Tuesday, March 9, 2010

No wine should cost more than $39.88.

Fred Franzia stirred up a ruckus when he said no wine should cost more than $10. I am going to disagree with Fred. No wine should cost more than $40. Here is my reasoning.

Wineries pay $180 per ton for grapes grown in the San Joaquin Valley of California - California's largest growing area. The grapes are machine pruned and machine picked. Growers there get yields of 14 tons to the acre for a return of $2520 per acre. This is a fair return for this land which is mechanically mega-farmed in huge blocks. (San Joaquin Valley farmers measure the size of their farms in sections, not acres.) On the other side, grapes from the Napa Valley can fetch $4000 per ton. They are hand pruned and hand picked. Since production is often limited to two tons per acre, return per acre is $8000 for some pricey real estate. Cost of grapes per bottle: San Joaquin Valley $0.24, Napa Valley $5.33.

Cheap Chinese glass (lead may or may not be optional) costs $0.12 per bottle. Good European glass, the heavy landfill-special kind Bobby Parker likes, is $2.00 per bottle.

Good technical corks run about $.05. You can probably get straight agglomerated corks for $0.03. A two-inch number-one cork is about $0.77.

A PVC heat-shrink foil is around $.03 - maybe less by the millions. A good tin foil can run $0.23 from a top supplier.

Labels depend on quantity per run, but a cheap label, no foil, no embossing can be less than $0.03. That Woodinville label in a small-run with foil and embossing might be $0.78 or even $1.00 front and back.

There will be no cost for barrels in the cheap wine, but in the expensive wine in 100% new French oak, the way Bobby P. likes it, the barrel cost will be $4.28. Yes, you are drinking $4.28 of oak juice. I hope you like 2X4's.

Tax will be about the same for both wines, since the large producer will not get the small-producer credit and the small producer will go over 14% alcohol for the Wine Expectorator rating, so it is about $0.23 for each.

So the cost of the San Joaquin Valley non-vintage California schlock will be $0.68 per bottle and the cost of the Walla ultra-premium, hand-crafted, award-winning small-lot, high-alcohol (please hyphenate this BS on you promotional literature for proper grammar) fruit-bomb Washington Red Table Wine will be $13.64.

The winery has to make a minimum markup of 50% or 1.43. The Bakersfield wonder needs to fetch the winery $0.98. The ultra-hyphenated small-lot cab has to bring $19.50.

Standard distributor markup is 143%, so the San Joaquin Valley Hardly Burgundy goes to the retailer at $1.40 and the Napa Valley blah-blah-blah goes to the retailer at $27.89.

Standard retail markup is also 143%, so the San Joaquin wine hits the shelf at $1.99 or Two-Up Chuck. That's how they do it. The Parkerized wine in the landfill-special bottle hits the shelf at $39.88. Everybody deserves a fair profit for their efforts.

Is Fred Franzia making money on Two Buck Chuck at $0.98 per bottle? You bet he is. He is making full markup of $0.30 per bottle or $3.6 million per one million cases. Is the boutique winery making money on the $40 wine? You say, it looks like they make $5.88 per bottle or $70,523 per 1000 cases. (Let's make 2000 cases next year and double our profits!)

There is just one problem. $40 bottles of wine are not selling. It looks like they are rich sitting on $480,000 of inventory. Anyone want to buy a boutique winery? Inventory not included in the sale price.

If this doesn't convince you not to turn your garage into a winery, nothing will.

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