The Auswine Forum

Who are they trying to kid??

Penfolds continues to lose the plot

And even more of a laugh they think Bin 407 is worthy of that price too. wtf!! that is delusional!!

RRP is actually 74.99!
Check this out for more info:
http://www.tweglobal.com/wp-content/upl ... elease.pdf
I do not think it is worth that.

The Green supermarket chain ( the aussie owned one ) agrees with you.
Latest junk mail has 2009, Bin407 and 389 on sale 1st March for $49.99.
For all you Aussies groaning; Bin28, 128, and 138 at $24.99 each. And we're talking kiwi drachma's here.

cheers jafa.

I think I've bought my last 389. Heck I only paid $77 for a magnum of 2002.

Craig(NZ) wrote:Who are they trying to kid??

Penfolds continues to lose the plot

And even more of a laugh they think Bin 407 is worthy of that price too. wtf!! that is delusional!!

This happens every year and it's always the same story. Penfold's doesn't owe us anything, does it? Every time we've given the company money we've got something for it. If the market won't sustain these prices they will go down. If that's more than you want to pay, don't pay it - it's not like there aren't plenty of other options. Pretty simple really, yet every year there's a chorus of moaning. How exactly is Penfold's "losing the plot" by charging the highest level it thinks it can get for it's product? It seems that "lose the plot" here = "run its business".

Reminded of that wonderful catch phrase in "The Castle", "they're dreaming"......

The secondary market is a good guide to true value. Looking at Langtons recent vintages of Grange are selling for around $400 - $450, below their original selling price. Recent 389's are slightly below RRP. $70 for a Bin 389 leaves me looking at better wines at nearly half this price. The last 389 I bought was a 1998 magnum from Gavin for $100. Should be good in a few more years. Thanks Gavin!

Loztralia wrote:

Craig(NZ) wrote:Who are they trying to kid??

Penfolds continues to lose the plot

And even more of a laugh they think Bin 407 is worthy of that price too. wtf!! that is delusional!!

This happens every year and it's always the same story. Penfold's doesn't owe us anything, does it? Every time we've given the company money we've got something for it. If the market won't sustain these prices they will go down. If that's more than you want to pay, don't pay it - it's not like there aren't plenty of other options. Pretty simple really, yet every year there's a chorus of moaning. How exactly is Penfold's "losing the plot" by charging the highest level it thinks it can get for it's product? It seems that "lose the plot" here = "run its business".

Time will tell...If they're successful in creating the illusion of a premium by just raising the prices, definitely they're making the right choice and as you said, "losing the plot" would = running the business since they made the right choice. Of course if it ends up hurting them, they've done just that, lost the plot.

What I think works against them is, if you make a fantastic unique product...let's say like Grange...or Lafite...You can afford to charge a lot, you have one of the best and people recognize it as such..but if you're trying to make a relatively average product premium, in an industry where you actually have people tasting your wine...Doesn't seem to work right. There are just far too many other superior products, recognized superior products out there. And while you might be able to fool some consumers, do you really want to alienate people that drink a lot of wine? The people that know a little bit about wine? I can honestly say, I just don't see how this works out for them..Maybe in China it will...but the wine is what the wine is...Changing its price doesn't change that.

Do they think they can get 70, actually 75 for their product? Is that what the market seems to suggest? I always see this stuff below retail and rarely moving at retail. What ends up happening is retailers end up cutting their margins to move it. I think a lot of people also feel like it is just another Australian business sticking it to Australians..thinking they can charge whatever they want and Aussies will pay it...although in this case I think they're sticking it to the retailers more than anything....

I personally don't care...I don't buy Penfolds stuff because there are too many better options. Actually, I have bought some stuff at heavy heavy discounted pricing to what I can get it here for... I do think it is interesting to watch and of course I have my opinion on it...

