Who has the power?

I was struck by two comments made by Christine Wente during our class on Thursday. First, she stated that she felt lucky they were above the fray and selling for more than $15/bottle. This seemed to suggest that the low-cost segment is very competitive, and most consumers are buying based on price as opposed to brand reputation or loyalty. Shortly thereafter she discussed how difficult it is for Wente to raise prices, and that they’re investing a lot in their wines and probably not charging enough.

These two statements seemed contradictory to me. As one of the oldest wineries in California, Wente is clearly established as a brand. If consumers view it as higher quality, and they’re willing to pay above the ~$15 low-cost threshold that Christine identified, why is it so difficult to incrementally raise prices?

As I reflected on this question I began wondering if:

1.     The middle market is becoming more competitive? It was suggested that most mid-size producers did not want to be acquired by large players, and many are family businesses. Are mid-size producers going to continue to expand as multiple generations become involved in the industry?

2.     The difficulty raising prices stems from the power held by consolidated distributors? It was mentioned that it was hard to get attention from distributors if you weren’t a large brand. If the majority of a winery’s sales are not direct to consumer, how much power do they have to dictate pricing?

3.     The demographics of their customers are changing? We discussed in our first class how boomers are the largest consumers, but their consumption is slowing. Could replacement consumers with lower disposable income be contributing to the problem?