Can We Compete with Boxed Stores?

Last week I had an interesting conversation with a customer. He was asking if I was concerned about all the stores around our winery selling wines which in most cases may be cheaper than ours. Aware? Yes. Concerned? Not really. Why not? Well… I said, it is hard to go to Costco or Tom Thumb, buy a bottle of wine and sit there enjoying some relaxing time with a picnic basket.

I indicated to this customer that it is impossible for us to compete with Gallo, Mondavi, Antinory, and the other hundreds of very large wineries that produce millions of cases. We just simply don’t have the economy of scale to be able to produce wines cheaply. We have higher grape costs because we don’t buy large volumes of them; we have higher transportation costs because with don’t own our trucks and have to pay LTL prices; we pay higher for bottles because we don’t buy one million bottles at a time and same with corks, capsules, etc and so on. At the end of the day our costs per bottle may be 200% or 300% higher than the big guys and depending on the wine being produced our costs are even higher.

But, we try to provide a service that you can’t get from the big stores. We have a beautiful tasting room with nice furniture and a pleasant atmosphere, we have nice grounds around the winery where you can relax during decent weather, we provide special events that are not easily found anywhere else and we produce good wines. If a customer is looking for a bottle of wine for  $8 to $12 then we just can’t compete. But if the customer wants a reasonably priced bottle $18 to $30 that was made locally, with Texas grapes, where the taxes stay locally helping everyone and where you can see the location and the people that made it, then we are just the right place.

We know that everyone is price sensitive and so are we. We price our wines as low as possible while keeping enough margins to pay the bills. In an economy that has seen many wineries in Texas go bankrupt and an economy where consumer prices have fallen, our cost for producing wine have risen over 17% this year along. Transportation, bottles, capsules, electricity, gas, taxes and grape prices all went up over the last two years. Where a ton of Cabernet cost $2,000 in 2008 in 2009 we paid $2,500. Oh… and this doesn’t take into account the fees that we are being charged from the credit card companies. The fees have gone up by 30% on some types of cards this year along. Yet, we have not increased prices on our wines in 2008. Eventually the price pressure will become relentless and we may be forced to change our philosophy. As I said to our customer, I don’t think that the big stores are going to put us out of business, they can’t offer what we do but our own suppliers may kill our dream if they force us into price ranges that are unsustainable for a small operation like ours.