Why Trader Joe’s would be different from Costco would be different from Safeway

I wrote about my desire to see the prohibition in Colorado on food stores selling wine eliminated. This would take an act of the Colorado General Assembly which to date has not seen fit to do so, but I continue to hope. When I wrote earlier about this in relation to the opening of Trader Joe’s, I noted that I did not believe (and statistics back me up) that this would result in the wholesale destruction of independent liquor stores. I also had people question what the actual market would look like.

Well, let’s talk about that. The assumption (false, I believe) is that the wine shelves in a quality liquor store would look like the shelves in Trader Joe’s, Costco and Safeway (or other food retailer choosing to sell wine) in terms of content, selection, variety, etc.

If that is a false assumption, why and how will they be different?

To begin with, a large liquor store will carry a much larger volume of wine with more selection and variety than any of their food store competitors. This is due in part because of the branding done by wine companies. The theory is, because there is such a proliferation of wines and the wines from each country are branded somewhat differently, it is confusing to the US consumer. That consumer wants to find a reliable indicator of value or quality. That is why the French so zealously guard the appellation and the use of trademark Chateau, or designation and attempt to brand it in the consumers mind. The same is true of US winemakers as well as the other countries. They invest in branding so that when the consumer is standing before the wine shelf, a reliable brand will attract their attention and their purchase. U.S. model is built around brands owned by wine companies. Winemakers big and small seek to establish a brand or reputation that will help them sell their wines to consumers who need a trustworthy indicator of value and/or quality. Building reputation is complex and brands are part of the process, but not the whole story, of course. Americans typically look to brands for quality/value information when shopping in general and so it is natural that wine brands are so important here. Because there are lots of market segments for wine and many competing brands within each segment, liquor stores, stock a lot of wine.

This same issue confronts Safeway or King Soopers but to a lesser degree because they are not trying to be all things to all people. Their consumer is looking for reliability but they are also looking for the convenience of combining their food shopping with their wine shopping.

So, Safeway or King Soopers will replicate the variety and selection for the liquor store but on a much smaller scale. You will be able to find a reasonably good selection of wines from the major wine regions of the world: the US, New Zealand and Australia, Chile, France, Germany, Italy, etc. You will be able to purchase a $5 or $6 dollar bottle of wine as well as a $30. When you purchase your New York Strip steak, you will be able to buy a reasonably good Cabernet Sauvignon that fits your budget. What you won’t find is a Chateau Margaux or Lafite Rothschild.
Then, why are Trader Joe’s and Costco different from this model and each other?
The three largest wine markets in the world are the US, Great Britain and Germany, but they are each different and have their own model.

US liquor stores and the Safeways and King Soopers are representative of the US model; Trader Joe’s is a product of its ownership and thus is representative of the German Model and Costco is representative of the British model.

Trader Joe’s is owned by Aldi which is a giant German discount retailer. It is all about price – low price. Germans love their wine but they want it cheap. Aldi does that. They use house brands, including their wine and price them very low. In some cases you can find Aldi wine at two Euros a bottle, though the wine might actually come in what looks like a juice container. Trader Joe’s $2 Buck Chuck fits this model though of course it comes in glass, at least currently. Joe’s does carry other branded wines but it makes its mark with the $2 Buck Chuck and other lower priced wines. Joe’s consumer knows what to expect from Chuck and is comfortable with the price and the expectation of value.

Costco too has a house brand, Kirkland. It also carries other non-house brands from around the world but the selection is much smaller than that of liquor stores or even Safeway. This is similar to what British food giants Tesco and Sainsbury do. The difference from the Trader Joe model is the quality and price point of the house brand. The consumer trusts the house brand for an indication of value and part of that is knowing that the wine is of a higher quality and more expensive. Kirkland Signature does not try to hide the actual wine maker. As I noted earlier, the Kirkland Champagne I purchased in Hawaii was clearly marked Taittinger on the back label.

The other difference with Costco? As with much of what it sells, the inventory changes from time to time depending on what is available. Whether it is the Kirkland wine brand or any of the other wines, what is stocked at any given time depends on what is available in the world market and what kind of deal Costco can make with the producer.

So, let’s let Colorado experience each of these models. And at any given time, I as a consumer will shop at any of them depending on my need at the time. I’m guessing most people will.