by Jeff Miller of Artisan Family of Wines (Seven Artisans, Sly Dog Cellars, Red Côte)

Most of the buzz these days in the wine business is pretty positive.  Grape prices are up.  The latest reports show an increase, small though it may be, in wine prices.  The glut that overwhelmed our business is largely a thing of the past.  The economy seems to be on the mend, albeit not mending as quickly as we’d like.  But overall, a rosier state of affairs than has been the norm for a quite a few years.

But it’s amazing how all that optimism can come crashing down.  Things can be going along reasonably well, and then some event forces you to take off your rose-colored glasses.  Such an event occurred to me recently.

I was shopping at our local Trader Joe’s and one of the sales people recommended I try a $2.99 2009 Sonoma County Chardonnay made by Rodney Strong, but sold under the Landing Place label (you can’t find Rodney Strong anyplace on the Landing Place label, but it’s highlighted on the Trader Joe’s in-store sign).  So with $2.99 to lose if it turned out to be total plonk, I laid down a five and left with a bottle of the wine and almost $2 to boot.

By way of background, I’m not a real Chardonnay fanatic.  Most of them fall into one of two categories:  lean (read fruit-deprived), or fat, alcoholic, oak dominated monstrosities.  But my wife really likes the wine, as do the vast majority of wine drinkers, including most of our friends.  So if you can find a passable Chardonnay cheap, it gets consumed in short order.

So I get home, and throw the bottle in the fridge, and a few hours later pop the cork and take a taste.  Well, this is not your “passable” Chardonnay.  It’s not even what is popularly called a “Best Buy”, an essentially mediocre wine that manages to outperform your lowly expectations.

No, this is one of the best Chardonnays I’ve ever had.  If you’d told me it was a $30 Chardonnay, I wouldn’t have batted an eye.  It’s far and away better than most $30 Chardonnays on the market.  It is crisp, medium bodied, well-balanced, lacking any butter (thank God), not over-oaked, and with lots of pure Chardonnay fruit.  There’s really nothing to criticize about it.

So what gives?  Why is a prominent California winery blowing out one of the best Chardonnays I’ve ever tasted so that Trader Joe’s, in turn, can blow it out for $2.99/bottle?

A little arithmetic puts this question into stark relief.  If at our winery we buy the cheapest bottles, use paper labels, and the cheapest corks we can find, it costs us $15/case to bottle wine.  That’s not with any wine in the bottle, mind you.  That’s just the packaging cost, taxes, transportation to the warehouse, those sorts of things.  That works out to $1.25/bottle.

Now I have no real information on what the deal is between Rodney Strong and Trader Joe’s, but I can make some educated guesses.  If Trader Joe’s is selling the wine at 2.99/bottle, they can’t be paying much north of $2.00/bottle for it.  That leaves Trader Joe’s with a $1/bottle margin.  From that $1 Trader Joe’s must pay for the shipping to the stores, for the floor space, and for the personnel to stock the wine on the shelves and check you out.  It doesn’t take a lot of thought to realize Trader Joe’s isn’t getting rich off of Landing Place.  In fact, I wouldn’t be the least bit surprised if Trader Joe’s views the wine as something of a loss-leader, just to get people into their stores.

But enough of Trader Joe’s. Let’s get back to Rodney Strong.  Now I have to assume that Rodney Strong can probably bottle their wine for a little less than $15/case, since they have economies of scale and that sort of thing that a small winery like us doesn’t.  On the other hand, we pay a pittance in federal wine taxes since there’s a break for small wineries in the tax code.  Rodney Strong is going to have to pay full tilt, however, and those taxes are pretty steep.  For under 14.1% alcohol, the rate is 1.07/gallon (Landing Place is 13.5% alcohol).  Since there’s about 2.4 gallons of wine in a case, that works out to $2.56/case, or 21 cents a bottle.  I would be pretty sure that that cancels out any economies of scale that Rodney Strong might enjoy.  So let’s just say that Rodney Strong’s cost of packaging a case of wine is the same as ours, $15/case.

