Sunday Read: When More is Less

My not-so-secret-anymore-crush Jancis Robinson published an article in the Financial Times recently exploring the pricing of wines, and its correlation – or not – to quality. A rather obvious non-correlation in my book (and it looks like hers as well), but she still takes on the topic from the perspective of newly emerging wineries that decide to go high-end price-wise right away. Yes, I understand that wine is a product and products are up for sale and that clever marketing can work miracles for some producers…Jancis’ point, as I read it, is that we need more education, and more educated wine drinkers to find out the difference between price and quality, a lesson that is as true for America as it is for Europe and Asia.

By taking Asia as an emerging wine consumer market, this also plays on a theme that came up in the discussion to the Reuscher-Haart article I posted.  My friend Ernest pointed out that he had watched the movie Red Obsession which details China’s rise as a wine consuming country and how it is distorting prices. My comment was that this is what the US market had done to Italian and French wines since the late 1970s and most importantly the 1980s…that this phenomenon is not exactly new, it is just a repetition of how some US buyers, who through Reaganomics were able to amass huge piles of money, distorted the market by paying incredibly high prices…

Most importantly, this struck me, because it rings true of what some of my winemaker friends in the steep hills of the Mosel have told me before:

“The joke is that wine is not very expensive to make. Production costs of even the grandest red bordeaux are rarely more than €10 a bottle, €30 at most if the château is run on bank borrowings.”

10 Euros, mind you, is $13. Many German Rieslings which are grown and harvested under extreme geographical conditions are produced for less than that, because they sell for 10 Euros in Germany…that is including a 19% sales tax.

Have a great Sunday!!

Jancis Robinson: When more is less

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16 thoughts on “Sunday Read: When More is Less

  1. Stefano says:

    Jancis Robinson rocks, Man! :-)
    Thank you for pointing this out.

  2. mrhotpies says:

    Oliver; come up to the wilds of Ontario and gasp in disbelief at our insane pricing structure. The government takes 50% at the point of production from our wineries! As a consumer, your the one that eventually pays for this, plus a 13.5% sales tax on top. That’s a cool 63.5% before we even begin to factor-in the “what’s hot and what’s not” pricing aspect.

    Added to the mix is our state-run liquor body, which merrily buys up over produced product and even wine lake bilge that it then allows to be mixed down with Niagara’s over-production. All of this is priced at a range that Canadian producers find hard to match. In effect, the provincial government has done everything it can to stack the odds against its own domestic wine industry.

    • That is plain and simple disgusting. What a horrible idea. I guess it all goes back to sin taxes and all, but now is probably a really nice source of income for the state, so why change it? Yikes…working hard to destroy your own industry. What a pity…

  3. vintomas says:

    Yes, the wines from steep sites in for example Germany require a lot of manpower to produce, since manual picking is the only option. I’ve heard established producers in Mosel that seem to charge a lot claim that they are worried about the possibility to produce these wines in the future. That they use grape pickers from Eastern Europe, often Poland, is apparently not primarily a cost issue (labour costs in Germany are high…) for the better producers, but an issue of even finding seasonal agricultural laborers suitable for the job. It would be a shame if machine-harvested German Riesling from moderate slopes would be the only option in the future… :-(

    In Bordeaux – often thought of as a region where all well known producers make obscene profits – Sauternes have a similar situation. It’s actually more expensive to produce than the top red wines, but all sweet wines are difficult to sell, even when they are good. Even the well-known premier cru classé châteaux are apparently very difficult to run at a profit. So many of them have converted partly to producing dry white wines, despite only being allowed the basic Bordeaux blanc appellation. So you should be suspicious if someone tries to sell a Sauternes property to you at what looks like a good price… :-)

    • Thanks for your input, Tomas! That was totally new to me that Sauternes had similar problems. It does seem to be a white wine problem…I like to argue that all the old, cigar smoking men who have lost their taste buds need dark, deep reds to actually taste something….which is harder for a white wine to achieve…;)

      The harvesting is indeed an issue. The producers along the Mosel that I know have been working with their mostly Polish harvesters for many, many years. I have worked in one of the vineyards in 2011 and they were just phenomenal in their dedication, thoroughness and speed. I sure hope there will be enough people to do the harvesting in the future as well.

  4. ksbeth says:

    interesting behind the scenes look at vino, i’m going to open a nice red and contemplate this )

  5. Josh says:

    Good entry! As a side note, the world of whiskey has been experincing something similar over the past few years but with different reaults because of the requirements of aged spirits.

    Asian markets have been driving up whiskey prices as well, mostly with regard to Single Malt Scotch but also with others. The demand for “prestige” bottles is where the impact has become most apparent but the increased demand has trickled down to middle and lower shelf offerings as well because the supply of well aged whiskey has tightened. This has led to the dropping of age statements and in some cases lowering of quality of the mid and lower shelters. Single Malt Scotch particularly sensitive to this b/c of the higher prestige factor overall and because it is aged for much longer than American whiskeys or blends.

    • Thanks for that input Josh! Yes, I have heard about that price shift before and it is correct that it does trickle down (look at all the second to third rate wine labels in California that still can charge a fortune for their wines)…demand leads to changes in production. Also not necessarily a new phenomenon, right? Look at how Bordeaux has changed its wine making to produce earlier, easier accessible wines, to name just one region that is adapting to growing demand.

  6. I remember the instructor in Somm school saying that producing a bottle of Dom Perignon is only 2-3 bucks. Even if it’s 15-20, that’s still a monstrous margin. And thru the years they’ve built up enough name where they don’t need all that marketing push.

  7. talkavino says:

    Oilver, this is a very interesting subject, as pricing strategy for any product will make it or break it. It might be even more fascinating in the world of wine, as the price does not always translate into a gratification we are looking for when we spend that high $$$ on the wine. However, I have a comment on what you said here about “cost to produce”. Your cost might be $13, true – but you will have to spend double or triple that to push your product through the market – thus by the time the wine will reach the consumer, it will be already $25 or more… Nevertheless, you can buy decent generic Bordeaux around here for $10-$15.
    I always maintain that wine is the form of art – if you look at the wine this way and not as a commodity, the idea of “right” pricing completely shifts…

    • Ah, Anatoli. Good point. That does explain the pricing better, but I am just not sure how much it is art and not just a commodity. But our world has always been and will continue to be driven by market forces, and if you can ask for a price and others are willing to pay for it, then we assume that is fine…might be my anger at being excluded from a lot of the wine market…just like the art market…

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