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Cape Town - Recently Fin24 reported that wine farmers and producers are simply not making enough money and are therefore not planting any new vines, according to VinPro CEO Rico Basson.
He addressed more than 800 delegates at the 10th annual Nedbank VinPro Information Day.
VinPro is the service organisation for 3 600 SA wine producer and cellar members, striving towards their commercial sustainability, as well as that of the broader producer industry and its strategic role-players.
In reaction to an ensuing debate on the issue, Fin24 user Brian writes that he finds it fascinating "that not a single person, farmer or consumer, comments on the huge mark-up charged by restaurants".
"The farmer gets next to nothing and the restaurant gets three times or more the retail price. Why don't you look into that?" Brian asked Fin24.
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Good wine, strong brand important
According to Emile Joubert, wine industry marketing consultant, the issue of the price of wine in restaurants compared to what farmers get for their wine is an age old gripe about which "no-one has as yet been able to find a satisfying answer".
He told Fin24 that the mark-ups in restaurants are up to three times that of the winery's trade price or perhaps even more. Yet, this is international practice and by no means unique to the South African hospitality industry.
"It is not true that wine farmers get hardly anything for their wine. If your wine is good and your brand strong enough, the restaurant needs you and you are then able to command a decent price," explains Joubert.
"The problem is that some wine farmers are willing to just about 'give' their wine away to restaurants at rock bottom prices in order to get on the restaurant's wine list or dispose of surplus stock. In cases such as these there is no reason for them complaining about the low price at which they had to sell product to that particular restaurant."
In Joubert's view complaining of the mark-up is petty.
"Diners don't gripe about paying R160 for 300 grams of fillet steak, which also represents a 300% mark up. Why should wine be any different?" he asked.
"If you can afford the luxury of eating out, expect to pay for the experience. Plus, you have the power of choosing where you want to eat. It's all about a free market."
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Free market
Fedhasa (The Federated Hospitality Association of SA) told Fin24 that as Fedhasa is an industry trade association and lobbying body it cannot dictate to its members what to charge, due to the fact that it is not a regulatory body.
"We would, however, encourage our members to be fair and responsible when determining their pricing models," was Fedhasa's response.
Ken Forrester of Ken Forrester Wines also tries to put the issue into perspective:
After all these years, with a view from inside and outside the restaurant, the issue in essence really simply shows the ignorance of the consumer more than anything else.
When I last looked, we lived in a capitalist society where, generally, business is intended and incentivised to make a profit, which by definition means to sell goods with a mark-up.
Profit, in very broad terms, is equal to turnover minus expenses and it is this magic that grows businesses, enterprises and economies.
The whole world over, standard, generally accepted “cost of sales” for an average restaurant is in the order of 30% to 40%, dependent on a number of factors, including appointments, size and traffic.
So simply put, mark ups of necessity have to be in the order of 150% to 250% for the enterprise to trade successfully and profitably.
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Seemingly, there is the broad public perception that restaurants aren’t supposed to make any money out of selling wine as they apparently “do nothing to add value”. There are all the overheads of the establishment, the rental, the tables, the chairs, the crockery, glassware, storage, refrigeration and service equipment.
All of these overheads, as well as the cost of stockholding, staff and electricity, have to somehow be covered and an average cost of sales in the order of 30% to 40% might allow for a gross profit (before tax) of 8% to 12% - not really a great return for the input, effort and long hours.
Is the public aware, for example, that AAA grade green coffee beans in Tanzania, Kenya and Columbia at source cost $1 per kilo? That’s enough beans for more than 100 coffees, yet big retailers happily sell at $3, $4, $5 each.
Go figure out what a pair of famous brand jeans cost to manufacture in Mexico or Lesotho - less than $5 - and justify the $100 mark up.
Compare tomatoes, lettuce, apples from your favourite grocer versus what the farmer gets per tomato. The list is endless.
Look at what your motor mechanic, your plumber, your vet charges for time. Quite simply, in the world today you need to “pay to play”, especially when you’re using someone else’s facilities or skills.
We truly have to stop picking on restaurants. In fact, if your thought is that they are an easy way to making vast sums of money, I suggest you open one as soon as possible.
Entrepreneurs and risk takers, like people in general, are allowed to make profits and the public are entitled to vote with their wallets and feet.
Similarly, if one can’t afford to drive Porsche or Ferrari there are other options, but one may not decree or abolish the right of anyone to trade profitably.
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Distribution costs
Johan Fourie, Doolhof Wine Estate's general manager, says for producers the aim would be to ensure consumers can buy the same product at as many places as possible at the same or a similar price.
"Moving wine across the country and onto shelves in stores involves costs from other businesses delivering a service to our industry. Wine is then sold to these businesses and retailers at a reduced wholesale and/or distribution price, to allow enough margin so the product can be put on the shelf at more or less the price one would pay at the cellar door," said Fourie.
"Generally, restaurants have a higher mark-up and not all of them have the same mark-ups on the same products, which is their prerogative, much like food prices for the same meal vary from restaurant to restaurant."
He said consumers might then ask why producers then even bother to sell wine to restaurants?
"Most restaurants spend considerable time on an annual basis to compile a wine list that would complement the food they serve and ultimately lead to an intensified customer experience," said Fourie.
"Some employ full time sommeliers to ensure an ultimate experience. We reason that it could be a customer’s first encounter with your brand in such a setting, which could lead to more sales through different channels after that experience."
So, even though consumers generally pay more for a bottle of wine in a restaurant than they would on a shelf or at the cellar door, they pay for an experience created by the owners of the establishment.
"Wine prices are public knowledge at the touch of a screen these days and if a restaurant decides to mark wine up exorbitantly in some peoples' opinion, I am sure they are not ignorant. Consumers are the ‘masters of their own universe’," said Fourie.
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