Does a £7.99 Barolo Make Sense?

A £7.99 Barolo from German no-frills discounter Lid

Wine journalists have an occasional tendency to wring their hands at various perceived injustices in the oenological world without necessarily offering actionable solutions. In this respect, they are just like the rest of us.

Back in 2020, Susy Atkins tweeted her shock at at £3.49 Cava at Lidl; I wrote about it here: Arestel Cava Brut — Lidl. I liked the wine and bought several bottles of it.

The next “outraged of west London” was Jamie Goode who also took aim at the German no-frills discounter for its £7.99 Barolo (which, by contrast, I have not tried).

Jamie’s comments echo Susy’s; “Something is very broken in the world of wine when you can buy a Barolo at £7.99 great British pesos”.

The argument here is essentially that the pricing is not sustainable and therefore, whilst ostensibly a bargain for the consumer in the short term, quality will need to be sacrificed in the longer term in order to produce wine at this sort of price point.

Oz Clarke said much the same thing about the Australian wine industry in an introduction to his Wine Guide back in 2004, so there’s nothing new under the sun here.

In the case of the Cava, I tend to agree with Susy that the entire category has suffered from an image and therefore pricing challenge and that the only way out of it will be to strengthen the overall brand of Cava to the point where it can command a commercially-sustainable price.

Given this, Lidl’s £3.49 Cava is just one example of a more widespread issue that Cava faces as a category. And in the years since Susy’s tweet, cava has worked on its quality, consistency, communications and yes, pricing.

The Barolo situation is, I think, a little different, and there may be many reasons why a £7.99 Barolo makes more sense than a £3.49 Cava.

• the retailer may be taking a hit on the selling price and making up the difference on the rest of the shopper’s basket, aka the classic “loss-leader” approach, as part of a growth strategy targeted at, for example, more affluent middle-class wine drinkers with their fatter wallets

• the winery may be taking a hit on the price in order to shift volume and ensure certain cashflow with the opportunity to make up margin on other sales

Business craves certainty and accountants crave cashflow certainty in particular; in this context, a high volume order that generates a predictable cash flow from a large, creditworthy customer is highly desirable and provides much-needed funds to pay regular bills, such as payroll, rent and quarterly taxes.

The standard retail price of the Barolo at Lidl is £11.99, well above the national average purchase price of around a fiver per bottle (all figures as at 2020). And this is a wine that, unlike the Cava, requires no expensive secondary fermentation in bottle, albeit it needs aging in oak.

It is worth noting that the Barolo has been listed at Lidl for many years, so it seems that the public, the retailer and the supplier are all happy enough with the arrangement.

The only reason I have not tried it is more personal preference than principled objection — there are other, cheaper wines with the same or better scores in the Lidl offering.

As to the business issues raised by this wine, Price Promotions are not without their downsides and it is impossible to tell at this stage whether Lidl is creating longer-term strategic issues for itself with its short-term tactical promotion.

As marketing expert Les Binet points out, the more you discount prices, the more you train your customers to expect discounts. Discounting is a form of Sales Activation. The advantage of Activation is that it drives sales in the short term but:

1. the increased sales effect wears out quickly, and
2. more-frequent use of discounts increases consumer price sensitivity — i.e. your customers get used to paying less and therefore become more reluctant to pay more.

Make too deep a discount a regular feature, as some food and high-street retailer chains do across all categories, and your customers start to learn to stock up when the product is discounted and switch to cheaper alternatives when the price is artificially high.

Treading the right line between using discounts to generate short term demand and not over-relying on them to the extent that you undermine your pricing is the balancing act of marketing — and specifically pricing — teams. Businesses with good marketing departments use an appropriate mixture of Sales Activation to drive short-term volume and Brand Building to support and increase prices.

Are Lidl and the producer of the Barolo adhering to a best-practice marketing approach? You would need to be in a very limited circle-of-knowledge with access to strategic plans and detailed financial reports to know the answer to that question. As an outsider, the best I can conclude is that an underpriced / heavily-discounted Barolo does indeed to some extent tarnish the overall reputation of Barolo as a premium category, so some brand-building activity will be required to offset this.

Another point to consider is all the free publicity garnered by an eye-catching reduction — take £100k of public relations spend, channel it into a significant-but-short-lived discount then stand back and what the newspapers, columnists and other chatterati do they heavy lifting for you.

In this respect, Jamie’s tweet is either naively counter-productive (in drawing yet more attention to a discount that he disapproves of) or a plausibly deniable leg-up to the promotion while maintaining ostensible integrity.

Back in the world of sales targets, market share and insolvency risk, who bears the consequences of a heavily discounted premium wine?

• Mostly the winery itself (if its name is on the label — not a given, it may be a supermarket own-label bottling), then
• Barolo as a region in general, and
• Least of all the retailer who — as a general retailer and not a Barolo promoter - has no interest in the brand strength of Barolo.

As a result, it falls to the Barolo wine trade association to have an opinion on Barolo pricing in general.

Certain wine regions have a better track record than others of managing their pricing strategies — Austria and New Zealand are the most obvious examples where trade marketing bodies have successfully helped producers to command higher prices for their output. First Growth Bordeaux, Champagne and the entire rosé category still command good-to-generous price premiums, even if less than previously in some instances.

So, my advice to you rather depends on whether you are buying or selling wine.

For sellers, it is to invest in building your brand, with tactical activation to drive volume for cashflow, and use that to create a price premium. I know it’s a lot harder than that in practice, but that just makes it important-but-difficult, not irrelevant. The greatest challenge here is for small, bootstrapped wineries who lack the funds and professional back offices to develop a properly commercial marketing strategy.

For consumers, it is to seek out the under-priced bargains; unfashionable, underappreciated wines like sherry or Greece, up-and-coming areas like Languedoc, southern Italy, South Africa and South America and, yes, take advantage of short-term, special offer price discounts and markdowns.

There is, however, one final point that makes everything that I have just written completely irrelevant: the more you pay for a wine, the better it tastes. On this basis, you should never buy wine on discount, never buy cheap wine and always pay a premium.

It’s not advice I live by personally, but here is the research by Baba Siv, published by Standford, to back it up.

Originally published at http://cambridgewineblogger.blogspot.com.