Why you should not buy that $20 wine in Singapore

It’s been my ongoing mantra to friends and customers that one should never be a price snob when it comes to wine enjoyment. So it may come across as contradictory that in this Lifestyle Tips and Suggestions blog, I am advocating against buying wines below a price point.

Before explaining why I am suggesting this, please note that I am writing with reference to buying wines in Singapore. This principle may hold true in other parts of the world that share the same tax regime and operating conditions as Singapore. 

To understand why $20 is the benchmark price tag below which I tend to avoid, we need to know the following context.

Alcohol Tax Regime
In Singapore, alcohol duty is levied based on alcohol volume at S$88 per litre (as at the date of this article). This rate is a constant regardless of the underlying value of the wine. So, a Chateau Mouton 2018 (retailing: $1400) at 14% alcohol by volume is taxed exactly the same amount as a Taltarni Old Vine Cabernet Sauvignon 2020 ($69). The calculation is simple.

Alcohol duty = $88 per litre x 14% alcohol duty rate per litre x 750ml = $9.24

At 14% alcohol for a 750ml bottle (the most common bottle size) of wine, the alcohol duty comes up to S$9.24 before applicable GST. Whether you buy the Latour or the Taltarni, you pay the same alcohol duty.

Logistics and Storage Costs
When I started importing wines in 2003, the total shipping cost per bottle of wine ranged from S$0.50 to S$1.00, depending on whether the winery pay for the inland trucking and applicable costs to get the wines from the cellar to the port of loading. The average shipping cost per bottle has moved up to at least S$1.50 now as the handling costs at the originating countries have climbed significantly since 2003.

If the wine importer uses a third-party warehouse to store their wines, the storage rental cost must be added to the bottle price. In 2003, warehouse operators charged around S$0.50 to S$0.80 every month for a 6-bottle case stored at their premises. For a 12-bottle case, the cost was around S$1.20 to S$1.60 per month. The market rate now is at least $2.40 per case. This storage cost does not include handling fees operators charge for preparing the paperwork and physically moving wine cases into and out of the warehouse on the importer’s behalf. You can imagine that these costs add up quickly if the wine sits longer in the warehouse than expected.

The logistics and storage cost comes up to around S$1.80 to S$2.50 per bottle.

Middlemen and Retail Margins
Most wine importers make around 25% to 35% gross margin on average. Retailers buying from wine importers make a similar gross margin on their purchase. The margin may seem high, but for wine importing and retailing to be a sustainable business, this margin is needed to cover rental, manpower, utilities, local delivery and other business operating costs.

Estimating the True Cost of Wine
We can estimate the actual cost of a wine charged by the winery by working backwards from the retail price. Assuming the bottle with 14% alcohol is retailing at S$20 after GST on the shelf, and the retailer imports directly from the winery without going through the middleman and makes 30% gross margin, the total cost before GST comes up to S$12.84.

Strip away the logistics and storage cost of $1.80 and alcohol duty of S$9.24, we can estimate that the actual cost of the bottle is around S$1.80 (equivalent to about EUR 1.20).

The winery incurs production costs to make the wine. I am unfamiliar with the winery’s average production costs but at EUR 1.20 selling price, we can safely conclude that the quality of the wine (a function of grape quality and techniques used) will be severely limited.

From this exercise, we can see that in Singapore, when we buy that S$20 wine, we are actually paying a disproportionately high amount for distribution and regulatory costs that has nothing to do with the wine’s inherent quality. Conversely, I find that as I move up to around the $50 and $60 retail price mark, the quality rises exponentially. This is the price range I most often find the best value, and that’s where you can really start to appreciate grape varietal characteristics, terroir, length of finish etc that you read/hear in wine appreciation literature.

It is in large part due to us wanting to manage storage and middlemen costs that we operate our own warehouse and import most of the wines we sell directly, in order to offer the best value/price proposition to you. So the next time you want to reach out for that bottom priced shelf, think about what you are paying for and trade up if possible. My other favourite mantra is “Drink Less, Drink Better” regarding aging and wine consumption, but I think it applies here perfectly.

Let me know what goes through your mind when you go wine shopping and if this article is helpful. If there is any topic you would like me to explore in future blogs, please leave your comment below too.