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When it comes to wine, is price actually an indicator of quality? To better understand the complexity of that question, VinePair’s tastings director Keith Beavers dives into the various factors that can affect a bottle’s price tag, such as where it’s made, labor costs, the reputation of a winery or grape, and agricultural supply and demand. Tune in to learn more.
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Keith Beavers: My name is Keith Beavers, and I guess every year I think, maybe this will be the year that science finally figures out yawns. I yawn, you yawn. How does that work?
What’s going on, wine lovers? Welcome to VinePair’s “Wine 101” podcast. How are you doing? So what is this thing about the price of a wine and the quality of a wine, and the relationship between the two things? It’s an ongoing situation with consumers. We have to talk about it.
So I guess this is a big one, right? There’s a wine shop; you figured that out. There’s a wine list; you figured that out. Easy, you can pick a wine from a list. If you listen to “Wine 101,” you’re good. But then you’re like, wait a second, what is it about the price of these wines? What is it about quality-to- price ratios and all this stuff? What is it about a bottle of wine that fetches this price? Or, what is it about a bottle of wine that’s not as expensive as that, and why? Oh my gosh, it’s all kind of crazy. You know what, wine lovers? It is crazy.
The pricing of wine is pretty nuts. I’m not an economist. Math is definitely the Darth Vader to my Luke Skywalker, or the Sarlacc Pit to my Boba Fett, if you’re nasty. I’m not going to be crushing any numbers here on this episode. But what I am going to do instead is talk about the factors that go into pricing a wine, and then we’ll talk about grapes and vineyards and how prices rise and fall. There are so many different factors to this. It’s a little bit dizzying, but let’s focus a little bit and break it down so we can digest it. Actually, this is one of the most frequent questions I have received over my career in wine. Especially because I was in the wine hospitality world and the wine retail world. Jedi wine master Jancis Robinson puts it pretty well in the “Oxford Wine Companion” saying that “consumers want to know the extent to which retail prices reflect quality.”.
So essentially, does the price of a wine reflect the quality of the wine inside the bottle? The answer is, yes and no. How about that for an answer? Wine is complicated. It always will be. It always has been. For us on the American market, wine comes from all over the world. Every country and every region has its own economy. That is a major part of what goes into pricing a bottle of wine. There are other outlying factors, but if you think about a restaurant and a chef and a kitchen, that chef has to create a dish. Every piece of every ingredient that goes into that dish has a cost. The way it’s supposed to happen is, the cost of that dish is the sum of all the parts that make up that dish, and then some other fees go into it like rent and labor that help price out the dish. This is very similar to what happens in wine. When you’re looking at a bottle of wine, whether it’s a $15 bottle of wine or a $115 bottle of wine, there is a long list of factors that go into pricing that bottle. This is very dizzying. Bear with me, it’s crazy.
The first thing that has to be factored in is the price of the grapes. As you can imagine, this is a big world and there’s always different economies in different places with different reputations. Different varieties are more labor-intensive than other varieties, and it also depends on where those varieties are. If you’re doing Cabernet Sauvignon in Napa, they’re going to be expensive. If you’re doing Pinot Noir basically anywhere, they’re going to be expensive. Let’s say you’re doing Cabernet Sauvignon in a place like Uruguay, which hasn’t really made it onto the American market completely, then maybe that Cabernet Sauvignon will not be as expensive.
But then you go to the other factor, which is labor costs, and that also depends on where the wine is being made. Labor costs in certain areas are much lower than in other areas. For example, there are countries in economies like Chile, Argentina, and South Africa that have low production costs. This will help bring the price of the wine down, especially when it’s translated into other currencies for importers to import into their countries, like the United States. Of course, you have places like Champagne. Even though the land is expensive, the labor is intensive as well, and that adds to the price. A lot of things add to the price of Champagne, but it is an example of how labor-intensive a place can be, and those costs are higher compared to other places. So the price of grapes, the price of labor, but then again, you have the price of the actual vineyard itself. Is it the land that’s owned by the winery? And if it’s not, these are contracted vineyards that they buy grapes from. How much is that contract? That also factors into the bottle price. But let’s say the winery does own the vineyard and does own the winery. That winery, I can promise you, has debt. So that also factors in the price of a wine. Depending on that, whether you’re contracting from a vineyard or have a vineyard on your property, there is going to be a transport cost of getting the grapes from the vineyard to the winery. After it arrives in the winery, there’s more of that production cost that factors in. But then also there’s the label. How did the label get designed? Who designed it? How much did that cost? We gotta get that label onto these bottles. Oh yeah, the bottles, we have to buy the bottle. So there are transport costs, there are bottling costs, and there are labeling costs.
