Influential Costco executive discusses wine business in Q&A
Annette Alvarez-Peters is one of the most powerful people in the wine industry.
She supervises the wine buyers for Costco Wholesale Corp., which sold $3.7 billion in alcohol around the world last year. The sway Costco carries in the industry from the vineyard to retail shelf is tremendous because many wineries want a shot at floor space inside the big-box discount retailer, based in Issaquah, Wash.
Alvarez-Peters has held various positions within the company from an entry-level accounting job to merchandising receptionist. She was a beverage alcohol buyer in the company’s Los Angeles Division from 1995 to 2005, when she was promoted to her current position, assistant general merchandise manager of beverage alcohol.
Alvarez-Peters is definitely not a wine snob. Some wine connoisseurs got bent out of shape when she told a CNBC interviewer in 2012 that selling wine is no different than selling toilet paper. “But at the end of the day, it’s just a beverage,” she said in the CNBC interview. She is studying for her Masters of Wine.
To get a sense of the current wine (and beer) retailing environment, Press Democrat wine business reporter Bill Swindell conducted a question-and-answer session with Alvarez-Peters via email. The following is an edited transcript:
Q: How tough is it to get a wine sold at a Costco store?
A: By design, we have a very limited number of wines in our system. We tend to have a constant rotation of wines which we like to refer to as our “treasure hunt.” Each buyer is very selective in choosing items for their respective regions. We look for quality wines at a value.
Q: How big is your team? How do you settle on a mix of international versus domestic wine?
A: We have 11 buyers on the alcohol beverage team. Each is responsible for wine, beer and spirits for their region. Each region consists of two to 13 states with up to 60 stores. Each buyer deals with the necessary paperwork, PowerPoints and supplier/distributor meetings to run their business, in addition to getting into Wine Country and wine shows or tastings when time permits.
Our domestic wine business is approximately 65 to 70 percent. More import wines are sold in the Midwest and East Coast. We try to tailor the wine mix to the region and their demographics. Each buyer has the autonomy to purchase all categories for their region. In addition, they all do an excellent job supporting local wineries. For example, Washington state will have a larger selection of Washington wines, and Oregon will have various pinot noir and pinot gris from the area, whereas, our stores near the California Central Coast will have items from Santa Barbara and Paso Robles.
Q: What factors go into setting a price for a bottle of wine?
A: As with all items sold at Costco, (profit) margins do not exceed 14 percent. I think the wine industry varies in regards to making wines affordable, depending on the segment (premium versus luxury). There is a lot of competition at most premium and super-premium price segments, which can drive very affordable prices in the market.
Q: Has Trader Joe’s had any effect on your bottle price?
A: Trader Joe’s is a good operation. As a competitor, we watch their prices, as we do with any retailer carrying the same item. We adjust accordingly.
Q: What regions do you tend to purchase from?
A: California is the largest region. From California, Sonoma leads the way with Costco’s Kirkland Signature Sonoma Country Chardonnay and La Crema Chardonnay. Napa follows.
Q: What is resonating with consumers?
A: Rosé wines performed very well during spring and summer months. Domestic pinot noir continues with double-digit growth. The import wines continue to do well - Rhone Valley, Argentina, Bordeaux and Spain - showing double-digit growth.
Q: How big is craft beer sales at Costco?
A: This is a pretty exciting category for us. We continue to experiment with various breweries and try to support the local craft breweries in each market. The craft beer segment represents approximately one-third of beer sales.
Q: Is the India Pale Ale share growing in the beer market?
A: Yes.
Q: Can you discuss more about Sonoma County wine? You mention chardonnay is big. Any other varieties?
A: Domestic wines represent 65 to 70 percent of our business, which California is the largest segment. In addition to chardonnay, cabernet and pinot noir are doing great as well. It is difficult in our system to pull the percentage of Sonoma versus Napa.
Q: After many years of selling producer wine, Costco decided to sell a private-label wine. Why did it take so long to make that decision, and has it been a good one?
UPDATED: Please read and follow our commenting policy: