When consumers hear the term private-label wines, they may envision Trader Joe’s Two-Buck Chuck or Costco’s Kirkland Signature brand, which includes Chiantis and Malbecs that retail for $6. But what they may not realize is that the private-label market has grown beyond the bottom shelf. Premium private-label wines are popping up at Costco and even Whole Foods for as much as $24.
Private-label wines—traditionally, brands created for a company (often a retailer or restaurant), which sell exclusively via one sales channel—are no longer, by definition, plonk. (Though plenty of volume-driven, inexpensive wine still exists.) These days, restaurants from Shake Shack to The French Laundry, as well as brands like Whole Foods and Grand Hyatt hotels, are getting into the private-label game, partnering with respected wineries like Frog’s Leap (in the case of Shake Shack) and Michael Mondavi’s Folio Fine Wine Partners (for Grand Hyatt’s Canvas line) to make wines that are exclusively available to their customers. Some of these wines are easily identifiable “linked” brands, such as Costco’s Kirkland, Sam’s Club’s Member’s Mark, and Trader Joe’s eponymous label. Others are less obviously aligned with their owners, including Whole Foods’ Wine Farmer or Kroger’s Acronym, which many consumers may not realize are private-label brands. What all private-label wines chiefly have in common is that the retailer, hotel chain, or restaurant often has a hand in forming the flavor profile and style of the wine and that the resulting wines are priced lower than similar wines from recognized wineries.
The profile of these wines has risen to such a degree that the Wall Street Journal’s wine columnist, Lettie Teague, recently devoted a column to the category. She singled out three Costco wines, including the 2015 Rutherford Napa Valley Meritage ($14), which she called a remarkable value. She also liked the 2016 Member’s Mark Mosel Riesling ($10.50) at Sam’s Club.
“Everybody has the same goal: to buy good wine for cheap,” says Andrew Cullen, founder of the CostcoWineBlog.com, which publishes independent reviews of the retailer’s private-label wines.
And every retailer has the same goal: to make more money.
The Business of Private Labels
Private-label wines are big business—and are likely to keep getting bigger. According to some estimates, retailers’ margins on private-label wines are as much as double those of branded wines. This may explain why so many entities—not just big-box retailers—are entering the fray. In recent years, seeing a lucrative area of growth with higher-than-usual margins, restaurants, importers, wine retailers, and even hotel chains have launched their own private-label wines. Last week, Target launched its second private-label wine: California Roots, a $5 bottled wine that comes in five blends. Wine Club, Target’s popular boxed wine, came out in 2003. That same year, Costco launched its Kirkland Signature wine. Today, Costco sells roughly 17 different wines, selling from $6 to $24. Costco global wine sales reached $1.8 billion for fiscal year 2016, according to a company spokesperson. And private-label wines account for 15 percent of the retailer’s sales, says lead wine buyer Annette Alvarez-Peters in this interview for MarketWatch. This suggests that Costco’s private-label wines sales were roughly $270 million for fiscal year 2016. Most retailers tightly guard their sales figures for private-label wines, not to mention their producer-partners’ identities. (Aldi, Target, and Trader Joe’s all declined to comment for this story.)
Oren Lewin is the senior vice president of marketing and strategy at WX Brands, a global supplier of private-label wines, beers, and spirits. He estimates that the private-label wine market in the U.S. has doubled since 2012, now making up 8 percent to 10 percent of domestic sales. But it has plenty of room for growth: Lewin says the private-label sector is approaching 30 percent in the U.K., and Brian Sharoff, the president of the Private Label Manufacturers Association, says it has reached 50 percent in some European markets.
Since the category “private label” also includes what insiders like Lewin call de-linked brands—brands that consumers don’t know are private labels—the sector is difficult to quantify. “Many of the labels that are exclusive to retailers aren’t coded that way,” explains Lewin. Examples of “de-linked” private-label wines are Acronym and Parker Estates (both sold only at Kroger stores), and Animist, Criterion, Wine Farmer, and Songbird Cellars (four of Whole Foods’ private labels). Furthermore, some retailers don’t report all of their exclusive private-label sales data to Nielsen, which tracks U.S. wine sales. Danny Brager, Nielsen’s senior vice president for beverage alcohol practice, says he’s not confident about the overall size of the private-label segment of the wine category quite yet. “We’re actually trying to gather further input from various suppliers so that we can do a more comprehensive job in measuring this segment,” he said via email, “but we’re not there yet.”
Higher-than-average margins is one reason retailers have ratcheted up their private-label offerings. But having an identifiable private label (like Kirkland Signature) also allows a company to charge whatever it can. “A national brand [a brand that is available for purchase at many retail outlets] forces retailers to be more competitive on their pricing,” explains Lewin. “With a private-label product, no one else carries it. There is no competitive pricing,” which increases the overall profitability of the category.
