3) Retall prices as measured by advertised prices (net 3 The five state markets--New York, Florida, Illinois, Colorado and California--represent a geographic diversity while capturing a significant portion of the U.S. market. Supplier prices in Maryland were used because prices are "posted" (e.g., suppliers formally notify the Maryland Alcoholic Beverage Control Commission of their prices), and the data for each of the three years were readily available. Maryland's proximity to the Atlantic Ocean gives Imported wines a shipping cost advantage (longer distances for domestic, and shorter distances for Imported wines). We averaged observed prices for individual brands to obtain estimates of wineries' prices in each of the five markets. Both average domestic and imported prices were calculated in the five markets based on the U.S. market share held by each of the wineries in our sample. The U.S. average domestic and import prices were then represented by a simple average of the prices found in the five markets. In Examination of our sample revealed that a number of lowpriced wine brands are marketed by leading domestic wineries. addition, our list of major imported wine brands gave the appearance of being "premium-brand heavy" (see Appendix). Because of these considerations, we calculated a set of "revised" average prices for the domestic and imported wines after removing the extremes (three of the least expensive domestic wines and two of the most expensive imported wine lines) from the brands included In our sample. Summary of Findings We found that domestic wines are priced lower than imported wines. The data are consistent for 1981, 1982 and 1983; at each of the three levels of distribution; and across the five markets used for the study. The sole exception to this general finding Is the advertised 750ml bottle prices in New York. This exception to the general results is discussed later. Retail Level At the retall level, bottle prices of the 750ml domestic wines averaged $2.31 compared to $3.04 for their Imported counterparts. Prices of the domestic 1.5L containers averaged $3.18 versus $4.43 for the Imported brands of this size. These findings put prices of Imported 750ml brands 31.6% higher than the same size domestic brands; and Imported 1.5L containers 39.3% above the same-sized domestic brands. 5 Wholesale Level Average wholesaler domestic 750ml per-case wine prices in the five markets for 1981, 1982 and 1983 were $26.44, $27.60 and $27.75 respectively. These prices were 25% to 28% below the 750ml Imported wine prices in each of the 3 years. The gap was even larger for case prices of the 1.5L containers, where domestic wine prices in the 5 markets averaged over 40% lower than their Imported counterparts in each year. Domestic prices for the 750ml size averaged $15.65, $16.43 and $16.21 per case in 1981, 1982 and 1983 respectively. Those of Imported wines were between $20.00 and $21.00 in each year. As a result, 750ml domestic brands had a price advantage of 25% or more in each year. 6. As with wholesale and retall levels, the price advantage held by domestic brands at the supplier level was wider for the 1.5L size. Average supplier prices for domestic brands rose gradually between 1981 and 1983 from $12.44 per case to $13.82 per case, while the Imported price per case fell slightly from $19.09 to $18.72. As a result, the domestic price advantage ended the comparison period with a $4.90 per case advantage, down from $6.65 In 1981. Advertised Retail Prices in the Five Markets We have considered the relevancy of advertised prices for Inferring something about shelf prices, and the extent to which local advertising support reflects market shares. That is, can advertised prices be used for the purpose at hand? Since we have no Interest in the price structure per se, any distortions which may appear in the price structure through our use of advertised prices are not Important. We must address, however, whether advertised prices are appropriate for detecting the types of price differences in which we are interested. 7 In the majority of Instances, an advertised price will be less than its normal shelf price. Thus, the use of advertised prices introduces a general downward blas into the price calculations. While this might not happen if only the more expensive brands are advertised, review of our data shows that less expensive wines receive the most frequent price advertising support. Since the goal of our study is to compare relative price levels, however, this general lowering of prices is only a problem if the bias acts differently on Imports than on domestics and is large enough to neutralize or reverse the observed price relationships. This does not appear likely, as the general results of the price comparisons based on advertised prices are not dramatically different than those we found in listed prices at the supplier and wholesaler levels. Furthermore, review of the brands advertised Indicates that, with few exceptions, the high-volume wines are those which receive the most advertising support. We conclude that advertised prices, while a second choice to actual shelf prices, are sufficient for the purpose at hand. The Advertising Checking Bureau, possibly the major firm in the U.S. for monitoring newspaper advertising, reviewed newspapers in each of the five metropolitan market areas and supplied copies of all wine advertisements published on the "best food day" which carried a price mention of any wine. Over the six-week measurement period, 2,304 price mentions were found for the 237 wine labels included in this study. The newspapers used to track advertised prices of the leadIng wines were as follows: Metropolitan New York City New York Times New York Daily News Record (Hackensack, New Jersey), including editions: South Bergen |