Wine Talk

Snooth User: Walter JA Vonk

Good wine must cost a bundle

Posted by Walter JA Vonk, Nov 14, 2010.

As I hear from Gregory Dal Piaz and many others in the past "wine need not cost a fortune to drink well. There are also quite some books around with titles like "500 wines below € 10,- ".

Looking in a wine shops you seen many wines in the range of € 20 to 50 with lables providing the same type of information many times less

I would be interested to understand why, when comparing 2 good drinking wines, one cost € 8 and the other € 32. What in the process makes one wine much more expensive than the other. For sure it is not only comercial.(marketing expendures etc) 

Bottom line

While I have my own slection of good drinking low cost wines for the understanding and evaluation of wines it would be of interst  to know what makes certain wine expensive

Walter J.A. Vonk

 

Replies

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Reply by napagirl68, Nov 14, 2010.

Great question.  I can only speak for here in Northern CA since we have access to so many wines in our backyard. 

I would say, that in general, your cheaper wines, even from some well-known makers, are comprised from grapes from all over, not one vineyard.  There is also a bottle to bottle variation, so one cannot count on getting the same experience twice. 

The time and care taken in crafting a wine also dictates its price, to an extent.  A mass-produced wine is cheaper to make, but a smaller operation will spend more money bringing that grape to your glass.

All that said, there actually ARE great drinkers under $30 (even a few under $20).  It is just that they are smaller, and people outside the area don't have the opportunity to taste them.  Truly unfortunante.

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Reply by outthere, Nov 14, 2010.

NG hit it on the head with the production level argument. Small lot producers incur extremely high costs per bottle of wine. Large corporate wineries have the infrastructure to mass produce and reduce overall cost per unit.

The cost of almost everything that goes into a bottle of wine decreases with volume purchasing. From glass, to corks, to foil, to labels, to yeasts and fruit one can negotiate a lower cost per unit based on higher volume. Then again you have different costs for different qualities of product. Better glass, better corks, better foils... it all adds up.

This is a big reason why you can see drastically different prices on different labels using the exact same fruit from the same grower.

SVD's over regional blends make vast differences in price in many cases but not necessarily in quality depending on the winemaker and fruit source. A good example is Seghesio Sonoma County Zinfandel. Its a regional blend at a bargain price that competes very well with their own SVD's which can retail at 2x the SC label.

In the end, excluding mfg costs, the end price will normally be what the market will bear which is simply good marketing.

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Reply by GregT, Nov 14, 2010.

Walter - both posts above make good points and the last sentence in outthere's post is the key.

It may be that large producers have access to volume discounts, but the large producers make the most expensive wine.  It costs very little for a top Chateau in Bordeaux to produce wine when compared to what they charge for it.  Most small producers can't charge the same prices even if they want to because they don't have the prestige and the history to sell their wine.

But looking at the difference between 8 and 32, your'e not talking about classified Bordeaux.

There are other reasons for the difference.  A new oak barrel costs about $800 these days.  Usually they're 225 liters, so you get 300 bottles of wine.  That adds about $2.67US to each bottle, or roughly 2 Euros.  So if the wine is oaked, you're paying more.

Grapes vary in price.

Do you own your own vineyard?  Did you just sink your life's savings into it or has your family owned it for generations?  Big difference in your pricing structure!

Many vineyards have established reputations for quality fruit and if you're buying from one of those, you will pay extra.  The entire idea of single-vineyard designations, or lieux-dits, is to increase the price of the wine.  In some cases, the wine actually is better than it would be as a blend, in other cases (perhaps most?) the wine is simply scarcer.

Whether or not you own it, who took care of the vineyard and how much did you pay them?  What is the density of the vine planting and what is the yield per acre?  Was it harvested mechanically or by hand?  Is it easy to work or on slopes?  If you're on a low-producing, steep slope that produces very little and you need to hire people to go up there and cut the grapes, you're going to pay a LOT more money for those grapes than you would if they're from a nice, flat, high-production vineyard.  But you'll also pay more because the grapes may be much better.

Do you hand-sort at the winery or just dump them all together.  (Labor costs again.)  

Did you have picking requirements - e.g. did you stop picking by 11am to avoid heat, or continue all day long?  Did you use little boxes to avoid crushing the grapes or just dump them all into a big pail?

What is the variety?  Assuming you bought the grapes, you're going to pay a lot more money for good quality Cab Sauv than you would for something like Chenin Blanc.

