The Story of Penfolds Wine Storage Cabinets and Old Fashioned Discounting
Friday, 5th September 2014
- David Farmer
The marketing hype said this:
"Clarke (Michael Clarke CEO Treasury Wine Estates) said TWE will launch its biggest ever consumer promotion next month. For any six bottles of Penfolds Bin Series or Icon and Luxury wines purchased, consumers in Australia will be able to purchase an exclusive refrigerated wine cabinet that stores up to 32 wine bottles at a significantly reduced price.
The campaign is expected to run for three months and will be available in many off-premise retail locations. This is just one of many consumer facing marketing campaigns TWE will be implementing in fiscal 2015 and represents a significant and exciting shift in the way in which we invest in our brands";
James Atkinson, The Shout, 25th June, 2014.
This promotion meant a buyer of six bottles of Penfolds Bins or luxury wines could then buy a Vintec 32 bottle wine cabinet, said to be valued at $650 for $200 plus a $55 delivery charge.
Years ago, to attract customers, companies linking expensive glass ware at heavily discounted prices to purchases of wine. Later there was a brief fad of using wine cabinets as in-store prizes. Customers did not like the prize draw promotions and I have been wary ever since of the perceived value of wine cabinets. It seems I am wrong.
The first reports were encouraging: "An avalanche of buyers have scooped up a discounted $650 wine fridge by buying six bottles of high-end Penfolds wines after Mr. Clarke launched an aggressive advertising blitz for the month of July, which will give Penfolds sales a fast start to the new financial year".
Simon Evans, Sydney Morning Herald. 28th July, 2014.
What I do know is the cheapest retailers of Penfolds wines are the two chains with the real goliath being Dan Murphy. So if you wanted to buy six bottles of Penfolds and take advantage of this offer they are the only game in town.
I had my doubts if the Dans buyers saw this offer as much of an advantage and was not surprised to find that by August the reality was very different. They likely pointed out that the February release had not sold out and with another in October; recall Mr. Clarke believes that an October release is more sensible-meaning two in the first year of change; that use of heavy artillery was needed.
Dans had been selling the Penfolds Bins for $34 and I last wrote about Penfolds in my article: The 2014 Release of the Penfolds Bins.
The sums work like this; they chopped $6.00 a bottle off the price for a saving of $36.00 lowering the price to $28 plus you get a free bottle of Penfolds RWT which had been selling for about $130.00. The secondary price of this would be high and if we say its worth at least $60 that takes another $10 off the Bins, pricing them under $20.
Now this is a good deal and it is called good old fashioned discounting but in this case most of the pain would have flowed back to TWE as why should Dans take a margin hit. The checkout ladies at Dans reported record sales.
By late August this basic, bog standard, discounting had spread with Grays On Line selling Penfolds Bin 28 for $24.99. Not as good a deal as Dan's offered but neat and clean with a simple $10 off the price of a month earlier.
After the release of Treasury financials we were told this: "At the end of the latest financial year Treasury had total inventories (at cost) of $1.23 billion, slightly up on the previous year's $1.16bn. About 90 per cent of those inventories are masstige and luxury wines: 42 per cent, or $517m, are luxury wines and about 42 per cent ($525m) of the total inventories are classified as 'non-current'". Stephen Bartholomeusz, Australian, Business Spectator, 21st August, 2014.
This large horde of premium red wine, most destined to be Penfolds, was built up by the previous CEO Mr Dearie. Some see it as a future pot of gold but whatever the outcome it was a bold gamble.
And consider this; we do not know the global size of the warm climate shiraz market. The Treasury method of selling premium and prestige wines is in its infancy while rivals such as those selling the cooler climate reds of Bordeaux use very different methods well removed from the grips of chain supermarkets and local auction houses.
What if Treasury cannot sell its pile of reds at luxury prices?
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