It's all a bit underwhelming really. The disconnect between the TWE Mad Men and the Australian buying public seems to have hit galactic proportions. I bought 389s and 707s last year in the lemming like scramble to the price point bottom by Uncle Dans and 1st Choice with the 389 coming in at about $38. And that, give about $5, is what I'm prepared to pay for this line which is no more than a good Oz red competing in a crowded market of quality drinks. Brand attachment doesn't have the same appeal as it did say 20 years ago so if Penfolds reds drop off my buying plans then so be it. And good luck to TWE if they can move inventories at those prices. I'll raise a glass of Marius to their success.

Cheers, Peter

There are some wines that you know you will never pay the list price for and the 389 is a good example. TWE is trying to artificially trying to inflate the pricing, but it is a longer term strategy as they know they wont be able to sell it for that. I saw a similar example on Saturday with the Wynn's black label - $40 in the Safeway bottleshop - but very few people would pay anywhere near that for it!

Perhaps it's not just the evil machinations of TWE at work here?

I have noticed an ever-increasing disconnect between the notional RRP and the price at which it is available for purchase. Many wines listed at (aspirational) $18-20 RRP are available at $10-12. Is that so different from a notional RRP of $75 for a wine that will probably sell for closer to $45-50?

Just a thought...

Cheers

Michael

I'm sure you are right Michael. I've never considered TWE or any of their previous iterations to be evil. Lots of adjectives spring to mind, such as klutzy, bizarre, delusional, misguided etc. However, even a landed price of $45 is a bit of a stretch for a 389 from a less than specatacular year. There is a lot of quality out there in the $35 - $45 price range and, given it's my dollar they're after, I'll stay picky.

Cheers, Peter

Perhaps it is just a marketing ploy? Call me a cynic, but perhaps they never really intend to it to be sold at RRP. Then when it is "discounted" to $40 people will go wow...look...almost 50% off RRP. I should buy some.

Just a thought...

daver6 wrote:Perhaps it is just a marketing ploy? Call me a cynic, but perhaps they never really intend to it to be sold at RRP. Then when it is "discounted" to $40 people will go wow...look...almost 50% off RRP. I should buy some.

Just a thought...

Doesn't really fit with their desire to create a premium brand........suspect thats what will end up happening athough not by choice....

First year in over 20 that I wont be purchasing any Penfolds......even if discounted....

Golly, I am a bit nervous about wading into this one, but here we go:

Penfolds can set whatever price RRP they want...the more relevant price to consider is the cost they sell to various retailers (plus any rebates) as this (together with the retailers' strategy) will determine the sell price. It's up to the retailers to sell it at whatever they want. Then it's up to the customers to decide if the retailer price offers value for the perceived quality of the product. The price relationship is between the retailer and the customer (NOT the supplier, as they do not set retail prices).

I agree with Polymer that it's likely Penfolds are trying to drive their product more upmarket by increasing the price. I also echo almost everyone else in suggesting that this is a dangerous move, considering the quality and availability of comparable products. Usually a move up-market would go hand in hand with decreased supply to reduce the chance of massive retailer discounts to RRP, or unsold stock being left out in the market...however, I suspect this is not what Penfolds are doing.

What I do suspect they are doing is struggling on the profit line, due to the key export markets of the UK and USA suffering (due to the strength of the Aus $, changing customer tastes, or tricky retail conditions). Therefore they may be trying to improve the profitability in Australia by driving RRP's north (and probably the cost prices to the retailers) increasing their $ profitability, if not their % profitability. Again a dangerous move that requires some pretty strong customer loyalty.

I do, however, agree with the strategy of retaining stock for an "aged" release. The ability for people to buy wine with decent bottle age is worth a price premium.

For what it's worth I will not be buying Penfolds products this year (I have done so previously). Instead, I shall invest in some high quality, regional, well made Shiraz from Head Wines, Marius, Story Wines, Samuel's Gorge, Collector and Jamsheed. I will do that as I have changed my purchasing habits, and value different attributes than I did in previous years...and suspect I am not the only one. Maybe Penfold's biggest problem is the fact the market is changing, and they are becoming less relevant. If that is the case, trying to get higher prices is probably the wrong strategy...adapting their offering (such as the launch of the Bin150 last year) may be a better approach.

