Understanding Wine Prices

The wine's all bottled and ready to go. What next? You'll need some cases to put it in for easy shipping (about $8 for a cardboard box fitted with a Styrofoam insert to keep the bottles from breaking). And you'll need to publicize it, a task you'd probably rather farm out to a public relations company than attempt to do yourself (after all, you have a winery to run), but either way, it will cost some more money.

 Even if the wine is going no farther than your tasting room, you have to pay taxes on it, especially because it's alcoholic and therefore a luxury (or taboo, depending on viewpoint) item.
 
Taxes

 In the United States, there's federal tax, which is charged on a sliding scale depending on the size of your winery. Wineries making less than 150,000 gallons a year pay just 17c per gallon, as opposed to a larger winery's tariff of $1.07 for still wine, $3.40 for sparkling wine. If you made a whopper of a wine and it comes in at more than 14 percent alcohol, you'll pay an extra 500 per gallon.
 
State taxes differ, but let's say it's California; that will be 4c a bottle for still wines, and double for sparkling.
 
That's all before we get to the sales tax, which can range up to 9 percent depending on state and county.
 
Now, that's only if the wine gets sold directly from the winery door or tasting room. Otherwise, it must pass through the three-tier system.
 
America's Three-Tier System
 
In the United States, every bottle of wine must go from the winery (or importer, in the case of imported wines) through a distributor to get to your local store. That's because of our "three-tier" system, where the distributor was put in between the winery and the retailer to protect against corruption.
 
So now that bottle, worth, say, $15 to you at the winery, needs to be sold to a distributor. The distributor will then sell the bottle to the retailers in its area, adding a few more bucks to its price to take home as profit for itself.
 
The retailer needs to make some money on it as well, so he adds some extra dollars to the price. Since no one has ever heard of your wine, there's a risk that not much of it will sell, so the wholesaler and retailer will probably build in some protection for themselves by marking up the price a little more than they would for a well-known brand that's sure to fly off the shelves. So that $19 bottle of wine might be going for $30 or so now.
 
Price, Positioning, and Posturing
 
While it sounds unfair that a simple bottle of wine is subject to so many taxes and markups, it could be a good thing. Since it's hard to know everything about wine, price and perceived value are powerful marketing tools. This is a trick long known to wine managers at restaurants. If a wine is too cheap, people won't buy it. Mark it up, and it starts moving off the list. Some wineries have figured out that if they offer very little wine at a very high price, people will want it whether they've tasted it or not, and they'll assume it's quite good.
 
This is risky business, of course, because if the product doesn't live up to the hype, the market will dry up and you'll have a hard time getting back into business.
 
It sounds awfully cynical to say that some people will shun wines they are afraid are too "cheap," but it's a theory that's been proven out many times. The most public and dramatic instance of this, however, may well have been when Josh Jensen of Calera, California, announced in his newsletter that he was sick of people not buying his wines when they were just as good as others that flew off the shelf at much higher prices, and so he had decided to raise his prices. Sure enough, sales shot up.