Then, there is the winery itself. Whether it’s contracting for vineyards or having the vineyards or not, they need to have a marketing strategy to get the wine out there. Because, my gosh, this is a competitive market. That competitive market is what producers and wine merchants look at consistently. So all those factors are involved in a producer pricing out their wine. But also, the winemaker or the producer often has a pricing policy that they want to stick with, so they can keep things consistent. Now, once that is established, that wine gets to a wine merchant with that policy, which then has to go and market that out to the rest of the country. That wine merchant has their own costs that they put on the bottle. And a wine merchant could have domestic wine. But if the wine merchant has European wine, there is a three-tier system that needs to happen to get to a wine shelf. There are costs and duties and taxation for all of that as well. I think it might be a little bit obvious to us that when a wine is expensive, it’s because it either comes from a place that has a legacy or a reputation. Of course, supply and demand are as real in the wine world as they are anywhere else. Often, those wines are celebrated because the quality of the wines in that region are pretty amazing. So you’re spending money on a wine like Champagne or Burgundy or Bordeaux, and you’re pretty much guaranteed a quality wine. Whether it’s your preference or not is a whole different story. But the quality is going to be there generally, primarily, and mostly.
Sometimes, when wines are inexpensive, it’s easy to think, “Well, obviously if they’re inexpensive, they don’t have the quality of a Champagne or Bordeaux or Burgundy.” That’s not true. The thing is, we’re talking about how it’s a big world out there. There are places that make great wine that we don’t see on the American market, or haven’t, or just have a little bit of it because of political and economic factors from those regions. Greece, Hungary, Romania, Bulgaria, Slovenia, Croatia, Georgia; these are countries that have been making wine for a long time. But we don’t see these wines on the American market. Why? Because of, like I said, political and economic issues. Sometimes wine production is stopped. Sometimes wine production is paused. But sometimes wine production is ramped up, like in communist Russia, where it was not about the wineries, it was about making as much as possible for the people. When communism fell, there was a surplus of grapes. So of course the price of the wine is going to drop at that point. Countries like Bulgaria, Romania, and Hungary, which have amazing wine, then re-acclimate themselves, and they bring wine over to our market.
Often, after the surplus is over and we start seeing the more focused stuff, even though the price goes up in production, they’ll keep the price low to get a foothold in our market, which is a big deal. That’s a big thing that South Africa did back in the early 2000s. At some point, we all start to celebrate the wines from the area. For example, Georgia is a big one right now. Everyone’s into Georgian wine, which has been around for millennia. But now we’re finally able to enjoy these wines. When they first came over, they were not really that expensive, and they weren’t very well known. But as they’ve gained popularity, the price has gone up because we’re seeking them out. Supply and demand is happening. So the quality hasn’t really changed; it’s the price.
On the other end of the spectrum, a wine, winery, or producer within a trend or something that’s gaining in popularity, will often price high to announce their prestige right away. There’s no easing into the wine. The wine is expensive the minute it hits the market, and you’re marketed to saying, “You should buy this because it’s awesome.” For example, the cult Cabs of the ’90s in California. They came out of the gate expensive. Now I understand that Napa vineyard land is expensive, but it wasn’t as expensive then as it is now. These cult Cabs, like Screaming Eagle, came out of the gate expensive. What they were saying was, “This is Napa. This is Cabernet Sauvignon. It defines our region. This is age-worthy stuff. You need to buy at a high price because as you age it, it gets better. Or you can even invest in the wine and resell down the road at an even higher price.” That’s another way wines are priced. That actually factors into the investment of wine, which has a whole other list of criteria for buying and pricing wine. The precise wine itself, with the reputation, has to be attractive. The era, or the time in which the wine was made, also has to have some sort of prestige to it. The rarity of the wine, if not a lot of it was made, then where was it made? What’s the provenance of the wine? What’s the actual condition of the bottle that you’re bidding on for investment? What’s the global state of the market? Once you buy that wine or a lot of wines, you’re going to watch those wines accrue in value.
It’s a very complicated thing. This also factors into the price of wine. It also factors into the reputation of a wine, so that the wine could be actually priced up on the retail market. All of these factors back into grapes and in vineyards.
The reality is, even though there are plenty of wineries out there with estates that have vineyards on their land and they control the entire production from growing the vines to making the wine, the majority of the wine grapes on the planet are bought and sold as fresh grapes that will then be produced individually at a winery that did not grow those grapes. Whether that’s a producer that has vineyards but then contracts for certain varieties, or it’s a commercial winery, or it’s co-ops in Europe, the prices of these grapes fluctuate, rise, and fall like any other fruit crop or any other crop. This is agriculture. But with that added layer of wine, which is crazy because you buy grapes, but you really won’t know the quality of these grapes until you make it into the wine. But, because of the popularity of certain varieties, sometimes the price of grapes can be bolstered across an entire market. That gets a little bit stressful, because people that have enough money to buy the grapes get the advantage over people that don’t have enough money to buy the grapes. And that factors into the price of the wine.