What's your investment in production equipment - do you own it or are you using the facilities of someone else? Do you have refrigerated tanks?  Do you have stainless steel or are you using ancient wood casks?

Did you hire an expensive consultant to help or did you do it all yourself? Did you use a .3 euro cork or a 1.5 euro cork? DId you hire an artist for your label or design it yourself?  Is it multi-colored or even multi-part or simple and cheap?  What about your capsule?   Are you using the most inexpensive bottle or did you pay more for a more dramatic bottle?

All of those things will matter.  And after that, you've got marketing costs.

Ironically, you've picked an interesting price range.

At the lower end of your scale, you're not necessarily getting crap, but you're getting wine that may be well-made but not from the very best fruit available and likely not with the same quality of barrel or attention. 

At the higher end of your scale, you're paying for all the quality improvements and that's where I think price starts moving away from cost.  It's not cast in stone obviously, but right around $50US or so, or approx 36euros, price starts becoming less a reflection of the inputs and more a reflection of the marketing prowess of the winery or seller. When you start talking about $100 or so, you are paying for scarcity, reputation, critic points, etc.

 

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Reply by StevenBabb, Nov 15, 2010.

i think this was a great question... one that gets asked a lot... my grandfather, who refuses to ever pay more than $10 for wine (even though i bring in more expensive bottles that he loves, but i will never tell him the cost).... he and i go round n round on this subject... but i think the three posts above hit every angle.... maybe i'll drag him to this thread next time i'm over visiting the grandparents  : )

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Reply by Stephen Harvey, Nov 16, 2010.

Walter

all the points above are quite valid and correct

The key component to great wine is the grapes and the cost of grapes can be anything from

$250/tonnes for cheap grapes - in most countries with modern labour laws and pay rates this is about the price that equates to breakeven on operating costs for a vineyard [it ignores capital costs]

From there grapes can range up to well over $10,000/tonne

Depending on the winery you get between 550 litres and 750 litres per tonne crushed.

Winery overhead costs vary between $0.30 litre for the large 100,000+ tonne crush facilities and $5.00+ litre for the small <50 tonne crush facilities.

Generally you allow approx 9.4L per 12 x 750ml bottle case of wine. [commonly described as a 9L case]

Oak can vary from nil to $6/litre for top end new french oak

Packaging varies from $5 per 9L case to $20+ [Packaging includes bottles/labels/closures/box etc]

You also need to factor in the holding costs for the wine, we normally allow $.01/litre/month and of course interest cost of holding inventory for between 1-5 years.

Off course we want a wineries to make some profit and this is where the market hype and demand kicks in and the margins on the luxury wines are huge!

Then comes the real burglars

Government taxes [0-40+%]

Importer costs [US imports] [20-30%]

Distributor costs [20-30%]

Retailer costs [20-30%]

Obviously small wineries at cellar door can avoid these but if they have retail trade then retailers will not carry the wine if cellar door is less than retail price. We could start a whole thread on this topic]

The data I get from the benchmarking study I do on the Australian Industry suggest the cheapest you can make a bottle of  white wine that is sustainable in the long run for everyone in the chain is between $1.30 and $1.50 per 750ml bottle which equates to ~$5/bottle if sold through the full retail chain [red wine is about $6 if it gets even the cheapest oak treatment]

The most expensive wine is probably in the $20+ per bottle range in cost which equates near enough to a retail price of $100.

Above $100 is reputation and demand and marketing

I suspect given high land cost in Napa costs maybe higher and I have never seen French costings for 1st Growths and Grand Cru Burgs [silly prices per hectare for grand cru vineyards] and luxury champagnes [1 million euro per hectare]

Hope that helps

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Reply by GregT, Nov 16, 2010.

That's great info Stephen and I completely ignored the marketing and distribution costs.

We figure a 3 or 4 times markup for imported wines.  In other words, a wine that is $5 at the winery will hit the retail shelves in the US at around $20.  The discounters will hover around $15 and the "regular" stores that don't buy dozens or hundreds of cases at a time, like your neighborhood places, they'll hover around $20.

The importer buys at the winery.  At that point, he's got to get it from the winery, which is usually far away from transportation and off in the hills somewhere.  He gets it to the dock, has it loaded onto a ship and pays for the insurance and shipping and if he's any good, pays for refrigeration all the way.  The refrigeration will add about a dollar a case, so it's not all that expensive, but many people don't pay it.

