Many American and British TV viewers will be familiar with a long-running quiz show called The Price is Right. As its name suggests, the programme is based on a very simple concept: contestants are presented with a moving conveyor belt carrying products ranging from a lawnmower to an antique painting. All they have to do in order to win, is correctly estimate the retail value of each of the items.
The subject of pricing strategy was also raised at the Meininger’s Conference on the Saturday before the opening of the trade show. One of the speakers, Bernd Wechsler, an academic working for the Rheinhessen wine region, told his audience of mostly German wine professionals that one of the industry’s biggest failings was its propensity to work on a cost-plus basis. The ex-cellar price for most wines is far too often calculated by adding the expenditure on growing or buying grapes, processing, and dry goods - for those not selling in bulk - plus a basic margin.
This economic model is appropriate for a commodity such as cocoa beans or pork bellies but, as Wechsler pointed out, it falls short when dealing with any product looking to be treated as a brand. A brief glance at the Rioja or Pinot Grigio markets, for example, illustrates the problem. Distributors purchase the cheapest drinkable example they can find at ProWein or at the bulk fair in Amsterdam, then package it nicely and sell it for the lowest price on which they can make a margin. Consumers are accordingly groomed into expecting to find inexpensive bottles bearing the words Rioja and Pinot Grigio on their labels.
Small producers can sidestep this cycle by selling through specialty retail stores and through the on-trade, but larger ones – apart from rare exceptions like Pernod Ricard’s Campo Viejo Rioja and Santa Margherita’s Pinot Grigio – generally struggle. And even these brands tend to focus their strength on a limited number of markets. Competition from lower-priced examples has deterred Santa Margherita from seeking a significant presence in the UK, for example.
The wine industry’s traditional solution to the issue of ‘premiumization’ is to build supposedly ’superior’ appellations that indicate higher value. Anyone who believes in the efficacy of this would have to defend the £10.00 bottles of Grand Reserva Rioja on sale in the UK stores which can not have cost their buyers any more than €4.00.
At least Gran Reserva has a certain resonance with wine drinkers. Unlike some other ‘quality’ designations. When we met at ProWein, Francesco Zonin, a thoughtful wine professionals, described how even substantial companies like his face a substantial challenge when trying to market super-premium Prosecco. Consumers, he said, are confused by – or unaware of – the notion of pricier DOCG Prosecco di Conegliano Valdobbiadene. They simply know the attractively low price for which they can usually buy their favourite Italian sparkling wine.
Zonin concedes that there is also a market for cheap own-label Champagne, but these low-cost wines do not set the tone for the region as a whole. Champagne’s luxury image is sustained by the efforts of sophisticated companies like LVMH which have worked hard at building and sustaining their brands. Far too large a proportion of the production of regions like Prosecco is in the hands of large cooperatives with less luxury-goods expertise.
If the problem of wine commoditisation driving down prices is easy to diagnose, the remedy is similarly simple to prescribe. Producers need to transcend categories in which their wines are directly comparable with others. In the US, companies like Gallo are doing this with multi-regional, multi-varietal ‘Red Blends’, with some Europeans beginning to follow a similar route. The smart main label of Zonini’s Oltrenero sparkling wine, for example, makes no mention of the fact that it comes from the denominated region of Oltrepò Pavese. On the Albert Bichot stand at ProWein, there were two examples of Moulin à Vent. One followed the classic model of featuring the appellation in prominently in the middle of the label, with the vineyard name, ‘Domaine de Rochegrès’, in smaller type. The other reversed the pattern, treating Rochegrès as the brand and including Moulin à Vent in print that is far less noticeable and might at some time easily disappear. The second of these bottles was nearly twice the price of the first. The wine it contained justified the higher cost - but so too did its separation from the appellation.
Robert Joseph
