Yesterday I retweeted this interesting article, The world’s most marked-up wines.
Mark-ups are renowned for getting both suppliers and consumers hot under the collar and in this week’s blog I would like to share a few insights into this touchy subject – insight I have gained through many years of working in both the local and international wine trade.
Just to give some perspective. In the South African market, retail stores are working on a rough average of 20 – 25% margin when the wine is not on promotion. On promotion, the mark-ups go down to 10 – 15%. In the international retail sector mark-ups are around 30 – 35% going down to around 20% when the wine is on promotion.
Locally independent liquor chains work on 25 – 30% when not promoting and 15 – 20% when on promotion.
As in yesterday’s article focusing on the mark-ups on wines such as Château Pétrus, Domaine Coche-Dury and Veuve Clicquot, it is clear that mark-ups are something both the consumer and supplier need to make peace with, unless you are a brand powerful enough to be able to dictate retail margin, distribution margin and selling price.
Duty Free shops add about 65% mark-ups. These shops usually have expensive rent to cover and they seek a unique product not commercially available in the duty paid market.
Then we get to the on-trade. Restaurants and hotels add 300 to 350% to the wholesale price of their wines but the mark-up will depend on the address, whether it is a fine-dining or informal establishment and on the value of the wine brand. In fact, while mark-ups can hardly ever be negotiated, the brand-value is generally the ultimate deciding factor.
In South Africa, the gap between retail pricing and on-trade pricing is problematic. Consumers can buy the same bottle of wine for much less in a supermarket than in a restaurant. And of course they are not happy about this. In Europe especially, this problem is solved by the on-trade not being interested in wines available in the retail market.
For the on-trade there are of course valid reasons for the wine to have a bigger mark-up. You are paying for more than the wine – you are also paying for enjoying the wine from decent stemware provided by the restaurant, for relaxing in beautiful surroundings while a waiter caters to your every whim and in certain instances for the service of a sommelier, guiding you towards the best wine choices.
While it is easier for me to speak from a supplier’s perspective, thinking about the distribution chain and deciding on a focused marketing effort, it is when we are touching on the strength of the brand, that it becomes of interest to all parties involved.
When consumers’ demand for a brand will influence where they shop, it is important for retailers to have the brand available and when the quality of a restaurant is judged on the wine list, it is important to have brands on the list with the perceived quality expectations.
If you have a strong brand and a strong strategy, the world is your playground. Look at Penfolds, for example. They have their Koonunga Hill in the retail and they are selling their special releases and icon ranges in the on-trade. And while it might be different quality levels, the branding is unmistakeably Penfolds.
While this could have been a disqualifying factor for another brand trying to enter the on-trade, a powerful brand like Penfolds does not have this issue. Patrons to restaurants expect the wine to be on the wine list, while retail customers also expect the wine on the shelves.
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