Friday, September 17, 2010

The numbers don't add up

In last Sunday's Tribune, Lar Veale recommended three wines - Protocolo from O'Briens and two wines from Aldi - one at a fiver, the other a Chilean Merlot at €4.69. I know that journos are there to give their recommendations as they see fit and the tumbling prices and incredible value in wine is great from a consumers point of view. Nobody is challenging the figures though, asking how is it so cheap? For those of you at the back who haven't been paying attention, here's how a wine at €4.69 breaks down:

Retail Price €4.69
Less Vat 21% €0.81
Leaves €3.88
Less duty €2.05
Leaves €1.83
Less transport €0.50 (conservative - has to get from Chile to Germany, Germany to Ireland etc)
Less materials €0.50 (bottle, label, closure, outer box etc)
Leaves €0.83  for both Aldi and the poor guy who has to make the stuff.

Even the most basic industrial swill will cost at least 1 euro per litre, so what's going on?

Option 1
The wine is really really cheap. In which case it will not be good enough for Lar to like it?

Option 2
Aldi are selling below cost - legal, but not sustainable

Option 3
Aldi love the Irish people so much that they just want to give them wine as cheaply as possible and are not interested in profit.

I suspect it is some combination of 1 and 2. I don't know. But somebody knows. And somebody should be asking the question on behalf of the consumer.


Laurence Veale said...

Hi Gabriel,

I must admit it's sometimes tough to taste, let alone write about some supermarket wines.

If they're operating off any margin, it could be 1% or less and I imagine, like other loss leaders, they're happy to make nothing off them. If they are on any percentage, then it's the economy of scale, high volume, low margin. The value argument is one I agree with 100% (Gary Gubbins mentioned the same thing in a recent post).

However, the higher price of the bottle often doesn't equal value. The price can reflect other things like the high price paid for land in Napa where every new wine has to then be a "cult wine" or in Bordeaux where the financial services company owns half the place and even the international group with a number of luxury brands which just sells the idea of luxury through hand bags, glad rags and bubbles.

Regardless, I think that argument is lost on those who buy wine in Aldi or whatever the latest three for two / 50% off deal is. You can't even have that argument with those who are buying that kind of stuff, because there's no touchpoint between them and you. They're a purely price driven drinker. They're introduced to a wine brand via a price offer, not a great thing for brand loyalty. Maybe they'll buy if the price ever comes back up, but they probably won't as long as other offers continue. So, perhaps, an Aldi bottle or a free M&S bottle with a meal deal is not really a bottle lost to the independent trade.

However, I will never look down on those who choose to buy from Aldi. If, amongst the aisles of very average wines, there are some that are worthy, then they deserve to be highlighted and with the Tribune, I have to keep that balance where I can.

Did I like the wines I wrote about? Well, I can say that they were very well made. Most wines are these days, except for a few samples I tasted recently from Moldova, where I suspect they share facilities with a battery acid producer. An honest mistake happened somewhere, I'm sure.

I remain a strong advocate and customer of the independent wine trade, and I agree with Gary's post that value and price are not the same thing.

So, how do you convert the supermarket drinker? I've been trying to with friends of mine for years, but there's something about those bright yellow labels that gets them every time. It could be worth bring the Aldi wines into your shop for a bit of blind tasting mischief on a Friday or Saturday.


Gary Gubbins said...

I'm obviously on the side of the independent but to be fair to Lar - he is one of the good guys and always happy to promote the interesting wines that brave (and sometimes stupid) souls try to import. I think another part if it that affects all independent small business ( be it wine, clothing or whatever ) are the issues such as rates and preferential treatment that foreign companies get to come in. Are Aldi, lidl and tesco paying the same rates per sq foot as we are? the playing pitch can sometimes be uneven in a few places.

i am bias of course and i understand why the public hit the supermarkets, and if they are happy to drink it, then so be it. there are interesting supermarket wines. Superquinn have a great old vine Carignan that i tasted in London that's superb for the price.

if we all want to end up like a satelite copy of Newcastle, Manchester etc.. its going that way.

Gabriel Cooney said...

Thanks for the feedback Lar and Gary. I'm not getting at Lar or other journalists and I'm not referring to first growths or cult wines either. I just honestly can't understand how it can be sold so cheaply in this market. If it is at or below cost, then surely they are not playing ball with the "self regulation" in terms of alcohol promotion agreed between IBEC and the government.
If they are making a margin of, say, 20%, then it must be the worst type of industrial muck.
Another question is how we can educate the consumer that drinking a ten euro bottle of a nice wine from a real vigneron in the South of France is more appealing than paying €6 for a bottle of chilean wine made to spec for Tesco, shipped in tankers to be bottled in the UK. I will get to that some other day!

Anonymous said...

As someone who dabbles his toes in media work very occasionally I can tell you that editors are obsessed with "recession-busting" this and "value" that.

I don't know what Lar's brief with The Tribune is but I would bet that if he tried to do a write up every week on interesting wines priced €18+ his ed would be telling him to take a reality check and take those price point down.

Gabriel Cooney said...

Hi Paul, I'm sure that's right and, once again, I was only using Lar's wines as examples. The point is that wine sold at €5 by me, Tesco, Aldi or anybody else has to be either really, really dodgy juice or else below cost and unsustainable...