The Price Value Conundrum
By Michael Palij, MW
It’s a taxing question, whether it is worth paying more for a bottle of wine. On a federal basis, duty is charged per litre of liquid (or per litre of pure alcohol so we need to assume that all wines are the same ABV) and not as a percentage of the sale: trade up, and you could get better liquid for your liquide. There are most certainly different levels of quality in wine although the ratio to price is non-linear. At one end, 96% of wine is consumed within 24 hours of purchase. Almost all of this will pass the lips without registering even a flicker on the enjoyment radar. At the other extreme, the world’s top wines trade hands for tens of thousands of dollars a bottle, often by consumers who could not recognize such brilliance when served the same wine blind. Surely there must be some fertile ‘middle ground’ where wines over-deliver
So what’s the sweet spot? There are two ways to approach this. Tax is often a flat rate and therefore the % of the bottle cost that goes to the taxman is disproportionally higher in a cheaper wine. Doubling the retail price results in having 10X more money to spend on the liquid. This, however, assumes that all the other costs are held constant. Premium packaging will cost considerably more (a 48mm AAA cork is now CAD$ 3 – just for the cork) and producer margins are highly variable.
It is almost impossible to spend more than CAD$ 42 in variable costs in the production of a bottle of wine (fancy cork, low yields, 100% new oak, labour, depreciation, etc) but excluding the cost of capital. In other words, excluding the value of the land. Grand Cru Burgundy is currently CAD$ 14.4M a hectare and yields are 40 hl/ha. To keep the numbers really easy, that’s CAD$ 144 a bottle to provide a 5% return. And that’s before you’ve made any wine (or profit).
So where can the canny consumer turn? The smart money is on spending at least double the national average and selecting an authentic example from a lesser region. As a good friend from Norway (where prices are habitually high) once said, ‘buy cheap, buy twice’. Portugal, Germany and Italy all offer cracking wines for pocket money. Top Rieslings, for example, last as long as their red Bordeaux equivalents, but are seldom so unaffordable.
No one is denying the pleasure that accompanies drawing the cork on a big bottle, particularly one you have carefully nurtured from birth to maturity. Many humble wines, properly cellared, gain complexity as the months pass. Cry foul if you wish, but further value can be gleaned from changing social patterns in the post-pandemic world. Staying in is the new going out for some and a next-level take home bottle is likely to cost considerably less than a quickfire round of Martinis. Calling all armchair partygoers out there: double down. Les jeux sont faits, and it’s a winner.
Michael Palij MW is the third Canadian Master of Wine. He specializes in Italian wines and has introduced Opimian to some truly special producers such as Cabutto, Giovanna Tantini and Cantina Clavesana.