What Determines the Price of Wine?
Jane Masters MW is Opimian’s Master of Wine
As I write this piece, the LCBO is offering a bottle of 2013 Burgundy for just under $6,000. So with wine prices ranging from tens to thousands of dollars, what determines a wine’s price? Is the old adage “you get what you pay for” true? Does higher price always mean better quality?
Wines are made all around the world under a range of conditions with many factors affecting production costs. It takes approximately a kilogram of black grapes to produce one 750 ml bottle of red wine and 1.2 kg for white. The cost of grapes varies according to vineyard yields, which can fluctuate greatly between regions from 1 ton of grapes per hectare up to 40T/Ha. At very high yields, wine quality suffers, producing thin dilute wines. At the other extreme, at a certain point it becomes uneconomical to produce wine. The appropriate yield to produce quality wine depends on grape variety, soil fertility and climate conditions, with the general notion that lower yields produce better quality grapes and hence better wine. The best wines in terms of depth of flavour often come from grapes grown on old vines, and as vines get older, yields tend to naturally decline.
Once grapes are picked, there is a cost to making wine and running the winery, including energy for refrigeration, wine presses and heating. The finest wines are produced in small batches from grapes manually picked and sorted, requiring a higher number of personnel and expertise. Labour costs can change dramatically from one region to the next, hence the labour cost element to produce wine in South Africa or Chile is not the same as that in France or California. After fermentation, wines may be matured in oak barrels. Again, the cost of these varies widely with the most expensive 225L French oak barrels from a top cooper costing thousands of dollars. On top of that, aging in barrel is also labour intensive. Alternative oak maturation using oak chips or staves do exist and can give good results but will not achieve the same wine. Then there is the cost of bottling finished wine. Packaging costs include the cost of the bottle or other container, stopper, labels and cartons. All of these costs add to what is called the ex-cellar price.
But ex-cellar price is not always a reflection of costs. Estates like Bordeaux Classed growths or top Burgundies, where production is tiny, have a following that outstrips supply, and ex-cellar prices include a premium that reflects this.
Coming back to the cost of wine to us as wine drinkers, depending on where you live, freight, duty rates and taxes are different. I am sure all Canadians are aware of the price disparity between provinces. However, you may well be surprised at just how high the proportion of taxes is as a proportion of the final selling price. Generally, there would be a retail margin but as a not-for-profit private wine club, Opimian looks only to cover costs. So there are several aspects that influence a wine’s selling price and I haven’t even mentioned establishment costs, cost of land, financing costs or currency exchange rates.
In my role as Opimian’s Master of Wine, I am constantly evaluating wines to find what I consider to be those that offer best value. Wines are tasted in context, comparing wines with similar ex-cellar prices to select the best wines that reflect their provenance and style. The higher the price, the more demanding I am in terms of intensity, complexity and longevity. Wines at the value price level are generally made in larger volumes in highly automated wineries. If done well, they can be good if not distinctive. At this level, once the cost of the bottle, label and packaging are taken into account there is very little left to spend on the wine itself. Spending $30 instead of $15 on a bottle of wine gives the winemaker three times the capital to produce a wine of individual quality and personality. At this sweet spot, doubling the bottle price increases wine quality three fold so if you can afford to spend a bit more, you get more bang for your buck. Both of Opimian’s subscription case programs — Founders’ Choice and the newest The Masters Case – are at the heart of the sweet spot, offering great value, which is one of the reasons I believe they are so popular with over 1,100 and 1,600 subscribing members respectively.
Does higher price always mean better quality? In the wider world of wine, not necessarily but it is certainly what I am aiming for.