The price is right for customers

23 February, 2007

They may be able to get the wine du jour cheaper elsewhere, but locals understand our position

OK, it all starts with a bottle of 2006 Cloudy Bay Sauvignon Blanc. Well, not just a bottle, but three cases, which have been made available to us by a supplier. Whatever you might think about this wine, it's the one with the bling factor, the one everyone's heard about, and the one people ask for by name. It's been a few years since we stocked this wine and, in fact, the last time we stocked it, we were asking silly money - mid twenties.

Yes, it's too much for a wine like that, but if I recall correctly, at that time, it was still fairly hard to find. We were quite a way down the purchase chain and I had a vague idea that if we charged the earth for it, then a) we would make more money (true - marvel at my business acumen!) and b) we might ration it somehow (false - someone walked in and paid 150 for half of what we had. He was annoyed at the price, but he still paid it).

Now, this year's vintage has come to us a bit cheaper, but there is also another factor influencing the price; it is available locally in one of the Big Four, and for a price not far above what we are paying wholesale. Our customers accept that we are not a supermarket, and that we are not in a position to apply pressure to our suppliers. Accordingly, the prices we charge are generally perceived as being fair prices, so the Cloudy Bay goes on sale in the high teens.

Within 15 minutes of putting up a "PHWOAR! GET IT HERE!! NOW!!!"-type sign in the window, someone comes in and buys four bottles, happily discusses the folly of paying that sort of price, and leaves with a smile on their face. I feel a bit dirty, and a bit pleased with myself; yeah, it's a bit expensive, but there are a lot of people around here who can walk into their corner offie and buy some cracking wine, albeit at a slight premium. It seems fair to me.

Making cost sense

The notion of how one settles on a retail price would seem to be straightforward. You take your cost price, add a mark-up and VAT, and there you have it. But if we examine this, it quickly seems a bit arbitrary. For example, if I decide I want to make a 30 per cent mark-up on everything, then pretty quickly our cigarette sales stop. Actually, I'm assuming they'll stop; maybe we'll experiment with some 7 packs and see what happens. Generally though, it's accepted that some products yield a lower margin than others.

So it isn't as simple as cranking numbers through a formula. Having changed suppliers a few times recently, we seem to be buying stock cheaper than we ever have. Does this mean we should adjust our prices downwards? No chance. If a distillery is mothballed, is it right that we hike the price? Right or not, we do it anyway.

Does this make me a dishonest retailer? I don't think so. But increasingly, I'm coming to understand that retail isn't solely a science, or an art, but a combination of the two, and a bit more besides. It's vital to know everything that is going on in your own shop, but perhaps more useful is to get out and see what other retailers are doing. They are probably doing it to you, so you should return the favour.

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