Wine Retail Rant (Why Grocery Store Wines Are Rigged)

We go to the grocery store. We buy wine. And then we wonder why we don’t like it. I hate to say it, but wine retail is rigged.

Big box wine retail is a tricky business. It runs on Prohibition-Era policies that ultimately gouge the wine consumer, hurt independent wineries, and even hurt small retailers.

It’s called the Three-Tier System and it sucks.

The bad news is, it’s unlikely to change anytime soon. The good news is, the internet (and clever retailers) have created a small hole in this system that offers hope!

Here’s how it works:

1. Tier One: These are the producers and the importers. These guys pay the initial set of taxes to Uncle Sam based on the amount of alcohol they produce. By the way, you have sizably increased rates if you make sparkling wines or wines over 16% ABV.
2. Tier Two: These are the distributors and wholesalers. These guys hustle, store, and move wine around the United States. Each state has different excise taxes for wine and different reporting rules. (P.S. Don’t even get me started on control states like Pennsylvania or Utah.)
3. Tier Three: These are the retailers and restaurants who sell wine directly to you and me. They charge different levels of wine sales taxes.

So basically, each transaction along the Three Tiers has a tax and a mark-up. The end result is that consumers pay $22 for a wine that the winery sold for $7.

Now, imagine that grocery store wine for $11.99? It was probably really crappy.

This is where the internet (and clever retailers) comes in.

The internet created unprecedented connections between consumers and marketplaces. Suddenly, wine businesses who had no connection to wine buyers could connect directly to them.

Here are a few examples:

• Wine Marketplaces

  (Like Vivino and Wine-Searcher) Vivino’s potential to connect a huge market of wine drinkers directly to retailers, importers, wineries, or distributors is unprecedented. In theory, as long as taxes are paid, a connector tool like Vivino or Wine-Searcher could connect buyers directly to producers.

  One major problem with this model is the extremely high risk (and cost) of shipping. Still, the model has huge potential (which is probably why Vivino managed to raise multiple millions in venture capital).

• Large Internet Retailers

  Wine.com, Totalwine.com, and KLwines.com are a few of the nation’s largest online retailers. With increased market penetration beyond their local markets, they are able to offer a much larger selection of wine.

  In many cases, these wine retailers go directly to producers to import wines. Many also offer retailer-branded “white label” wines. (K&L Wines’ “Kalinda” brand and Costco’s “Kirkland” brand are examples of pretty decent “white label” wines).

• Consumer Sandboxes

  (Wine Clubs and Negotiants) Brands like nakedwines.com or wine clubs like Winc Wines have built-in audiences to which they can sell directly.

  Sandbox retailers are very much the modern negotiant who either buys wholesale wine or makes wine for their customers. Unfortunately, this model struggles with scaling issues because great wine can’t be made in big lots.

• Winery Direct

  Nowadays many US wineries can sell (and ship) directly to customers. It would be possible for a winery to offer remarkable savings if customers shop direct.

  Unfortunately, there are two issues that still need to be sorted out. The cost (and risk) of shipping is quite high. Additionally, if a winery marks down their wines, they decrease their quality perception (believe it or not, we think wine tastes better if we pay more for it – see study).

It Matters Where You Buy Wine

If you’re looking to improve the quality of wine you drink, stop buying wine from *most* grocery stores.

Start buying wine at wine retail focused shops online and offline. You’ll automatically eliminate a lot of the large, bulk distributed wines which are nothing more than sweet berry wine juice.

What are your biggest annoyances buying wine? Leave a comment below!