2 Buck Chuck

Two buck chuck is not targeted to the people in this forum but from the consumer response to this product and the several other imitators, says there are people who find this product more than satisfactory. Just spoke with a wine writer friend in CA and according to him the glut of low cost varietal wines will continue in CA for several years. The prices for these wines has not started to increase and looks like we will have 2 buck chuck and their imitators around for a while which IMHO is good. Better than having the tax payers to cover the cost of converting it into "gasohol".

I have remained a distant observer to this thread, as there is no such thing as a $2 wine here in New Zealand.

However, I am mystified - Do I understand that the retail price of some of this stuff masquerading and wine is really $US2?

My interest stems from a "cost of production" perspective.

Is this stuff derived 100% from grapes; grown and harvested specifically for wine production?

Is it bottled, closed, labelled and packaged in cartons, and freighted through a distribution channel to the retail market?

Let me put it this way. Here in New Zealand, the cheapest bottle would cost around US50cents; labels, closures capsule etc say another US25cents; carton (per bottle) say another 20 cents.

We are up to $1 - and there is no wine in the bottle yet - no distribution and no margins.

Here in NZ - our beloved Govt stings the equivalent of $US1 excise tax per bottle - then whacks a value added tax of 12 1/2% on everything.

My point is that it is impossible to put anything resembling wine of the market for $2 at nothing like break even?

So, how is this done in the US? - some sort of subsidies or Govt ssistance - I would have thought that the three tier system would have prevented anything such as this - or am I missing something.

It's not just pretending to be wine. It's wine, of variable quality.

Yes. Varietal wines.

Yup.

[...]

Keep in mind, Trader Joe's sells the same wine for $2.99 on the East Coast. It's only $1.99 in California (and perhaps adjacent states).

The Wine Group is actually bottling this wine, they're in the same class as Gallo and Constellation. Huge, enormous economy of scale. They're getting wine on the bulk market at what probably represents significant loss to the producers of the wine, which means the subsidy, if any, is coming from these producers.

Who are the sources of over a million cases of varietal bulk wine? I don't know, but I think it's coming from two sources; one is a lot of smaller wineries that have an excess of smaller lots of wine of better quality and the other is at least one or two producers with large tank farms that are positioned to take advantage of cheap fruit (sold below grower's costs).

Trader Joe's is adamant that they're making money on Charles Shaw wine.

Dana

Check out:

Bi!!

Only in California (and perhaps not even there any more) where it is possible for producer to sell directly to retailer. Elsewhere, it runs anywhere from $3-5 per bottle.

Yup. Most likely so.

Yes, though as stated above they can avoid the wholesaler tier in CA.

Sounds reasonable.

Last I heard, Federal excise tax on a 750 ml bottle of still wine of less than

14% alcohol was $0.21 ($0.31 if over 14%). Sales tax, as you no doubt remember, is added on to the purchase price in the US and passed on to the consumer.

Even at $1.99 per bottle, both Bronco (the "winemaker") and Trader Joe's were far from operating a charity. Both are staying very closed mouth about profit margins, but Fred Franzia of Bronco has dropped hints that they turned a profit of ca. $250 million in 2003. From this, we can conclude that their own production costs were low for factory farming of grapes and that they purchased that surplus fine wine for pennies on the dollar, probably with the stipulation that the growers' names appear nowhere on the bottle or in print.

When the Trader Joe's must buy the wine from a wholesaler rather than Bronco itself, the full effect of the three tier system is felt and the price rises to $4-5 per bottle, giving you some indication of the incredible profits that are had at that level. No subsidy is involved, though, unless it is a Federal water subsidy for irrigation water in the Central Valley.

HTH Mark Lipton

p.s. Did my recent e-mail reach you? If so, please substitute March for May.

Didn't we have a thread some years ago on the real cost of making wine? Even assuming the silliest prices for grapes, barrels and bottles and other necessary items a Lafite Rothschild or a Petrus should cost rather much less than 50 USD a bottle to make... Anders

I think these figures seem a bit high, at least for a giant producer like Bronco.

Exactly. There's a huge winegrape glut in California, and I'm sure the farmers lost money. I've heard figures like $125 a ton, but that's better than watching a ton rot if there is no buyer.

Dale

Dale Williams Drop "damnspam" to reply

There are two major outfits licensed to do this here in California. One is Kendall-Jackson. The other is Bronco Wine Co, which is the maker of Two Buck Chuck.

Dimitri

I've often wondered if Kermit Lynch and David Hinkle of North Berkeley have to sell the wines they've imported to themselves via a distributor. Any idea, Dimtri?

Mark Lipton

I have no inside information on the cost breakdown for Two Buck Chuck but I may be able to provide some pieces of the puzzle. First, even a home winemaker here can buy bottles at US 50 cents apiece, including the carton. At the volumes these guys are operating at, I'm sure bottle cost is significantly less than that. I noticed early Two Buck Chuck had capsules but most recently haven't. I wouldn't be surprised if they can drive combined cork (the "Twin-top" style) and label under

15 cents. So total packaging price may well be closer to US 50 cents than the 95 you mentioned. Exise tax varies by state because we have both federal and state excise tax but they are small compared to your NZ numbers - for under 14% alcohol content, the federal excise tax is about 21 cents per bottle and California's is 4 cents, for a combined 25 cents (not a dollar). So total packaging/tax price might be more like 75 cents, not your $2.