The importer also has to get label approval, do all the filings, etc.,  So it's not like he's piling up profits.  Then he's got to sell the wine. 

If you've got a great bottle and it's in high demand, you're golden.  But most wine isn't like that.  Most wine is fungible.  So you've got wine A that everyone wants and wine B, C, D that they can take or leave.  What do you do? First question is why did you take those wines? 

I'm not talking about bad or flawed wines, just wines that won't jump off the shelf.  You take them because you want to round out your portfolio, because you thought they'd sell, because the winery wouldn't release some other wine unless you took those, etc.,  It depends on who's got more power and what your relationship is.  Then you're warehousing those wines and you need to get rid of them yourself.  So you try to sell them and maybe you have no problem.  If you're a different type of person, you try to force them into the store/restaurant by making the buyer take those if he wants to buy the prestige wine A.  And at the end of the season, you've held them for a year and maybe you put them out on clearance to cover at least some of your costs.

Those losses and costs get factored into the price of the bottle as well.  So the $30 bottle might end up covering the bad decisions of all the $8 bottles. 

If you have your own warehouse, you cut your costs. If you don't and you're a little importer trying to develop a portfolio of "artisinal" wines, you pay someone every time they touch a bottle and even when they don't.  So those little shops with the hand-crafted wines are selling wine for $15 that may have cost 1 or 2 Euros back at the winery, because the entire cost structure from the winery to the shelf is higher than for someone else.

And the big guys with high-volumes?  They're unionized and paying labor costs that are far higher than the small guys, so they need to pump out a lot of wine thru the door.  Their economies of scale get eaten up before the customer touches the wine.

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Reply by Walter JA Vonk, Nov 16, 2010.

Hi all

Thank you each and all so much for all the input. One realize again the massive amount of parametres defining the price.

We are wine-lovers because every bottle is an adventure. Every yeast, every wineyard whether a bottle from the chateau or from the cooperation brings a different taste. The variety is fantastic.

Having all said, I keep wondering about the large differences in price. I am living in Portugal with predominantly small wineries. I can buy bottles produced on the "chateau", handpicked, still pressed with bare feet (labor intensive I would say) put on aok with a rich, intensive pleasant taste for € 6. As said before, I can also buy bottles fom € 30. When I buy once again a bottle from € 30, than I put on my best suit when drinking. Most of the time I get disappointed, while looking around searching the labels and discovering a promissing bottle at € 5, most of the time I get pleasantly surprised.

In Portugal many bottles have much information on their label. Surprisingly I noticed that the higher the price the less information you find on the lable.

I sincerely believe that the guys with the high prises missing an opportunity here.

We are wine lovers because evrey bottle is an adventure. Besides the taste we like to know and understand the background of the wine. The country, the soil, the production specialities. By nature we are collectors. Should good interesting information on the label not increase their turnover.? 

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Reply by GregT, Nov 17, 2010.

Here's a nice article on the cost from a winemaker in California.

http://www.coffaro.com/BrendansTruth.html

As far as info on the bottle, why would it increase turnover??  If you love a wine and it has no information, are you going to stop buying that wine because of the info or lack thereof on the label?

In some countries it is illegal to post some information on the label.  In Bordeaux for example, they are not allowed to list the grapes and their percentages. The theory is that the terroir is more important than the grape varieties.  So that is some information you'll never have.  If they do reverse osmosis or add sugar, they're not going to put that on the label either because you may think it's "artificial". 

Do you know everything about your cell phone, assuming you have one?  Do you know everything about your stove, your automobile, etc?  I am bored to tears hearing about cell phone technology but some people live for that, they participate in cell phone forums, they read the latest magazines and articles, and they attend conventions.The cell phone makers love those people because they are the early-adopters and they influence the market, but they are only a very small fraction of the market. 

Same with wine.  A tiny percentage of wine drinkers want all kinds of information.  A percentage of them will go out of their way to find it.  Probably 95% of the wine drinkers in the world couldn't care less.  For prestige bottles, the reason they are "prestige" bottles is because of their name, not because of any additional info that may or may not be available.  If you're going to spend $870 for a bottle of Classified Growth Bordeaux, you know what you're getting.  You didn't buy it because it was your favorite in a blind taste test.

In Portugal, the "better" producers used to save their grapes for Port and making a still table wine was considered a waste of grapes.  It's largely because of the lack of growth and in fact, the decline, of Port sales that many of them began making table wines.  Those houses have great vineyards, usually on steep slopes, and they have reputations as serious producers.  So they're going to spend a lot of money on their production and afterwards, they're going to want to get as much as they can for their wines.  It's why a Portuguese wine that's been produced for maybe 10 years will be three times as expensive as a Beaujolais that's been produced for several generations.