Speaking of that, the grape itself factors into the price as well. In 2004, when “Sideways” came out, Pinot Noir was already an expensive variety. But then that shot up tremendously and meteorically after 2004 when the movie came out. Napa has been focusing on Cabernet Sauvignon at least since the 1940s. That is an ongoing fashion in this area. It’s not like it’s just fashion, it actually does well. But there are other varieties that do well in this area, like Zinfandel, that will be a little less expensive than Cabernet Sauvignon.
In Europe, I don’t know about other places, but I know that Bordeaux and Champagne both have price regulatory boards that actually decide prices as the market fluctuates. All this is not to mention the actual land the vines grow in. Oh, man! In the most popular places in the world that make wine — Napa, Bordeaux, Burgundy, Champagne, etc. — it’s very, very expensive to get land to plant vines and make a living. But these places — the regions, the vineyards, the origins of these vineyards, the origins of the place, its wine culture — have a major effect on the wine quality. They’ve been proving for a long time that the quality is possible there, which will attract the market. But quality wine is not always guaranteed. The history of wine is a pretty big rollercoaster, and some of the most prestigious areas of the world that we know now were hit-or-miss in quality back in the day. Chianti is one of the most famous, and we’ll talk about all that in an upcoming episode. It’s the same with Burgundy as well, and Champagne, and Bordeaux. But as these places improved, the quality improved. They maintained the reputation and now they can fetch the high prices in vineyards and grapes and wines.
Here’s the thing: In other places in the world where grapes and vineyards and land are less expensive, that by no means states that the quality is lower. There is impeccable quality coming out of places that are not that expensive. That’s great for us because we get to try great wine that’s not too expensive because a place is trying to gain a foothold on our market. But also, it can help the winemakers and the wine region and its reputation in general. Those low costs allow the winemaker to experiment a little bit more. I mean, Napa didn’t become Napa overnight. It was years and years of experimentation, trying to find the varieties that worked for Napa. Cabernet Sauvignon came out on top, but it took a long time, and the costs were quite low back in the day. Compared to now? Forget about it.
Speaking of land value, check out these stats. In the mid-2000s, it cost about 250,000 euros per hectare — or a little over three acres — to buy vineyard space or a vineyard in the general Bordeaux appellation. At that same time, some of the properties that were most celebrated and most sought-after went for $1.5 to $3 million a hectare. That is in the mid-2000s. Can you imagine what it’s like now? Especially in Burgundy, where, for a grand cru, you could pay up to 9.5 million euros per hectare. I mean, these are small plots of land, but wow. But depending on location in Burgundy, if you were just a part of the general Bourgogne AOC, you could get as little as 30,000 euros per hectare. This is crazy. Remember that we talk about how marketing is a big deal? Champagne might be the most marketed wine in the world. It’s also considered some of the most expensive wine in the world, but the land caps out at 1.8 million euros per hectare. So it’s less than both Burgundy and Bordeaux, yet the wine prices are very high. Piedmont, another very famous wine region, is about 1.2 million euros per hectare.
And of course, we can’t leave Napa out, which is a little over $130,000 to more than half a million per hectare. So you’re going to spend when getting wines from that area, and the ones you spend a lot on are probably going to be great quality. It may not be your preference, it may not be your style, and the wine may not be made in the way you want it to be made. But for the people that do dig that wine, that price is that price, and they’ll pay it.
In places like Chile, Argentina, South Africa, Australia, and around the world like Uruguay, just because the land values are low and just because the grape prices are low, does not mean the quality is low. There are so many factors that go into the price of a wine, and your job — well, not your job; you could do whatever you want. But if you’re a wine lover, you go out there and buy wine, you experience wine. If you’re going to spend a lot of money on wine, you’re going to look into it a little bit. When you’re buying a TV, you’re not just going to go and say, “Hey, give me a TV that works.” You’re going to look into TVs and you’re to find the one that works for you. If you have a certain preference in wine and you want to spend a lot of money, you’re going to do your research.
When it comes to wines that are your everyday wines, it just comes down to trying the wines. Just because a wine comes from, let’s say, the Colchagua Valley in Chile and the wine is $15 or $20 and says it’s high-end Cab, that doesn’t mean the wine’s not good. It just means there are a lot of factors involved in making that wine that allows the wine to be that price on our market.
OK, so I’m rambling on too much. I didn’t want to do a lot of math here, so I wanted to give you guys a lot of different factors on how this is actually done so that when you have a bottle of wine, you know how it got to your table and into your glass. What are you guys doing next week?
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And now, for some totally awesome credits. “Wine 101” was produced, recorded, and edited by yours truly, Keith Beavers, at the VinePair headquarters in New York City. I want to give a big ol’ shout-out to co-founders Adam Teeter and Josh Malin for creating VinePair. Big shout-out to Danielle Grinberg, the art director of VinePair, for creating the most awesome logo for this podcast. Also, Darbi Cicci for the theme song. Listen to this. And I want to thank the entire VinePair staff for helping me learn something new every day. See you next week.
Ed. note: This episode has been edited for length and clarity.