Pushing You Up the Price Ladder

Americans, and others, love to treat themselves. Whether it's $80 jeans or an $80 wine, we deserve it. In case you weren't aware, you are being helped in the premiumization of your consumption by those that stand to gain from it.

"Oh look, it's a reserve wine!"
What exactly is the legal definition of reserve in wine?
There isn't one. You can label anything reserve,
and some people do.

A good example is hard liquor. If you are old enough, you might remember when whiskey was Seagram's 7 or Canadian Club. Suddenly there are hundreds of high-end ones. There are 150 whiskey distilleries just in Scotland. Even vodka, a clear distilled spirit, has plenty of over $100 choices. Jose Cuervo, the maker of rotgut tequila, has special edition high-end stuff in fancy bottles.

This example wasn't lost on the wine biz. Large drinks corporations, like Treasury Wine Estate, are selling off their bottom brands. Pernod Ricard, a French drinks company, has a goal to increase the percentage of sales of their premium-priced wines. 

For the last several years, Gallo has been picking up the likes of J Winery and Rombauer because that's where the money is. You have to sell a lot of $5 junk wine to make the same profit as one bottle of Rombauer chardonnay. Even Thunderbird was "rebranded" by Gallo a few years ago, meaning it's more expensive because that's what discerning drunks demand.

You'll see more higher-priced wines in stores, likely taking up shelf space that once held cheaper wine.

For decades wineries have had their levels of wines, such as a $20 "grocery store" cabernet, a $40 estate cab, and a $60 reserve. So moving you up has always been part of the strategy. Think of Ford and Lincoln or Chevy trucks and GMC. 

All the big guys, the corporate owners of wineries, want a bigger piece of the growing premium end of the wine market. Can't blame them, their jobs are to make money for shareholders.

It seems to be working because U.S. sales of cheaper wine, under about $15 are down. For more expensive wines, the sales are up. The highest growth is in $50 and up segment.

Why the big push? Money, of course. But if you think a $20 wine might have cost $10 to make, then you probably believe a $100 cost $50 to produce. Even if that was the case, there would still be a large increase in profits, but the profit margin on expensive wines is quite high.