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Reply by walter vonk, Nov 22, 2010.

Hi Greg

Sorry for ther delay

You are right, I will not stop buying a wine because lack of info on the label but you know as I know there are wines we know from "history". lets keep it to France, like chateaux Margaux, Romanee Conti, nuits st Georges, Puligny Montrachet, Chablis etc

You have the same in Italy, Barola etc, Chili, South Africa etc

But you don't drink them everyday!

So there I am in the wineshop looking for opportunities.

If I buy a cell phone or car I am looking for certain featurers of special interest to me.

In the wine shop I see 20 bottles with no special information on the label, not heard of them before but costing betwen € 20 and 30 the bottle. I try the € 10 range first.

If I drink a bottle a day it already will take me over one year to try all bottles below € 10 in Portugal. Why should I try the upper range if I do not know if they have special quality measures, bottled on the chateaux, no filtration done and what have you. I am not buyng an unknown wime because the price seems to indicate there is someting special to it! I am also not buying the bottle of € 30 because the guy is managing his costs well

Walter J.A. Vonk 

 

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Reply by GregT, Nov 22, 2010.

But in the end it comes down to what you're willing to pay.  I bought a few bottles recently at $100.  The going rate is up to $200.  I checked my cellar and I had a few already.  I paid $40 for them. 

What accounts for the cost difference between $40 and $200?  The new bottles were just released from the winery. It's over 30 years old.  There aren't that many left.  The costs to the winery were sunk nearly 40 years ago, so those don't get figured in.  The opportunity costs?  Perhaps, but the family has owned the winery for generations.  So the differential is only accounted for by the fact that some people are willing to pay more for a wine that's been aged, that's got a track record, that has some reputation, and that has something undefined beyond what's on the label - in fact, it's the label itself.

There's a small market for said wine, I'm perhaps a part of that market, but I don't need any info on the label - I know the wine, the winery, the family, etc.  Not arguing with you here, just pointing out that the influence of info on the label isn't that great - it's going to matter to a very tiny segment of the market.  I'm not changing my habits based on the info on a label.  If a wine is expensive, I'm not buying unless I've tasted the wine.  Some people will - that's their choice, but not mine.  Once I've tasted the wine however, I don't really care about the info..  For me, and I suspect for a number of people, the info is of academic interest only.

All that said, I'm in favor of more information.  Not necessarily to help me decide anything, but just for curiosity.  Whether a wine is filtered, fined, bottled at the chateau, made from purchased grapes, from a single vineyard - all that is simply information, not something I'm likely to act on. 

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Reply by Stephen Harvey, Nov 23, 2010.

Market perception

Bordeaux example

1982 Chateau Lafite Rothschild regularly sells for $1,200 to $1,600

1982 Chateau Leoville Las Cases regularly sells for $300 to $400

both get equivalent high ratings from many highly regard wine writers and critics [and RPjnr]

One is classified as a 1st growth the other a 2nd growth

I have tried both [and whilst my assessment is as subjective as anyone else] there is no discernable difference other than to say I had an 82 Lafite which brings a greater wow factor [thats not me going wow but many consumers do]

I am sure there is many equivalent stories

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Reply by dmcker, Nov 23, 2010.

I do find them different wines. But not different enough to justify that price differential. First Growths and similarly parallel labels in the area have just gone absurdly over the top in pricing over the past decade. Wasn't the case, say, 20+ years ago. Still a price differential then, but nowhere near as large. 

As much as anything, can probably blame newbies to the market (Japanese in the '80s and '90s, Chinese now, others all the while, a couple of economic booms before the busts with nouveau riche money even in the US) for pushing up those labels recognized for their prestige, without any depth of followup for the other similar but less-on-a-pedestal labels, due to lack of depth or breadth in knowledge by those newbies. 

So the ridiculous rise in price for those pedestal wines is less about wine itself, and more about other economic realities.

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Reply by Stephen Harvey, Nov 23, 2010.

Sadly what you say D is so true, but I guess that is the harsh reality of our capitalist society, but we soldier on looking for the next great wine and enjoying the journey.

The cold comfort is that when we stumble on a first growth or grand cru burg we have travelled the road, the popstar who drinks it for status well.....such is life


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