Ontario (LCBO), Sweden’s Systembolaget and Australia’s Dan Murphy chain as comparators. Here’s something to consider: the LCBO is a single commercial entity which sells about 142 million bottles per annum; Systembolaget is also a single commercial entity and sells about 262 million bottle-equivalents (about half their sales is in bag-in-box); Dan Murphy’s (including Woolworths) is a nationwide chain and sells about 260 million bottles (sources Igor Ryenkov MW, Ulf Sjödin MW, Andrew Caillard MW).
I work in a small retail shop and we sell about 22,000 bottles per annum and I estimate most Irish off-licences sell anywhere between 15,000 and 25,000 bottles per annum. Each of these has to make sufficient profit to pay a number of salaries, as well as the running costs of the business. It’s hardly fair to compare pricing between small-scale retail and large scale state-controlled entities which are not specifically required to make a profit. A few years ago Systembolaget was selling Domaine de la Romanée Conti at cost price!
In some countries the wine is bought, to a large extent, direct from the producer which is not easily done in Ireland. Here, the vast majority of wines are imported by wholesalers then sold on to the retailer. Each entity makes a profit on the transaction so there are essentially two margins involved – wholesaler and retailer. Even companies who wholesale and retail will sell the wine at the retail price that they expect their wholesale customers to use as otherwise they would not get the business. Without the wholesale customers there would be insufficient demand to enable the companies to import in the first place.
Finally, how expensive is wine now in comparison to 15 or 25 years ago? Well, in June 2014 I posted a piece online which showed that wine is, by and large, cheaper now than ever before. Let’s look at one of the wines John mentioned – Guigal Côtes du Rhône. When I started out in 1990 this wine sold for £7.99. That’s €10.15 allowing just for the Euro changeover. In that time, inflation works out at 69.3% (source Inflation.eu) so the current price (leaving out increases in VAT and excise duty) should be €17.18 yet according to John this is widely available at “about €16.00”. In other words, wine is cheaper now than it was in 1990. What is more, even allowing for the effects of the recession there is still a very good range of wines available in Ireland from all over the world, something which is strikingly not the case in many European countries.
Indeed, it is worth wondering why so many people, who apparently run successful business and who should understand business models, complain about the price of wine: would their own businesses stand up to the same level of comparison? Somehow, I doubt it!

2 comments:

firstpress said...

This suggests the independent sector sell 195m bts. Thats not possible!
Average annual retail price is dictated by the multiples. What the independents do has no relevence to that.
Finally, individual price points for specific wines is a red herring and is a meaningless parameter.
Good debate but I'm not convinced that either John's or your arguments are valid.

DermotMW said...

Hi Kevin, I'm not sure what you're trying to say here. I was trying to point out that John's article failed to address reasons which would account for the differences in price - volume of sale, buying direct from the producer by multiples, fragmented retail channels etc. I thought I did that well enough in the space provided.
Given that John's article was all about individual price points your "red herring" comment surely belongs on his blog and not mine? If you follow the link to my WWC piece from 2014 you'll see that I tracked the prices of a number of wines sold in 2000 by Searson's and still on sale now and demonstrated that in real terms they are all cheapernow than before.
Having said that, if you can explain to Irish punters why wine is perceived to be more expensive here, without alluding to the "red herring" of Excise Duty, I'd like to see that. I feel that John, having worked in the wholesale trade for a long time, did not do a fair job in explaing why there are price differences at all.