$2 Milk and $750 Wine

The Wall Street Journal reports that a Barossan shiraz is now Australia’s most expensive wine, at about $750 a bottle, or $1 per millilitre. Torbreck’s The Laird, 2005 vintage. Apparently all 400 cases have sold out. Quite a lot of it went to Hong Kong, where the wine’s importer commented “All the big collectors in Hong Kong, they’re not idiots, they know what they’re drinking, they know what they’re buying, and they love wine.” Or commodities.

Everyone – and maybe even the Wall Street Journal – reports that supermarket-branded milk is now $2 per three litre container, or $0.00067 a millilitre. Using this information one can clearly demonstrate the agricultural and economic differences between a cow in a paddock and a shiraz vine in a vineyard: volumetrically it’s 99.93 cents per millilitre, to the cow’s disadvantage. Thank goodness therefore for the two over-arching truisms of economics: markets correct themselves, and competition is good. But you don’t see a lot of milking cows in economics lectures, do you…

Yet these are piffling matters when one considers the crimes against humanity being committed by other arms of the supermarket gods. A chain of wine stores bought quite a lot of Penfold’s Bin 389 – or ‘Baby Grange’ as it is known, thanks to the fact it is only a tenth as awful as Grange proper. They then proceeded to sell it below the wholesale price they bought it for. This loss-leader mechanism is designed to increase foot traffic in one’s store, thus capitalizing on impulse purchases of products with more positively geared profit margins. Yet the man from Penfold's who runs the Bin 389 spreadsheet was not amused. He thought that this discounting would damage the integrity of Bin 389's brand. (What effect it might have on the integrity of Bin 389's quality as wine is all together another, less important matter.) He immediately instructed his staff to stop updating their facebook pages and go forth charged with company credit cards and buy up all the loss-leader Bin 389. What a decision it must have been for the staff: ‘Do I stop facebooking myself, or do I use the company credit card?’ Well they used the credit cards and bought back about a tenth of their stock at a price lower than they’d sold the stock to the wine store chain in the first place. Admittedly the economics are revolutionary, but this is cleary a win for the wine store chain.

It is not an original idea, however. This outstandingly innovative business concept mirrors that of many of Mr. Penfold’s grape suppliers, who, of course, are only to happy to sell Mr. Penfold and his friend Mr. Foster wine grapes at below-cost-of-production prices. It is the future of business and through it we might all yet be saved. There’s such romance and moral purity found in wine.