Simon 1980

Barney wrote:
First year in over 20 that I wont be purchasing any Penfolds......even if discounted....

My "Penfolds era" was 1969-2009 (calendar years, not vintages). I doubt I'll ever buy another Penfolds wine, there are too many good and better value alternatives.

Agree with Brian, end of the line for me too, not so much due to price (only bought on release specials anyway), mainly the style doesn't appeal as much as it used to. Never been really unhappy with their wine, just not as much interest nowdays. As others have said, so many more interesting varietal, individual and good value wines out there nowdays. Maybe for sentimentality, will grab a bottle of 389 if I can get on release special sub $40.

And I fully agree with Loztralia's earlier comment. Well said sir

I still see people popping into my local big shop and heading straight (or asking) for a $60 bottle of Bin 389 2006 for that 'gift' or special occasion. Got mine from same shop on last release for 37.50. Sigh.

I've accumulated a number of magnums of various vintages of 389 , and they're looking more and more like a good investment. They'll be opened by me in years to come. I just hope I can keep picking up better vintages for around the $100 mark or less. I won't stump up $70 for a 750mL, though, unless it's wine of the millennia.
Shiraz and Cabernet blended, though, are a good thing when done well. Who knows if the 389 will or won't be worth it in years to come?

Not sure what the price will be here in the US for 389, but I stopped buying St Henri once it hit more than $50/bottle and that was just a few years ago because we had much lower prices over here for years. It was almost as if Penfolds were dumping the wines into the US market but these days I see fewer and fewer of their wines; except for Rawson's Retreat which is always at Trader Joe's (the guys who sell $2 Chuck). At the current prices I won't be buying any more Penfolds. For the same $$$ you can get much better wines from many other Aussie makers as well as many other countries.

Mike

This happens every year and it's always the same story. Penfold's doesn't owe us anything, does it? Every time we've given the company money we've got something for it. If the market won't sustain these prices they will go down. If that's more than you want to pay, don't pay it - it's not like there aren't plenty of other options. Pretty simple really, yet every year there's a chorus of moaning. How exactly is Penfold's "losing the plot" by charging the highest level it thinks it can get for it's product? It seems that "lose the plot" here = "run its business".

Sounds like an argument put forward by aomeone that stopped reading after a 1960's economics 101 text book. Business and life just isn't that simple. Why do businesses spend millions on advertising, sponsorship, corporate entertainment, corporate affairs management, PR and the like? Because relationships count, because image counts, and because public opinion counts. Pricing is one of many ways a business can display stinking sickening corporate arrogance which revolt consumers. Need I give examples of when consumer backlash has injured a company and bottom line?

Here in British Columbia, Canada, I have just been told that the Bin 407, which up until the 2007 vintage has sold for about $40 will change in May 2012 (with the 2008 vintage) to $60!

There is no discounting allowed in BC, as private retailers have to sell at least at minimum price set by the province. I haven't bought any Penfold's wines for at least 3 years beause of the lousy QPRs provided (and, frankly, because I think the quality of the wines has really suffered in the last 5-7 years or so), and at the new price, there's no way I will buy. Who increases prices like that (50%) at a time when the economic climate is so dire? St Henri became $65 (from $50)about two years ago, and they haven't moved much of it since the price increase.

I guess they are happy to sell less wine for more money? Doesn't sound like a sustainable plan to me. It seems they are trying to out-LVMH LVMH, to create the luxury brand concept for Penfolds.

Last st Henri I purchased was 2004 at $60 at a supermarket clearance. Was in one of those packs with a free rewards of patience. Also bought 2001 which I got for $50, 1998 which cost me $45 and the surprisingly good 1993 which I snapped up years ago for $21 hehe

Craig(NZ) wrote:

This happens every year and it's always the same story. Penfold's doesn't owe us anything, does it? Every time we've given the company money we've got something for it. If the market won't sustain these prices they will go down. If that's more than you want to pay, don't pay it - it's not like there aren't plenty of other options. Pretty simple really, yet every year there's a chorus of moaning. How exactly is Penfold's "losing the plot" by charging the highest level it thinks it can get for it's product? It seems that "lose the plot" here = "run its business".

