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The Price is Right? What Influences Wine Prices

How much is that bottle of wine in the window?

Not that you'd want to buy wine that's been sitting in a window for any extended period of time, since it's probably baked from the exposure to all of that light and temperature variation.

Anyway, I'm off to Chicago for a non-wine-related business trip. While this jaunt has nothing to do with vino, that hasn't prevented people from asking me wine-related questions! One of those recent questions got me thinking:

"Some wines seem so expensive... are they really worth it?"

The fine folks asking me that question are just looking for some good old-fashioned knowledgeable advice. But what they don't realize is that it's really a trick question.

My reply is usually something along the lines of

"How much did you pay for your house? Was it worth it?"

I'm not trying to be a smart-ass (that comes naturally), I'm just trying to get them thinking differently about a wine's price tag. Is the price right? And if it's "right", for whom is it right? You? Me? Everybody?

There is a very, very simple reason why expensive wines are expensive, and it has very little to do with whether or not that wine is "worth" the price vs. a comparison with a similar wine at a lower price...


Does quality impact the price? Sure, but just like a fine dining experience vs. a trip to In-N-Out Burger, there is a relative level of quality involved, which is in no way a determinant of whether or not you'll actually like that expensive wine. But that's not the fundamental reason.

What about production and distribution costs? Sure, they affect the price too. If a winery picks and sorts their grapes by hand, that's going to be a lot more expensive to do than doing it all by machine. In those cases, the winery is certainly going to pass on the additional cost to you, and in return you'd expect that the wine is going to taste better than one where the machines missed a few snakes and lizards during the sorting process... But that's not the fundamental reason, either.

And as for the critics? Unfortunately, there is no denying the impact of critis like Robert Parker, who has followers lining up behind him so blindly that they will buy wine simply on the score that he gives it, not taking into account their own dis/likes. So the herd mentality has an impact as well, since a good Parker rating can easily send a wine's price over $30 / bottle. But it's not the fundamental reason.

Look at it this way: If your house is in a great area and built by a respected builder, then likely people would be willing to pay more for your house than another house nearby that doesn't have those things going for it.

Similarly, the reason that a Harlan Estates red can cost up to $900 USD / bottle is really because of one thing: People will pay that much for it.

A little bit of supply & demand, for sure, but fundamentally the market has decided that $900 is a fair price. Just like the market decides, over time, what your pad is worth. Somewhere, people are consistently paying that much to get in on the cache factor of owning some Harlan.

God bless 'em. If you're one of those people, let me know how that bottle tastes. But please, don't tell me if you think it was "worth" the $900 (or not)!

Cheers!

(images: amcati.com, klwines.com)

2 comments:

Arthur said...

Nice piece, Joe

However, sometimes peole end up aying BMW prices for a Yugo...

Robert McIntosh said...

excellent point, and one I try to make to people as well on a regular basis

One of the biggest things holding back the wine business is the ingrained cost-plus model of doing business. Adding a simple margin to cost of production is the hard way to build a successful business and no way to build a brand!

I remember a time when I was working at a medium sized media business in the middle of a take-over. One of the due-diligence questions was: Why is the company worth $x million?

The frustrated CEO I worked for replied: "because that is what they are going to pay for it!"