Chateau Margaux Meets Costco

When David Andrew was growing up on the west coast of Scotland, sipping fine wine was about as popular as polo. Real men preferred an amber shot of Glen something. But Andrew's parents introduced him to French wine at age 10, and he tasted his first Chateau Margaux as a teenager, liking it so much, he wrote to the vineyard asking for a grape-picking job — which he landed. After a career that included a stint as an actor in TV ads, Andrew, 40, is now a celebrity in the wine trade: he is the top buyer for Costco.

With sales of $600 million in its past fiscal year, the warehouse giant has become America's unlikely leader in retail wine sales, and it isn't hawking just $8 jugs. Costco sells more fine wine than anyone else, and doing so has become a key part of its strategy to lure more upscale shoppers. Someone who spots a deal on a 1993 Dom Perignon ($80) may also pick up a pair of Waterford goblets for $60. Exploiting such buying patterns has helped Costco to push its average checkout ticket to $109, compared with $60 to $80 at competing warehouse clubs, according to Bill Dreher, a senior retail analyst at W.R. Hambrecht.

When Andrew joined the company in 1998, Costco sold no top-flight Bordeaux; today, with a wide selection, it sells more than any other U.S. retailer. At the same time, Andrew catered to Costco's bargain hunters, introducing boutique wines at attractive prices — for example, Chateau Salitis, a French blend of Grenache and Syrah with dollops of Cabernet and Merlot. The vintner produces just 5,000 cases a year, nearly all of which Andrew snaps up. "It's a wonderful little wine," he says. Price: $6 a bottle. Costco's maximum markup is 14% above its wholesale cost, compared with 35% to 40% at a typical wine shop.

Traveling from Tuscan villages to the valleys of New Zealand, Andrew searches for bargains and little-known gems. Vintners often treat him like royalty. He tastes 5,000 wines a year and purchases offerings that range from Chateau Mouton Rothschild 1998 ($165) to $10 Merlots from Chile.

Snootiness, of course, remains a hallmark of the wine trade. Some boutique vineyards in California's Napa Valley don't want their wines merchandised in stores that also sell gallon-size containers of French's mustard, so they shun Costco. Andrew says, "They don't understand that the demographic of our members is so high." Nor do they appreciate that a lot of wealthy folks got that way because they have an eye for a bargain.