How does Charles Shaw sell wine for just $2 and stay in business? That’s less than some bottled waters. Between the land, maintenance and utilities, harvesting, bottling, distribution, and general labor and overhead costs, Two Buck Chuck is an amazing triumph of economies of scale and modern capitalism. I was curious about this myself so decided to do a little research into the wine industry. Here’s what I learned.
“We make money. And Trader Joe’s, who’s our partner with the Charles Shaw label, does all right, also.” –Fred Franzia, CEO of Bronco Wine Co.
The Charles Shaw label is owned by Bronco Wine Co, the one of the largest wine producers in the country. The company owns a huge chunk of California; over 40,000 acres in total. With their massive high-speed wine-making facilities, they can produce up to 200,000 bottles per day under Charles Shaw and a handful of other budget labels.
Two Buck Chuck is made with inexpensive grapes from California’s Central Valley, where land costs $8000 an acre, compared with upwards of $200,000 an acre in Napa county. If the company is paying for the land over a 30-year period, it might cost them about $650 a year per acre in principal and interest.
The price of Central Valley grapes typically vary between $200-300 a ton. Let’s say $250 on average. (Think $3000 a ton for Napa grapes, on average.)
Although it varies quite a bit, let’s say an acre of vineyard land can produce 5 tons of grapes in a year. Just in terms of land-carrying-cost, that would be about $130 a ton.
As a general rule, the final bottle price of wine can be estimated at 1/100th the price of a ton of the grapes that went into it, so $2 is right on the money for a $200 ton.
A ton of grapes can yield approximately 60 cases (although it is possible Bronco uses some quick water-harvest-stomp methods to increase the juice yield per grape).
At 12 bottles per case, that brings us to $250 for 720 bottles, or less than $0.35 worth of grape juice a bottle!
Add in another $0.18 for the land-carrying-costs, and we’re up to $0.53 a bottle. Plenty of room to make money at $2 a bottle, but there are still lots of other costs incurred before the wine reaches the shelf at Trader Joe’s.
I found some interesting estimates related to the materials and overhead costs of running a wine business here:
- 7% – cost of grapes / growing ($0.14 per bottle at 7%… significantly less than my guess of $0.35)
- 9% – cost of winemaking ($0.18 per bottle)
- 4% – bottles, corks, boxes, labels ($0.08 per bottle)
- 2% – marketing. I think the $1.99 price is all the marketing they need.
- 13% – salesmen, distribution from the winery ($0.26 per bottle)
- 3% – administrative costs
- 2% – interest
- 4% – taxes to government
- 5% – actual winery profit ($0.10 per bottle)
- 20% – wholesaler markup – the people who get wines to wine shops. It sounds like Bronco deals directly with Trader Joe’s, so this may not be applicable.
- 31% – wine shop markup
Bronco sells 6 million cases of Charles Shaw a year, representing about 30% of their total unit sales. If they’re making only 5% like this this estimate shows (my guess would be 10% or more), the Two Buck Chuck business is worth $7.2 million a year in profit.
I’ll drink to that!