Discount Kills Margin Wine Example

Always eager to find new vines from wine ‘experts’, here’s a graphic I caught from a BBC Food & Drink show rerun. Delightfully, this episode went on to highlight lesser-known Spanish reds.

Presenter and wine shop owner Kate Goodman sought to expand the famed Jancis Robinson lesson that if you spend around just a fiver on a bottle in a shop then you’re paying practically nothing for the content itself. Even if using a jug to decant you are urged to avoid such low-priced fayre. Legend Jancis currently recommends spending only in the range between £7 and £20.

Back to the graphic.

Let me start with a word on the image composition itself. If you do such comparisons – and they can be slide winners – then do not stymie your credibility as happens here. Get your proportions right. For instance, in percentage terms the pink slice for sales tax is the same for both; 20pc. Yet you clearly see the cheaper bottle has a larger chunk when it should be identical for each.

What about the margin piece. You’ll note that at 30 percentage of the total it is the same for both. How similar do their light brown sizes look to you?

Then take the bottom part. With duty a flat rate (two quid) for any and every bottle regardless of cost, for the one priced twice as much the graphical representation should be half as big. Yet its dark purple area isn’t. It’s actually roughly two-thirds. Statistically and visually, that’s quite the error.

Then on to the main takeaway. Discount shame.

Notice how when the price doubles, the maker’s share quintuples.

Imagine this in reverse. You halve your price. Your cut is slashed. Dramatically. Suicidally. To just a fifth.

The point is that what you often may be told/feel an inconsequential point or two off your price, in fact grows to be a massive slice out of your margin, out of your commission.

footnote: whilst writing this I noticed that one hundred of my blogposts up to this point feature the word ‘discount’… here’s the one at this time with most individual ‘views’;

Discount Impact On Profit Margin

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