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VOL. 127 | NO. 59 | Monday, March 26, 2012

Price Increase Coming to Wine, Other Liquors

FREDRIC KOEPPEL | Special to The Memphis News

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Gazing into my crystal ball, I see that prices for a liquid near and dear to your heart are going to increase in 2012.

Oh, sure, gasoline, but what I’m speaking of is wine. In retails stores and in restaurants, your favorite brand will probably cost more, even to the glass of wine you order at a bar or with a meal.

Of course rising gas prices contribute to the cost of just about everything that has to be transported by truck – like food! – but the increase in the price of wine is primarily tied to a congeries of factors involving weather, reduced harvests and a glut of wine that has finally been reduced. I may not have an MBA from Harvard, but I can hear the song of supply and demand being sung throughout the land.

Here are the elements in the case:

First, for three years or so, there was an oversupply of wine in California. During the recession, when consumers traded down to cheaper labels – wines that cost $20 and more really suffered – product backed up in winery cellars and warehouses. It took through the end of 2011 to clear that wine out.

Second, in 2011 California had its second short harvest in a row. How small? Producers crushed about 3.87 million tons of grapes, down 3 percent from 2010, which itself was lower than 2009, according to the U.S. Department of Agriculture. That’s the figure for all grapes, including table and raisin grapes. For wine grapes, the decrease is closer to 9 percent.Third, the cost of grapes per ton is at a record high. The average cost of red grapes in 2011 increased 12 percent over 2010, while the average cost of white grapes increased 8 percent. Fourth, no one is planting vines because vineyard acreage, particularly in the prime appellations of Napa Valley and Sonoma County, is very expensive.Finally, in the second half of 2011, consumers started spending a little more on wine, reviving to some degree the demand for products more than $20 at retail.

“The bulk market has somewhat disappeared,” said Peter Margolin, senior vice president for sales at Star Distributors, a prominent local wholesale house. “You combine that with a couple of small but good quality vintages, and the result is higher prices. And when prices go up for us, starting at the winery, well, sometimes we have no choice but to raise prices as well, though we try to stay close to the national average.”

Margolin had some mild criticism for restaurant wine pricing, which typically is twice the retail price of a bottle, though restaurants don’t pay retail.

The wine segment of the restaurant business, well, I think they’re unrealistic about thinking what they can get away with. I wish restaurant wine lists were a little softer with their pricing. I mean, the public is not foolish.”

 – Peter Margolin, Senior vice president for sales, Star Distributors

“The wine segment of the restaurant business,” he said, “well, I think they’re unrealistic about thinking what they can get away with. I wish restaurant wine lists were a little softer with their pricing. I mean, the public is not foolish.”

Margolin cited the example of Ridge Vineyards, an iconic, Santa Cruz-based producer of a multitude of zinfandel wines.

“Ridge had a great program selling the Lytton Springs Zinfandel” – one of the winery’s best-known products – “at a fantastic price, so we could pass that savings on to the restaurants, but suddenly that’s over and the wine is now heavily allocated,” Margolin said.

Michael Luckey, bar manager at Interim, knows exactly what Margolin is talking about. He was serving the Ridge Lytton Springs at $14 a glass; the wine cost the restaurant about $15 a bottle at wholesale.

“Then the price came back at about four dollars more,” he said, “because, it was explained at a video conference I attended, that the yields had been so low in Sonoma County that Ridge had to raise the price. I couldn’t sustain that cost and keep the wine in the same price category, and it’s not really available now, so I heard to search for something else for that slot.”

The solution was to go with another wholesaler that made a deal on the Ravenswood Big River Zinfandel 2006, which is drinking well but needed to be moved.

“They worked it nicely for us with some free goods” – as in buy such an amount and get some bottles free – “so even though the price for us was still around $19 a bottle, we could keep the price to the customer, well, almost the same.” The Ravenswood Big River is on the Interim wine list at $15 a glass.

Margolin takes a philosophical stance.

“The wine business is all ebb and flow,” he said. “Weather and yields in the vineyards determine so much. Things change, get drastic, tastes change, and then they go back. You just keep going.”

By the way, price increases don’t affect just wine. Those of you fond of a shot of Maker’s Mark or Knob Creek before dinner should gird your loins. Parent company Beam Inc. recently raised prices on all of its bourbons and will likely raise prices again this year, and where Beam goes, so goes the American whiskey industry. The culprit? The price of corn, of course; I’ve been warning you about this for months.

Vodka, on the other hand, though hugely in demand, likely will not see prices increase this year because the competitive market is so crowded with different labels.

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