WX Brands, which was founded in 1999 as WineryExchange, made the original Kirkland wine for Costco. Today, WX has nine full-time winemakers on staff: six in California, two in Europe, and one in New Zealand. The company has its own bottling facility in Sonoma County, but it also makes wine at wineries around the world. Big-box wine buyers often get involved in making these private-label wines, says Lewin. And they have varying degrees of sophistication and expertise. “At one of our retailers, the buyer is a master sommelier,” Lewin says. Last year, WX Brands sent him 150 samples to taste.
What’s in It for Winemakers?
Why do winemakers sell their wine under a private label? First, big-box retailers ensure them a built-in clientele and the kind of volume they might never achieve under their own branded label. Second, because the winemaker doesn’t have to engage in marketing and promotion, margins will be higher, even if the price point is lower. Producing a private label for a retailer may also be a smart way to start a lucrative long-term business relationship. “Retailers don’t see it as an advantage to have your brand, which could be somewhere else,” said Paco Pulido, the export manager of Bodegas San Valero in Carineña, Spain. “Sometimes it’s easier to start doing business with them that way—by offering a private label.” Pulido, whose team of winemakers in Spain produce over 2.5 million cases of wine a year, says some chains have approached him, looking for a particular price point or country of origin. In the U.S., 90 percent of the wine he sells is some version of private label, leaving only 10 percent sold under his Bodegas San Valero name.
Collaborating with a retailer on a private-label wine can also be a good way to move wine if you have an overabundance of a certain vintage. That was the case for John Grochau, the winemaker at Grochau Cellars in Amity, Oregon. Grochau partnered with Northwest grocery chain New Seasons Market last year on a Pinot Noir called Overjoy. “2014 and 2015 were amazingly enormous crop years,” Grochau told me. “We were long on supply.” When New Seasons reached out, via Grochau’s distributor, Casa Bruno, Grochau saw an opportunity.
Partnering with New Seasons on the company’s in-house label allowed Grochau to move inventory quickly, freeing up precious real estate in the cellar—and in the warehouse. Grochau, who sourced from five organically farmed Oregon vineyards for Overjoy, invited New Seasons’ wine stewards to help him come up with the Pinot Noir blend. “It was good educationally—they could see how 5 percent added to a blend can really make a difference to the wine,” Grochau says. He sold 700 cases of the resulting blend to the grocery chain. The bottles, which retailed for $16, have already sold out, but despite that, the wine wasn’t a huge moneymaker for Grochau. “I’m not losing money,” he says, but because his name is on the front of the bottle, he hopes Overjoy will help build his brand notoriety in the long run.
The Trouble with Transparency
New Seasons is unusual in that it names the producer on the front of the label. (This is true of its entire Partner Brand line, which features a variety of products, including pasta and peanut butter.) “We pride ourselves on the relationships we have with farmers, winemakers, and others,” says Hilary McCown, New Seasons’ wine, beer, and spirits buyer. “Putting the name of the winemaker on the label is a way to showcase that there are people behind this wine—it’s not just a factory.” The first vintage of Overjoy, released three years ago, was made by Ayres Vineyard. In 2015, the wine was made by another family-run Oregon winemaker: Apolloni. McCown says that the company’s typical margins on branded wines are in the 28 to 35 percent range; Overjoy is just few percentage points higher.
Whole Foods is a little less transparent with its Wine Farmer line, but the curious consumer who flips the bottle over will see, in fine print, that Owen Roe is the winemaker. The Wine Farmer Pinot Noir retails for $24.99, the Chardonnay for $19.99, and the rosé for $17.99. All three are available exclusively at Whole Foods. Some Kirkland Signature wines also list the winemaker on the back of the bottle. For example, the Rutherford Napa Valley Meritage that Lettie Teague reviewed for her column names Marco DiGiulio (the wine director at Sonoma’s Vintage Wine Estates) and Glenn Hugo (the winemaker at Gerard Winery in Napa) as the winemakers. And Hyatt Hotels & Resorts has always been up front about the fact that its private-label brand, Canvas, is made by Michael Mondavi’s Folio Wine Partners in Napa.
But transparency varies from retailer to retailer. Total Wine & More, the independent wine retailer, sells at least 2,000 wines not available elsewhere, but most labels don’t say Total Wine Source.
WX Brands makes 30 brands for Kroger (City Markets, Fred Meyer, QFC, and others), one of which is Acronym, a California red blend that retails for around $21. The company also currently makes 10 varietals under the Criterion label for Whole Foods. Though WX lists these private-label brands on its website, it’s not clear on the bottles’ labels that these are the exclusive brands of Kroger and Whole Foods, respectively.
The reason for this secrecy? WX Brands’ Lewin says it’s most likely because retailers don’t want consumers to know they’re buying a private-label brand. “The shopper who buys wine, I think, really wants to believe that every wine on the shelf is still being made by hand, by a family who lives in a little house on a vineyard,” Lewin told me. “If they think that these wines are simply made by some large corporation or by the retailer, they’re not going to value them as much.”