Sounds like an argument put forward by aomeone that stopped reading after a 1960's economics 101 text book. Business and life just isn't that simple. Why do businesses spend millions on advertising, sponsorship, corporate entertainment, corporate affairs management, PR and the like? Because relationships count, because image counts, and because public opinion counts. Pricing is one of many ways a business can display stinking sickening corporate arrogance which revolt consumers. Need I give examples of when consumer backlash has injured a company and bottom line?

Well yes, except there's no evidence that's happening. Here's my guess: the large majority of people who buy Penfold's bins are fundamentally wine ignorant and do so because they are premium products where "you can't go wrong". These are the people who will pay $70 a bottle. Next are loyalists/completists who might not like the headline price and might seek the best available discount, but will buy anyway. Next come people who will only buy when they see a really good discount and believe it's a really good wine this year. Finally come the people who say the whole thing is too expensive and don't buy at all.

The trick for a business is to maximise the price the non-discriminatory audience will pay without losing too many of the lesser categories and being able to clear stock at the highest mean price. That's why they discount for very early or very late buyers. Now this may shock you but I have an economics degree (well actually philosophy, politics and economic but what's triple honours between internet insults?), so I can exclusively reveal that this is called "price discrimination". It's what airlines do, for instance. Do you look up the cost of a flight from Auckland to Sydney leaving tomorrow and claim Air New Zealand have "lost the plot" because it's twice what you paid last time? No, you call yourself an idiot for not booking earlier. You know Penfold's bins are going to be discounted, yet you still complain about a headline price you are never going to pay.

Well yes, except there's no evidence that's happening. Here's my guess: the large majority of people who buy Penfold's bins are fundamentally wine ignorant and do so because they are premium products where "you can't go wrong". These are the people who will pay $70 a bottle. Next are loyalists/completists who might not like the headline price and might seek the best available discount, but will buy anyway. Next come people who will only buy when they see a really good discount and believe it's a really good wine this year. Finally come the people who say the whole thing is too expensive and don't buy at all.

The trick for a business is to maximise the price the non-discriminatory audience will pay without losing too many of the lesser categories and being able to clear stock at the highest mean price. That's why they discount for very early or very late buyers. Now this may shock you but I have an economics degree (well actually philosophy, politics and economic but what's triple honours between internet insults?), so I can exclusively reveal that this is called "price discrimination". It's what airlines do, for instance. Do you look up the cost of a flight from Auckland to Sydney leaving tomorrow and claim Air New Zealand have "lost the plot" because it's twice what you paid last time? No, you call yourself an idiot for not booking earlier. You know Penfold's bins are going to be discounted, yet you still complain about a headline price you are never going to pay.

Plenty of evidence it happens I can assure you but I don't want to argue about it. I can only imagine how much pressure it would be to win an argument as a triple honours student. You could lose sleep with all the counter arguments running through your head. Personally I have had only seven years experience leading price rise processes it myself and analysing its results another similar corporate. But that is only the real world, nothing quite as good as the classroom. Ok theres the jab but nothing personal ok...im ducking for cover. Now for my diplomatic side....

Wine does however have the advantage (or disadvantage) that supply is limited and really if you sell out a vintage before the next one is released you could argue you are too cheap? It also has a reasonably long shelf life so lots of time to assess and react.

I like your discounting on the way in and out comments. Makes a lot of sense. And yes a good comparison made to airlines. Headline price is also used for other purposes to do with Trade Marketing especially to supermarkets. Dear Mr woolies, yes price has gone up to $70 but I tell you what we will promote with you and fund you down to $50, you will be heros". We will pay you $20k also to put a big 1 page glossy ad in your mailer too. Then we will just write you out a rebate cheque for $20* bottles scanned over 2 weeks from launch. Again it wont impress mr and mrs corner wine shop owner but "makes sense"

However, back to the essense of forums, it is fair enough for us to rant about not getting our favourite wines as cheaply as we once did. As you have noted, happens every year and will continue to. Can't let these shareholders get too fat and make it too comfy for them Or maybe I should just buy shares?

