Caymus, the well-known producer of California cabernet sauvignon, has for years enforced its retail pricing through strict allocations of its wine (which over the lat 15 years has been in extremely high demand). Retailers and distributors are generally free to sell the wine at any price they choose, but could not advertise pricing lower than $70 for the regular Napa bottling or $150 for the Special Selection bottling. Both are certainly excellent wines, but Caymus’s insistence on holding a certain retail pricepoint has in some ways degraded the brand name that they built over the last two decades.
Here’s the story. In 2007 and early 2008, high end wines began to see a softening in demand, and in the latter half of 2008 that softening of demand turned into a free-fall. Most Californian producers who made wines priced over $50 saw their sales plummet as consumers stopped buying wine as status symbols and turned to more pertinent questions of “is this wine good?” and “is this wine a good value for me?”
High prices for cult-status Californian wines also often reflect extremely high prices of land (I remember hearing that Opus One bought an acre of land in the To Kalon vineyard for $250,000), high prices for state-of-the-art-winemaking facilities, and high prices for top winemaking talent (check out what Helen Turley charges, for instance…). In short, a lot of high-end production, while good, was represented by pricing that often had little or nothing to do with the actual quality of the wine, and many Californian producers ended up producing wines that were rather homogenous in style and geared to the tastes of wealthy people who treated wine more like a lifestyle than an agricultural product (as they do in France).
Caymus very quickly realized that their pricing strategy wouldn’t work, and began cutting deals with distributors and retailers, while trying to maintain the hard line about not advertising retail prices that were under certain pricepoints. But this was difficult, and for a while Caymus had some success getting internet retailers to remove price listings of the Special Selection (I’ve seen internet retailers list the Special Selection for as low as $85 online, a huge drop from 2005-2007, when it frequently retailed for $180). In enforcing their pricing, Caymus was often very aggressive with small retailers, who were often hit hardest by the slumping market. Retailers who had stocked up on Caymus often had large inventories of wine that represented a significant financial investment, but couldn’t discount that product to the market to maintain cash flow.
But it was impossible to maintain the hard line with everyone; in the recession, distributors and retailers started looking for better deals. Anecdotally, I have heard the large retailers on the East and West coast were cut in first on deals from Caymus and other cult-producers, and were able to retain some level of solvency on their Caymus inventory due to higher profit margins and their ability to access long-standing ‘handshake’ relationships with wealthy buyers who they could verbally communicate huge discounts to.
My own experience in this process has soured me on Caymus, who has conducted their pricing strategy and branding in a way that damaged their relationships with many small retailers and especially those who don’t have access to large markets. Their pricing scheme isn’t flexible to their relationships with many of the retailers who have worked with them for years, and has resulted in a veritable glut of expensive cabernet sauvignon in the market. The Wine Merchant in St. Louis, for example, recently started advertising the regular Napa bottling for $59, and other internet retailers are going as low as $55, which represents a $10 margin over cost (at least as of 2009).
The opinions here are my own and is not intended to represent the opinions of anyone else in the wine industry, though you’ll probably find many industry people who are willing to agree with me off the record.