On the margin: Why that bottle of wine costs RMB400

By Campbell Thompson

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Let’s say you dine in a five-star hotel in China, decide to order a bottle of wine, and spot one on the menu for RMB 400.

How did the wine get listed at that price?

There are three key factors at work.

First, the combined import duty, value-added tax and consumption tax for imported wine works out at about 48 percent of landed cost. In other words, in order to get its RMB 100 wine into the country, the importer ends up plunking down RMB 148. That’s fairly high by world standards, though some other Asian markets, such as India, Thailand and South Korea, have higher duties.

Second, there is the importer’s margin. This may range from 30 percent to 60 percent in China (acquiring accurate information from importers is difficult). This margin needs to cover the company’s overhead and, to be sure, selling wine in China is expensive given the size of the country, relatively high distribution costs, and considerable effort required for wine education and promotion, among other things. Many importers bring in relatively small volumes of each wine. This makes it more expensive per unit and is another factor in determining price.

Third, there is the margin of retailers or hotels and restaurants. Some retailers, such as Carrefour and Wal-Mart, are famous for their low prices, but do pass on expenses such as promotional fees to importers, thus the price paid by the consumer for a particular wine may be higher in China than in other countries.

Then there are high-end hotels and restaurants. They often use excessive markups on beverages, including wine, to help make up for food revenue that usually barely covers costs. It’s not unusual to find a markup on wine of between 250 percent to 350 percent.

Here’s an example of how the process might work:
– The importer pays RMB 65 per bottle for a particular wine
– After duties and taxes, the cost to the importer is RMB 96
– The importer’s margin adds 45 percent, thus increasing to price for a hotel or restaurant to RMB 139
– The hotel or restaurant marks up the wine 300 percent, and thus take the price just over RMB 400

In many cases, this RMB 400 wine could be gotten less expensively in other places around the world – and especially in the country it was produced in. In my next post I’ll elaborate on how restaurants can reduce their markups, sell more wine and boost their revenue.

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4 Comments

  1. Thanks for the info Campbell. That’s a great breakdown and very welcome information. I guess what frustrates me is that decent affordable wines, things like a half decent Vinho Verde, tend to be passed over…. but I guess that if you’re selling to what is domestically a somewhat luxury market the profit margins do not therein lie… or am I mistaken in thinking this?

  2. Campbell,

    thanks for an erudite explanation. Now for an explanation as to some wine shops charge as if they were 5 star hotels….

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