No one goes into the wine trade to make a quick buck. Tales of speculation and fly-by-night entrepeneurs tend to be exaggerated and, in any case, it is foolhardy to speculate on such a weather-controlled and capricious a commodity as wine. Witness Bordeaux in 1973. I'm not pretending that there is no money to be made. Like any business, the wine trade needs to make a profit, no matter how small, and therein lies the problem. Traditionally, there can be several middlemen in the supply chain. By the time you've added 15 percent here and 20 percent there, the wine becomes less of a staple and more of a luxury.
That's why it helps to live in Washington. No matter what else on says about the District, we do have one of the best-priced wine markets in the country. Washington's alcoholic beverage regulations encourage healthy free trade competition. One unique practice, above all, keeps the selection wide and the prices fair: direct importing (DI). This permits a retailer or restaurateur to bypass the wholesaleer and obtain wines from out-of-town sources.
Wine drinkers also benefit from the low import duty and modest federal and District taxes on table wines of under 14 percent alcohol. Compared to the imposts on spirits, the total of 14 cents per 750 milliliter bottle of wine is almost negligible. The free trade system means that profits vary from wine to wine and from supplier to supplier. Generally speaking, suppliers at all levels are close-mouthed about their pricing policies. However, I have outlined below the fortunes of one widely distributed brand that I believe are representative. Moreau Blanc: a non-vintage, light-bodied, dry, pleasant and good value white; from grapes grown in the eastern Loire and Chablis regions of France; produced by J. Moreau & Fils, a leading producer in Chablis. Sole U.S. importer: Frederick Wildman & Sons, New York. Washington wholesaler: Milton S. Kronheim & Co. At full retail markup, consumer's price: $5.04 per 750 milliliter bottle.
The importer, Wildman, pays Moreau $1.75 per bottle FOB ("free on board," that is, not including shipping charges beyond the port) France. Wildman sells it to Kronheim for $2.08 FOB France.A significant portion of Wildman's 19 percent gross profit is plowed back into advertising and promotion to build up the brand. Kronheim usually ships direct from France to Baltimore, in containers of 1,200 cases. On smaller volume items, the wholesaler may order from the importer's warehouse stock.
On top of Kronheim's FOB cost is added 50 cents per bottle for freight, duty, taxes and insurance. The bottle now costs the wholesaler $2.58. Kronheim lists it for $3.36.This represents a 30 percent markup, the full markup. However, in order to develop volume for the brand, there is a deal, permanently offered to retailers and frequently to restaurants: a discount of 37 cents per bottle that reduces the wholesale price to $2.99.
The standard full retail markup in the District is 50 percent. If that 50 percent is added to Kronheim's full list price, we would arrive at a rounded shelf price of $4.99. But most retailers prefer to buy on deal and take less than the full markup, enabling many to offer the wine at $3.99.
As you can see, none of the profit margins appear excessive or even large. Inflated freight costs, high interest rates and fluctuating currency exchange rates have bedeviled the trade in recent years, and suppliers need a small cushion of profitability to stay afloat.
So far, so good. But have you ordered a bottle of wine that retails for $4 in some of our downtown expense account restaurants lately? With markups being as high as 500 percent in the K Street area, that wine could be listed for anything between $12 and $18. This is profiteering. The restaurants are getting away with it and will continue to do so until enough customers complain. It's up to you.