'Two Buck Chuck is Back!

As I walked into my favorite grocery store in Town & Country Village last week, I was welcomed by this wonderful in-store signage - 'Two Buck Chuck' is Back! And unlike the price increase to $2.99 in recent years that led to sales dropping, the wine is once again living up to its title. 

In class so far, almost all of our discussions about a particular winery's positioning have been around developing a perceived quality advantage vs. other wineries (through authenticity, quality of grapes, wine production process, or building a luxury brand). Given that context, I am extremely intrigued by the rise of private label wines in grocery chains and how it is SO cheap! So I did a little digging. 

Based on a quick web search, there are four reasons why Bronco Wines (the wine company that makes Two Buck Chuck) can make this best-selling product -

1. Cheap real estate costs in the San Joaquin Valley
2. Use of oak chips to ferment wine (as opposed to barrels)
3. Use of one of the cheapest form of natural cork
4. Economies of scale in production

In essence, Bronco Wines' competitive advantage is producing extremely cheap, high-quality "super value" wines - an abject rejection of the pretentiousness of Napa Valley. And while some oenophiles may refer to these wines as undrinkable or sugar water, there are others who find these wines (especially the Pinot Grigio or Merlot) just right for their needs. 

And it's not just Trader Joe's - all the major grocery chains (Costco, Safeway, Target, Kroger's, etc.) have their own flourishing own private label wines. These wines are more profitable (50-55% gross margin per bottle vs. 30-35% for traditional branded wines) and attract value-seeking millennial wine drinkers, who are willing to experiment with private label wines. The changing distribution trends for wine in the US also has contributed to the growth of private label wines. With the consolidation of wine wholesalers from 20-25  to ~2-3 in each state, each wholesaler only works with the large wine conglomerates and focuses only on best sellers from popular regions - offering private label wines allows grocery chains to increase the level of diversity and choice for consumers. Based on these trends, the demand for private label wines in the US has doubled from 4-5% to 8-10% of all domestic sales in the past decade (and nearly account for 17% of total wine sales for big retail chains).

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Sources:

https://www.businessinsider.com/why-trader-joes-wine-is-so-cheap-2017-5

https://www.thepennyhoarder.com/save-money/trader-joes-wine-review/

https://ibwsshow.com/en/blog/private-label-wine-71/the-private-label-wine-market-in-the-usa-217.htm