Loztralia wrote:Well yes, except there's no evidence that's happening. Here's my guess: the large majority of people who buy Penfold's bins are fundamentally wine ignorant and do so because they are premium products where "you can't go wrong". These are the people who will pay $70 a bottle. Next are loyalists/completists who might not like the headline price and might seek the best available discount, but will buy anyway. Next come people who will only buy when they see a really good discount and believe it's a really good wine this year. Finally come the people who say the whole thing is too expensive and don't buy at all.

The trick for a business is to maximise the price the non-discriminatory audience will pay without losing too many of the lesser categories and being able to clear stock at the highest mean price. That's why they discount for very early or very late buyers. Now this may shock you but I have an economics degree (well actually philosophy, politics and economic but what's triple honours between internet insults?), so I can exclusively reveal that this is called "price discrimination". It's what airlines do, for instance. Do you look up the cost of a flight from Auckland to Sydney leaving tomorrow and claim Air New Zealand have "lost the plot" because it's twice what you paid last time? No, you call yourself an idiot for not booking earlier. You know Penfold's bins are going to be discounted, yet you still complain about a headline price you are never going to pay.

Except you're looking at it from a very narrow point of view and I'm not sure where you get there is no evidence...we just have to look at their financials..

Yes there are rich people that won't care..but these same rich people were buying 389 before when it was 30? Probably not...
There are plenty of people that would like to buy at a discount..but that only goes so far. If the RRP was 100 and the discounted amount was 70, are they still buying? no..there is still a quantity demanded based on the price they can buy it for and with the RRP going up, the actual street price is still increasing..it isn't just a number. You also have to consider at that a certain price point, people might even ask the bottle shop owner what they suggest. Now, unless Penfolds is giving them a much bigger discount on RRP so when they discount it, their margins are still good, places aren't going to push the 389...Not when they can get customer loyalty by suggesting any number of other much better wines for less money...and they still retain their margins.

You haven't even considered internationally where the 389 does NOT have the same reputation. Its floundering in the US, even at $35. This used to be a 20 or sub 20 dollar wine..why would people pay 35? Or 50 in some cases? they don't. Will they pay 5 dollars more now? Hardly...

Or countries like Canada where the price is hard set by the government..or states in the US where the bottle shops are state owned..those prices are all set and not discountable... Or consider Europe where they have far more general knowledge about wine. At 30 EUR are they going to buy a 389? What for? The answer to that is simply no. Or the people in the UK who aren't buying it anymore either..and certainly won't with a price increase. None of these markets have rich people or loyalists that will pay for a premium for a 389 because for them, it's cheap wine from Australia.

This strategy might work out for them but it doesn't look like it is so far...Look at TWE Financials. Not exactly thrilling.. Now, it could be all of their other brands that are doing poorly....After several big writedowns they're finally in the black...The projections for them aren't exactly thrilling either....This isn't to say their pricing is a result of the lower market cap or performance...but TWE was worth several times what it is worth now...and all when they were pricing their stuff realistically. It could be they're desperate...It could be they're risking things and trying to go upmarket because they have no choice...but if anything, from what I've read, their costs of grapes has actually dropped and they've been forcing suppliers to sell them stuff at far less than they were before...and instead of sticking to what is working they're trying something that most market places are laughing at...I'm not sure that is a great strategy. At least if they were to raise the price of Grange, they're doing so on what is a relatively unique product. They're doing so on a product that really only rich people buy anyways so 50 or 100 more is nothing...But I don't think they've done the right market research..and there seems to be no indication that is the case...As someone already said, you can not develop and maintain a premium brand by raising the RRP and then see it heavily discounted...

Craig(NZ) wrote:Who are they trying to kid??

