Wine Price Question... Asking for a Friend

I had an email come in this week from a really great bartender in one of the places I work with. His observations were spot on, but not one that I think a lot of people might make right away, and the answer(s) are layered. Because this is a slight complicated answer dealing with a weird - unique to Connecticut - side of the business, I decided it would be good to post the response, as this is not the first time I have explained answers such as this. Here is the questions...

I was in the package store looking to pick up a White Burg. No special occasion; just to drink by myself while watching TV. The store (not to be named) had 4 by Louis Jadot: 

Bourgogne (described as lightly oaked) $17
Macon Villages (100% unoaked) $13
Pouilly Fuisse $27
“Steel Chardonnay” $50!

I asked the proprietor if the prices were correct. I can understand the Bourgogne costing a little more than the Macon Villages, even with its less specific origin, because of the oak. I know oak barrels cost money, and the cost is passed along in the price of the wine. 

So why did the Steel Chardonnay cost so much? There’s no way it should cost as much to produce, right? It’s not even a village wine.

Anyway, your thought when you get a chance. 

Thanks 

And here was my response...

Good question.
It's a slightly complicated answer on a couple of fronts, and since I do not know when the owner bought the wines or the vintages, it may not be 100% accurate, but I'll do my best.

In theory, a Macon-Village would be a bit more expensive than a Bourgogne Blanc, as Bourgogne is a regional wine - covering all of Burgundy, of which the Macon is a region within. This means that Maconnaise wines are from a more selected or limited area, and when you make wine from a more selected area the idea is that they are theoretically better than the more broad geographical area, or tier below in classification.

Think of this in the terms of a pyramid, with the wide base being the broadest region of wine production, and the best wines being from the top of the pyramid - and often being the most limited in quantity / highest quality of production (ie: the Grand Crus).

But in a retail setting often the price on the shelf will be dictated by the case cost, as well as the CT listed minimum retail price for that item, which is called "Min Bottle" - something basically unique to CT. Min Bottle is the minimum price a retailer may sell an item for, and it is the individual unit wholesale price for the item if is bought in quantities less than a solid case from the wholesaler. The Min Bottle is something that is not pegged to a specific or regulated equation but rather is set by the wholesaler. It can be set close to the case price unit cost or set somewhere above. Often the Min Bottle price is set high as it gives the retailer a guaranteed profit when they sell the item, and no other retailer can under-cut that price as it is registered with the State and has to be observed by all retailers in the state.

Ok, so, so far we have the factors of the region, cost, and min bottle in play.

Next, we have vintage.

The vintage itself, is not so much a factor, except that prices often rise from vintage to vintage - sometimes a little and sometimes a lot depending on demand, quality, etc. With a company like Jadot, the prices are fairly stable, though, as they are a well-established, American owned company, that has a lot of longstanding placements that benefit from stable pricing. The big issue over the past year has been tariffs. Tariffs on French wine began to kick in about a year ago and have carried through all year. The prices do not just jump on wine that has already been imported though, so as wine is brought in - usually with new vintages - then the tariffs kick-in, and the price is raised. Not really knowing the vintage on these wines or when they were imported, I can only assume that some of the pricing discrepancies are due to the timing of the imports. At least for the difference in the price between the Macon and Bourgogne Blanc.

That leaves the issue of the Steel Chardonnay, and why that is so much higher than the others. Your logic and assumption of costing less to produce because no wood is being used is correct. That wine is in fact a Macon Village wine, and no oak is used to make it, so it is good quality but very cost-effective to produce, and its market target is actually to be used for restaurant placements and by-the-glass pours. So why is it $50 on the shelf?

The answer is a weird one, but it is the Min Bottle - again a unique aspect of the CT market and a hold-over of our lovely Blue Laws.

The cost on that item from the wholesaler is $10 (sorry Mr. Retailer), and as such, it would often be listed for sale at about $15 (retail mark-up is basically 1.5 x cost, for a 50% margin). BUT, the min bottle is set at $49, so the retailer has to observe this and list for $49, and cannot discount below this price.

This retailer is kind of dumb in one or two respects. Dumb point one - he is stocking a wine that is fully intended to be only in restaurants, and is drawn in by the absurdly high min bottle that the wholesaler has placed on it. Wholesalers do this to deter retailers from listing these items, thus preserving them for on-premise use only. The wine is on the shelf at the correct legal price, but in the wine world, this is the wrong price. Dumb point two - he is also trying to take advantage of someone who might not question the apparent pricing anomaly, as you have, and then pay an extremely high price for a wine that is really intended to be sold for much less money. To me, that is not good business ethics, as the customer may buy that item once, but could then discover that the item is actually far over-priced and find a new shop with better integrity. 

So the way your list of wines should price out, in theory and based on current Ct cost, is as follows:

• Jadot “Steel Chardonnay” - least expensive on the wholesale cost, so should retail at $15
• Jadot Bourgogne - next least expensive costing item, but only slightly so - should retail at $17
• Jadot Macon Villages - due to tariffs, the 2018 vintage was priced much less than 2019, which would currently retail at $18.49
• Jadot Pouilly Fuisse - this really depends on the vintage listed on the shelf, but the current 2018 and 2019 are the same wholesale acquisition cost, so would retail normally for $31. This means the retailer is asking a fair (actually good) price for this item on the shelf.

In general, the retailer's shelf prices on these items seems to be quite fair, with the exception of the Steel Chardonnay, which is not his fault. He should just not even have this in the store, as it could potentially risk his customer's loyalty. He is following the outdated Connecticut liquor control regulations, but it is kind of a dumb item to list with this absurd min bottle, and careful consumers can pick up on this - such as you did.