Why’s Your Desired Wine $8 Less Within 8 Blocks?

The economics of wine are complex on many fronts, but today I want to consider just the consumer end of things: Specifically, why aren’t retail wine prices rational? That is to say, at a time when purchaser information can be nearly “perfect” (by smartphone search), why such disparities in what competing shops charge for the same bottle? The price band routinely extends 20%, according to a 2011 study, and that’s more than differences in store overhead such as rent would explain. Beyond that, the cheaper sellers are not always the same merchants or where you’d expect a bargain—the lowest price points can be all over the map.

Let’s take what appears to be a typical situation: a “fine” wine selling for a nominal price of $30 (per the winery) and available for between $20 and $25 retail, before sales tax. That $5 difference persists despite: 1) the unusual wholesale controls, via distributors and importers, that exist in alcoholic beverages; 2) a retail sector that has become more concentrated in most states with the emergence of big-box sellers, but still sports thousands of independent shops; 3) the advancing ease of digital price comparisons before purchase, especially in e-commerce transactions for delivery.

On that last point first, obviously not every wine purchase or wine consumer is conducive to price comparison (although price levels figure hugely in what is bought). The buyer who is looking for one or two bottles for a looming occasion—maybe simply “tonight at home”—will not find shopping around worth it. In fact, such a person may be seeking advice from a favored wine seller, who obviously has no incentive to shave his margin.

So that sets aside maybe 80% of transactions (but a much smaller share of wine sales by total dollars. For the remainder, however, that are being bought in volume (often by the 12-bottle case) or otherwise by someone intrigued by a tasting or description into cellaring a purchase for future enjoyment, it would be frivolous to overpay by much. Eager sellers from around the country (where interstate shipping is legal) or in tight urban areas across town, will frequently get the wine to a buyer’s doorstep with no added fee,

Perhaps the especially low prices—often beyond the 20% band—can be explained by a need to clear out inventory. A store may have especially limited shelf or storage space, and want to encourage turnover. Moreover, even though wine is generally a product that ages well, unlike beer, many varietals do “lose” something after only a few years.  However, the pricing gaps also seem to occur on recent vintages as well.

Wine comes in a vast array of different types and makes—this can be overwhelming to many casual consumers and probably limits the price shopping that goes on. You often have to be precise beyond just the brand and grape (and vintage); it can matter what vineyard or cru.  Maybe the retailer itself gets confused and misprices?  Unlikely in these computerized storekeeping days. (Recently I found an apparent “steal” on a shelf price, only to be foiled at checkout—the bottles had been moved out of place.)

The truth is that wine is not as fragmented a business as those many, many labels let on. Notwithstanding the countless variation in the aisles, ownership is more concentrated. A combine like E&J Gallo or Constellation Brands puts out dozens of brands, some of which they purchased from family founders. They can offer promotions, through their distributors. But these ought to apply to everyone. Wholesale prices on wine are set at the state level, though with some allowances that favor certain vendors. So the initial pricing simply reflects what margin the retailer is aiming for. (Later markdowns can be quirky.)

Karl Storchmann, a New York University professor who edits the Journal of Wine Economics, says stores do track each other, but choose to offer select bargains much as a grocer does. “I don’t have the answer to this,” he says. “Some want to be cut throat at certain wines but not at others.” You’d expect the big-box operators like Total Wine or Costco to undersell the independents, and they usually do, but often there are outliers. And Total, unlike discounters in some product categories, isn’t going to match the best price you find.

I often use the online guide winesearcher.com to compare retail pricing (the pay site gives you a wider sort than the free one). I’ve noticed that some shops appear often among the best. One of them is Saratoga Wine Exchange in New York. I emailed Saratoga about its pricing strategy, explaining my interest, and received no response. (A visit to the physical shop provides no clue as to its secret.)

So for now, the mystery of why quality wine remains such a varied and worthwhile shopping experience is yet unsolved.  An intelligent consumer can only do the research and then do the math before making any particular bottle choice.  Meantime, any reader insights or anecdotes would be welcome in reply.

A postscript: I inquired as well with Empire Wine of Albany, N.Y. (“Ask Adam,” they invite) but this frequent discounter also did not respond.

Published by timwferguson

Longtime writer-editor, focusing on topics of business and policy, global and local.

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