Penfolds continues to lose the plot

And even more of a laugh they think Bin 407 is worthy of that price too. wtf!! that is delusional!!

The last time I bought Bin 389 was in March 2001 at $27 pb (1998 vintage) from a bottle shop at North Sydney. At that time I bought 10 boxes and am still enjoying my last dozen.

I have stopped buying all Penfolds wine since 2001 because there are many better options.

Alan

This strategy might work out for them but it doesn't look like it is so far...Look at TWE Financials. Not exactly thrilling.. Now, it could be all of their other brands that are doing poorly....After several big writedowns they're finally in the black...The projections for them aren't exactly thrilling either....This isn't to say their pricing is a result of the lower market cap or performance...but TWE was worth several times what it is worth now...and all when they were pricing their stuff realistically. It could be they're desperate...It could be they're risking things and trying to go upmarket because they have no choice...but if anything, from what I've read, their costs of grapes has actually dropped and they've been forcing suppliers to sell them stuff at far less than they were before...and instead of sticking to what is working they're trying something that most market places are laughing at...I'm not sure that is a great strategy. At least if they were to raise the price of Grange, they're doing so on what is a relatively unique product. They're doing so on a product that really only rich people buy anyways so 50 or 100 more is nothing...But I don't think they've done the right market research..and there seems to be no indication that is the case...As someone already said, you can not develop and maintain a premium brand by raising the RRP and then see it heavily discounted...

Let me be completely cynical and by being so get pretty close to the truth. Penfolds "strategy" will be closely aligned to KPI's required to hit bonuses for their senior leadership team. As simple as that.

Maybe it is just a reaction to the "big 2" retailers discounting last year. Tomorrow's possible discount base "how low can you go" may be the 2nd tranche benchmark price.
The other thought is with the big boys opening more stores there is a larger up-front buy and TWE can offer a bigger discount to them based on an inflated theoretical RRP.
TWE can then rightly say "we sold all of the 1st tranche at the new costings" and collect bonuses for a job well done.
Come the 2nd tranche it may be a harder flog as the 1st tranche may still be on the shelves.
Fosters/Rosemount got into trouble for their forward loading of shops and booking these as "sales" to the shareholders. They were brought back to earth when deep discounting had to occur to clear the stock.

Will be interesting to watch.
Cheers Phill

Craig(NZ) wrote:Let me be completely cynical and by being so get pretty close to the truth. Penfolds "strategy" will be closely aligned to KPI's required to hit bonuses for their senior leadership team. As simple as that.

This is sheer gold. Gospel truth.

Management first, shareholders second!!! (not sure where customers come)

Cheers

Michael

PS Overall, nice contest of ideas guys! Enough of the petty and personal to spice things up without the faces two centimetres apart screamin'. And sprinkled with cogent arguments. I think I rate it about a 93, but I reckon Halliday would rate it a 96.

Increasing the price is a deliberate brand positioning to reinforce the brand as a "luxury" item, playing on price insensitive consumers and rising demand from markets like China where "prestige" is the all-important factor.

In terms of the discounting post release, I would imagine the bulk of this is being funded by the supermarket chains and not by TWE and in my experience it never lasts that long anyway and then you have no choice but to pay the going rate.

In terms of management KPIs at TWE you can look in the Annual Report and see they are primarily financially based on EBITS level profitability with additional targets based on strategic measures, process measures and people measures. The previous years EBITS (not note sales) must be achieved for top mgmt to get paid their STI/LTI's - so no point raising the price if you think volumes will drop by more than the price increase.

You can also bet your bottom dollar they spent a lot of their bottom (marketing) dollars on focus groups and market research to show them that 1) everyone knew Penfolds; and 2) no one knows how much wine should cost.

A little problem for those of us who do know what wine should cost, but provided it doesn't backfire and they can sell the same or higher volume at a higher avg price, then it will be happy managers (bonus time), happy shareholders (profit time) and apparently happy consumers given they got the wine they wanted and after all they always have the final choice.

To Buy or Not Buy, That is the Question.