So if Rodney Strong is selling the wine for $24/case, and it’s bottling costs are $15/case, that leaves $9/case.  That wouldn’t be so bad, except for one thing:  Having wine in the bottle is something the consumer insists on.  And our $15/case doesn’t include anything for wine.

So even if there’s nothing left over for any profit or overhead or anything else for that matter, Rodney Strong is getting $9 a case for the wine it puts in the bottle.  That works out to $3.75/gallon.  I’m not sure how that compares in price to Crystal Geyser, but I bet it’s not far off.

So Rodney Strong pays for the grapes (from Sonoma County no less), presses them, ferments them, and undertakes various and sundry other processing that wine is wont to.  And, at the end of the day, it sells that wine for the price of water.

You don’t need to be an Einstein to see Rodney Strong didn’t make out very well on Landing Place.  And that’s for an incredibly good wine.

Curious, I placed a call to Rodney Strong.  I half expected that I’d get a total stonewall or, at the least, the runaround, since I wouldn’t expect Rodney Strong would be very excited to publicize this fiasco.  But, to its credit, that wasn’t the case at all.  The tasting room quickly transferred me to one of the persons who handles Public Relations, who transferred me in turn to Richard Larson, who talked to me at length about Landing Place.  I started off the conversation by asking him how Rodney Strong could be selling off one of the best Chardonnays I’d ever had at a price that Trader Joe’s could be selling it retail for $2.99/bottle.  He explained that 2009 was an odd vintage.  It was a big vintage (the second largest on record, to my recollection), so there was an ocean of Chardonnay.  We were in the depths of the rescission, so demand for higher priced wines just wasn’t there.  If you wanted to move any wine, it was hard to do unless you were willing to bottle it up and sell it on the cheap.

I asked why they didn’t just bulk out the juice.  They’d looked at that option, but in fact when they penciled things out, they did better going the Landing Place route than the bulk wine route.  Since it’s a pain to go through the entire process of getting a wine processed for bottling, into the bottle, etc., etc., I have to think that the prevailing bulk price for Chardonnay in that time period was considerably less than the $3.75/gallon they made (if that) from the Landing Place project.  Having sold 2009 wine at bulk myself, I can certainly attest to the fact that the bulk market was mired in the worse slump of all time.  So I don’t doubt Larson’s tale of woe.

Larson did say that Rodney Strong has no plans to do this again, but, if economic conditions should repeat themselves, they wouldn’t take the idea totally off the table either.  He noted that Rodney Strong has the advantage that it’s family-owned, and the family comes from a farming background.  So they’re a little more inured to the ups and downs of the agricultural marketplace, and are more prepared to weather the storm than your mega-winery beholden to Wall Street traders more interested in the latest quarterly report than hearing about the vagaries of the wine market.

Finally, I asked Larson if he was concerned about the effect that Landing Place might have on the Rodney Strong brand, and why Rodney Strong hadn’t cut a deal with Trader Joe’s that its name not be used.  He said he wasn’t privy to the details of the deal between Rodney Strong and Trader Joe’s, but assumed that Rodney Strong hadn’t restricted use of its name by Trader Joe’s, or else Trader Joe’s wouldn’t be putting the Rodney Strong name front and center.  But he didn’t feel that Landing Place cheapened the Rodney Strong brand since, first of all, Landing Place and not Rodney Strong was on the label (even the producer is identified as Healdsburg Cellars rather than Rodney Strong).  And Rodney Strong had done a good enough job building its brand that this shouldn’t hurt it.

So there you have it.  A world-class wine on the shelf at Trader Joe’s for $2.99/bottle.  Obviously, if the entire wine industry had to work off these numbers, the entire industry would be bankrupt.

So maybe we should take all this buzz about how things are improving with a grain of salt.  Or maybe we should just go out and buy a few cases of Landing Place and drown our sorrows away.

This entry was posted on Monday, September 17th, 2012 at 6:46 am and is filed under Wine Sales and Pricing, Wine Tasting. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.