The complexities of wine pricing

Hello friends!

A friend recently asked me why Canadian wines are so expensive. Shouldn’t they be cheaper since we’re not paying for shipping from halfway across the world? This question got me thinking about wine pricing.  How do wineries come up with a suggested retail price for their wines? Why do some wines sell for $50 and others for only $8? Is the $50 wine necessarily better than the $8 one? These are the kinds of questions I plan to get to the bottom of by the end of this post.

There are obviously a myriad of factors that go into determining a wine’s price, from economic to geographic considerations. Here are a few of them:

Small-scale or mass production?

This is the big one. Obviously, producers who can spew out millions of cases of wine a year  (for simplicity’s sake, let’s call them Winery A) use different viticultural and winemaking methods than, let’s say, the smaller winery that makes only 100 cases of wine a year (Winery B). Let’s look at this process from both ends of the spectrum.

  • Source and type of grapes: Winery A likely buys grapes from wherever. Often, the wines produced are blends, and the bottles may not even mention what types of grapes they contain or where they were grown. Winery B may use grapes that come from one or two vineyards within a same geographical area (called an appellation). These vineyards are likely low-yield, making for higher quality grapes. Note also that certain grapes are more expensive than others because of the effort it takes to grow them. For example, cabernet sauvignon grapes can cost three times as much as merlot.
  • Harvest: When it comes time to harvest, Winery A likely uses machinery to pick, sort and de-stem the grapes, which requires significant capital, but the investment is paid off after a few years of good sales. Winery B likely does this all by hand, which is back-breaking work that requires more human (and therefore financial) resources over time.

Machine harvesting (Source: palatepress.com)

Vs. hand harvesting (Source: blog.winecollective.ca)

Hand sorting in Bordeaux (the scarves and sweater around the shoulders are a dead giveaway that this is France). Source: gourmetodyssey.fr

 

  • Ageing: Winery A won’t age wines much or at all before bottling. The point is to get them onto the market as quickly as possible. Plus, storing and ageing wines requires space and therefore costs money. Winery B will invest in oak barrels and age the wines for as long as it takes to make a high-quality wine. Keep in mind that a brand-new barrel can cost as much as $2600, so many wineries will re-use them for as long as possible before the oak is used up and stops imparting its delicious aromas and flavours.

    Tawny Port Barrels at Taylors in Porto

    Yup, that’s a lot of storage space (Source: winefolly.com/tutorial/truth-cheap-vs-expensive-wine)

  • Fixed costs: There are certain fixed costs of winemaking that have nothing to do with the quality of a wine. If these fixed costs are spread out over a higher production, Winery A can likely afford to price their bottles in the under-$20 range. For Winery B’s smaller production, these costs are spread out over fewer bottles. To recoup these costs, its prices will have to be set higher.

Location, location, location!

It is clear that certain areas of the world command higher prices for their wines than others. France, for example, is a land of contradictions. The country where you can get a fantastic bottle of wine for 2€ is also the same country that produces wines that sell at auctions for tens of thousands of dollars, or even more depending on the vintage (more on this below). Currently, the wine at the LCBO fetching the highest price is a Château Pétrus 1998 from Bordeaux, going for a whopping $6,279.00. Can you imagine casually walking up to the cash and dropping a year’s worth of groceries for a small family on a single bottle of wine?

The most expensive wine at the LCBO, Château Pétrus

There’s also the question of how much effort it takes to actually make wine in certain climates.  There are obviously parts of the world that are ideal for making wine. They have the appropriate temperatures, the proper proportion of sunny days and rain, the perfect soil type, etc. But there are also areas where you have to work much harder just so the vines survive. People are often surprised that Ontario wine prices are so high. But shipping prices and proximity are not a huge consideration in a wine’s price. It’s more a question of effort. Take Prince Edward County, for example. For starters, it’s in Canada. Shocker: it gets cold here in the winter. While the lake effect from Lake Ontario shields the area from early fall frosts, wine growers must bury the vines in the winter to protect them from temperatures below the -24°C mark, the point at which vines die. And this is no small feat, as it involves building little mountains of earth around the vines to insulate them against the harsh winter conditions, then gently dismantling the mounds in the spring—all by hand. Furthermore, labour isn’t cheap in Canada. There are labour laws that ensure it. Not necessarily so in Argentina or Chile, where labour costs are lower, as are, not surprisingly, their wine prices. Hence the $8 bottle of Fuzion malbec which got me into wine in the first place.

Snow covers the buried vines in Prince Edward County (Source: normanhardie.com)

Wine: a totally ageist industry

Not all vintages were created equal. Some years, winegrowing regions experience amazing growing conditions. Other years, this is not the case. Maybe frost sneaks in early, or there is too much rain, causing mold or diluted grapes. Just last week, the Languedoc region in southwestern France was pummeled with hail, causing many winemakers to lose their crop. For the vintages where conditions were ideal, the wines produced can fetch a pretty penny (up to three times as much the price of a less-than-stellar vintage). There are more people than I’d care to say who can spout off the great vintages of specific Bordeaux appellations. For the rest of us, there are a ton of online resources that take the guesswork out of it. Jancis Robinson, the queen of wine writers, has a great website that saves us from having flashbacks of the childhood hell that was memorizing the multiplication tables: http://www.jancisrobinson.com/learn/vintages.

Branding power: what’s in a name?

Wineries find fame through all sorts of means. Some of them just from a long-standing tradition of greatness, like the above-mentioned Château Pétrus. Some from their famous owners, like Brangelina’s Miraval or Francis Ford Coppola’s Sonoma winery. Others pour a ton of money into marketing, and you can be sure that these costs make their way into the price of their wine. Also, let’s not forget the cost of packaging. The enclosure (cork or screwcap), the bottle and the label all have an effect on the final price.

Hollywood’s power couple, Brad Pitt and Angelina Jolie-Pitt, own Miraval, a vineyard in Provence, in the south of France (Source: http://www.lajm-shqip.com)

Scientific findings

On a subconscious level, we automatically assume that the more expensive a wine is, the better it should be. When wine study participants know how much the wine costs, the price directly correlates to their perceived enjoyment of the wine. But in blind tastings, study upon study has shown that the average wine drinker and the critic alike cannot tell the difference between a low-cost bottle of wine and an exorbitantly priced one, and will often even prefer the former. This makes me wonder what the point is in buying expensive wines, besides the prestige and snob factor.

As you can maybe tell from the length of this post, there is no clear-cut way of determining the price of a bottle of wine. It is a complex topic, and I’ve only scratched the surface here. The point is that there are great wines out there at all price points. Wine tasting is completely subjective, so it’s really just a question of trying as many as possible within your price range to find the ones you enjoy most!

So on that note, happy wining!

 

Further sources:

http://www.wine-searcher.com/wine-prices.lml

https://priceonomics.com/post/46618070248/the-price-of-wine

http://www.marketplace.org/2016/01/28/world/how-wineries-set-price-wine

http://uncommongrape.com/blog/how-do-wineries-set-the-price-for-a-bottle-of-wine-reaction

Is Expensive Wine Worth It?

Which Factors Determine The Price Of Wine?

http://www.intowine.com/how-much-does-wines-vintage-matter

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