The Ten-Dollar Rosé from a Billion-Dollar Deal

What happens when a premium acquisition meets a brutal oversupply.

It’s a windfall for consumers. Row after row of rosé that’s priced to clear — more than 50% off.

But in wine, deep discounts are more than a great bargain. They’re a sign of trouble moving through the supply chain, especially when applied to a brand name like DAOU.

Premium on the cheap

It’s probably not how Treasury Wine Estates envisioned its $900 million DAOU purchase paying off — its $22 tasting room rosé on sale at a high-end grocer in Dallas, just two years later.

But that was the case last week, when the wine, from both the 2022 and 2023 vintages, was on sale for $9.95 at most of the Central Market’s stores in the Dallas, Austin, and San Antonio areas. The specialty retailer, owned by US supermarket powerhouse H-E-B, is often described as a Texas-centric version of Whole Foods.

It’s a good place for a wine to be seen. Just not in a bargain bin.

“Wow, that pricing is pretty damning,” says Sonoma wine marketer Paul Tincknell. “Certainly, though, cutting prices that much indicates a dead sector."

Margins in freefall

A couple of Californian winemakers noted, off the record, that the cost of goods is potentially around $6.50 a bottle (they asked not to be identified given the sensitive nature of the discussion).

Their pricing takes into account the cost of grapes, the heavy, more expensive bottle, and the silk-screened label. In this best case scenario, their estimates priced the wine at $48 a case FOB for Treasury, $24 a case going to the wholesaler, and the retailer earning $50 a case. The winner in all of this is Central Market, said a Sonoma winemaker: “I’m sure they’re loving it!”

The worst case scenario could be a loss of a dollar or more per bottle, said another winemaker, even before taking into account winery overheads like staff salaries, utilities, insurance, and the like, as well as the cost of storing the older vintages. “The only guys making any money on this are probably the retailers,” he said. “The grower, given the depressed grape market, probably took it in the shorts, too.”

The glut continues

Treasury was undoubtedly optimistic when it bought DAOU in October 2023, paying $900 million in cash and a possible “earn-out of up to $100 million”. The company called the deal “transformative,” and expected it to “connect with a new generation of wine lovers, combining tradition with innovation, culture-led experiences, and global distribution."

But Treasury’s timing couldn’t have been much worse, and the deep discount speaks to the continued wine glut in the US which is now entering its fourth California harvest. The bulk grape and wine markets are so depressed, in fact, that this month’s Ciatti report doesn’t mince words:

“With the bulk wine and grape markets stubbornly sluggish, and a number of vineyards and crush facilities mothballed, the Californian wine industry this year enters the normally bustling harvest season eerily quiet.”

As the rosé discounting amply demonstrates, this is probably not the transformation Treasury expected.

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You Need This In Your Tasting Room

I saw this is in Australia when I was there recently. It’s called the Stay Tasteful initiative from the Australian charity Drinkwise. Basically, it’s a scratch card that lets you scratch off how many standard drinks you’ve had when wine touring or tasting, so you can keep track.

(In Australia, a standard pour is 15ml, and 6 x 15mls = one standard drink.)

I’m sure they’d be thrilled if it was adopted overseas. There’s a huge need — I was very surprised to be touring whiskey distilleries in Virginia last October, only to find the serves were generous and there were often no spittoons.

Celebrities Who Changed the Drinks Industry and Those Who Failed

The latest A Question of Drinks episode dropped today! This is the bi-weekly Freakonomics-style podcast I do with the wonderful Lulie Halstead.

Today, we’re going deep into the strange, lucrative, and occasionally disastrous world of celebrity wine and spirits. From George Clooney’s billion-dollar tequila to Trump Vodka, and then to how a Bud Light endorsement tanked the brand, we look at who gets it right, who blows it, and why.

More importantly, we tackle the question of whether celebrity drinks grow their categories — or cannibalise them.

Check it out! You can find the latest episode on Spotify, Apple or Amazon.

Then pop over and read the A Question of Drinks newsletter.

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