One of the hottest discussion topics around wine is pricing. Everyone normally has the same question. If I am able to buy a red wine for R25 a bottle, am I being ripped off when I pay R80, R90 and even R120 a bottle for something interesting? In today’s newsletter I am going to show you exactly what the various wine production costs are and, by way of example, what it costs me to make my wines. Business suicide some might say, but I personally feel that if BLANKbottle is about honesty, then this is something you have a right to know and need to understand. (In my next newsletter I will be looking at possible reasons why wine could sell for less. And, on the other hand, why you are most probably not being ripped off when you pay R600 a bottle from a top producer!)
In order to address the subject of pricing properly I have to oversimplify. Obviously there are millions of ways to look at this, but this is simply my personal view, based on BLANKbottle’s reality.
To me, business is not just about the bottom line. My reality is that business is about people. My goal which I’m working towards, is to price my wines in order for everyone in the production chain to provide for their families. AND, at the same time, following my passion, having loads of fun and aiming to add value to the customers’ lives through the wonderful adventure we call wine.
That said, let’s start with a cost breakdown. A red wine costs the same as a wooded white wine to make, so I will be looking at the cost of quality wooded wines.
- You can’t make a good wine from average quality grapes. We need established, well looked after vineyards which takes time, effort and a lot of hard work to establish. These vineyards produce roughly 4 -5 tons of grapes per hectare per year. It depends a little on the cultivar but on average this is what we get. The operational costs of a vineyard in Stellenbosch according to Vinpro (organisation who represents SA wine producers) is about R29 000 per hectare / year. In order for the farmer to make it worth his while I would think he needs to make at least a 30% Gross profit. He therefore needs to get R37 700 per hectare / year. If he gets 5 tons a hectare, the winemaker needs to pay him R7 540 per ton to keep him in business.
- I rent space at wineries and pay R2500 per ton to destem and ferment. I get 500 litres of wine per ton grapes (after fermentation, ageing, filtration). When the wine hits the barrel it is already at R10 040 per ton and R20.08 per litre.
- All my reds, as well as some of my whites, go to barrel. Let’s say I make use of 20% new oak, 20% 1st fill, 20% 2nd fill, etc. You would therefore use a barrel for 5 years. Let’s assume the wine only stays in barrel for 12 months. A new barrel costs R12 500. Over 5 years it is R4020 per year at an interest rate of 13% per year. You get 225 litres from a barrel and therefore another additional cost of R17.87 per litre for the wood.
- Storage during ageing is 30c per litre per month and therefore R3.60 per year per litre. Then follows stabilisation (R1/litre). Up to the point of bottling we are on R42.55 per litre. We get 750ml into a bottle, therefore R31.91 per bottle (only wine).
- Then follows bottling (R0.41 per bottle – Mobile bottling unit), bottle (R3.74 per bottle – Consol burgundy), cork (R2.11 per bottle – Natural cork), front label (R2 per bottle including plates), back label (R0.50 per bottle), capsule (R0.37 per bottle – polylaminated silver capsule), box (R0.61 per bottle – printed brown 6 pack), divider (R0.16 per bottle – carton divider), box label (R0.09 per bottle) and extras like transport/lab/labour (R1 per bottle). The government then adds on to this excise duty of R1.49 per bottle. This brings us to R44.39 per bottle.
- If you borrowed the money from the bank you need to pay the bank an interest of maybe 13%. Let’s ignore this for now. In order to pay himself for his trouble, as well as the overheads of the business, the winemaker needs to make a 30% gross profit. He therefore needs to sell that wine for R57.71 per bottle to make it worth his wh
ile. Add 14% VAT to this and you are on R65.79 a bottle.
- This is my minimum cost to produce a quality, boutique-style, barrel-aged wine. In order to produce something significant I need to invest significantly more time, spend more on the vineyards, reduce the tons/hectare, invest in barrels and the list goes on and on. I focus on producing smaller batches of wine. These smaller, ever changing, limited edition quantities add heaps of excitement and fun to my clients’ lives, but also have its financial implications.
- In BLANKbottle’s case, I have the privilege to sell my wines through only 2 super exclusive channels: straight to the consumer on my website www.blankbottle.co.za and in Woolworths. On my website you have access to special wines exclusive to the website. Selling straight to the consumer enables me to build strong relationships with my clients. I work with Woolworths to produce special unique wines exclusive to them in order to add to their cutting edge, ever-extending wine portfolio. In order to ensure a fair retail value for those wines, I give them a better price (by cutting back a bit on my gross profit). They also need to be paid for their commitment, route to market and marketing skills.
- I do not sell to restaurants so I cannot comment on this, but rumour has it that they add a 100% – 300% mark-up on wine.
Clearly, good wines are expensive to make. I prefer not to take shortcuts.