Also, unlike in most countries with VAT (NZ included, I assume), our equivalent - state sales tax- is not included in the bottle price. California has an 8% sales tax, so for a bottle of Two Buck Chuck with a shelf price of $1.99, you actually have to get $2.15 out of your pocket. Finally (and key), Bronco Wines (in turn owned by Franzia), the company that produces Two Buck Chuck, is one of the few wineries that is also licensed in California as a distibutor. So they avoid the normal "three-tier" mark-up and sell directly to Trader Joes stores in California. In other states where the normal three-tier situation applies, the same wine sells for $3 or $4.

Obviously even with all these advantages, the juice that goes inside has to be pretty cheap. But with the grape and wine glut situation in California, bulk wine *is* very cheap! I think you'll see from my figures that if both Bronco and Trader Joes are willing to operate at small margins, profit is possible - this has nothing to do with government subsidies.

For whatever it's worth, it's a mistake to pooh-pooh the stuff as "not wine". I'm not a big consumer myself but I admit to trying a couple of bottles of Sauvignon Blanc. The first was dry, crisp, thoroughly drinkable, if not outstandingly varietal. The second was flabby and I suspect with a touch of residual sugar, not enjoyable. And that's what I've heard in general about this stuff. They are moving oceans of bulk wine this way and it is not consistent from batch to batch, even within the same vintage. But it's wrong to write it all of as terrible simply because it's cheap.

I hope that helps.

- Mark W.

Please forgive me, I made an error here. It's not The Wine Group, which bought Franzia early in the 1980s, it's Bronco Wine Company that is supplying Charles Shaw wine to Trader Joes.

According to this:

Bronco has a 61 million gallon capacity (over 6.5 million cases), so they're perfectly capable of turning cheap fruit into wine in addition to bottling bulk.

Dana

Perhaps that I live in the greater Napa wine country means that the domestic stuff I find at Cost Plus has come from local warehouses? The fried wines you've had - are they domestic or imported?

Dana

I don't know the answer for sure, but I imagine not since Kermit Lynch is a retail store. The license I was referring to is a wholesalers license. Most wineries have a license which allows them to sell direct to restaurants and retail stores, but not to wholesalers. Kermit Lynch isn't a winery, but an importer. I do know that in other states Kermit Lynch does not distribute their own wine, but sells to distributors. They probably have a wholesale license. There are only two wineries that do, which I already mentioned (Bronco and Kendall-Jackson).

Dimitri

in article bu869g$6hj$ snipped-for-privacy@agate.berkeley.edu, D. Gerasimatos at snipped-for-privacy@soda.csua.berkeley.edu wrote on 1/16/04 12:10 AM:

I've been following this thread and am now a bit confused. I have only a layman's knowledge of the wine industry channels here in California, but I thought I understood that CA wineries were REQUIRED to sell through distributors and could NOT sell direct to restaurants and retail stores. Maybe there's a confusion here between the terms "distributor" and "wholesaler"...... I've generally thought they were the same thing. Help me out, if you would.

Both--although more so for the NZs we've tried than the California bottles.

As a California winery, I can (and do) sell direct to retailers and restauranteurs in California. Everywhere else except DC, I'm required to sell through a licensed distributor. I cut out the middle man by going direct (and I can also sell direct to consumers in CA), but I incur certain fixed costs (office staff payroll) and certain variable costs (shipping, invoices, possibly collections) which eat away at the profit margin within California. Still, I can pocket more money by selling to a retailer than I can selling to a distributor. Franzia, as it sells direct to Trader Joe's in massive quantities, can amortize the costs of doing business over a large number of cases (sales staff and invoicing are small costs, since the sales and deliveries are to the main warehouse of Trader Joe's, and they distribute the wine to the individual stores), and they're buying and blending bulk wine often below the cost of production (there's a glut now, and many would be happy just to get rid of their bulk at almost any price, since they often need to reduce the long term storage costs of the wines). Bottom line is that, yes, someone in the grower/winery line is getting screwed because he's losing money, but better that than not being able to convert the winery into cash and maintain cash flow.

As to the terms "distributor" and "wholesaler", they are the same entity.

Craig Winchell GAN EDEN Wines

"Distributor" and "wholesaler" mean exactly the same thing, AFAIK. It is true that wineries are able to sell "winery direct" to restaurants but most choose to do so sparingly, if at all, because that puts them in direct competition with the the distributor on which they depend (and don't want to piss off). Generally speaking, as you understood, wineries *cannot* sell directly to retailers but most work through a distributor (or "wholesaler" if you prefer). New to me with this Two Buck Chuck business is that, as was mentioned before, Bronco is one of only two wineries (the other being Kendall-Jackson) that is licensed in California to act as their own distributor. How they were able to manage that and why other big wine producers don't/can't do the same thing, I have no idea.