Differentiating the Price of One Wine Over Another
For the past few weeks, we’ve been on a virtual tour through a number of Italian wine regions. I hope you’ve enjoyed our journey. However, this week’s planned virtual tour to our next destination is suspended. As we are about to leave the Umbria region, a new wave of COVID-19 begins to wreak havoc on an extensive swath of the country. We decide to virtually head back to the United States to shelter in place. Watch this space for a future return to additional regions and explorations.
A few weeks ago, we ventured onto our patio for a pandemic protocol-compliant dinner with long-time friends. Both couples share an affinity for California Cabernets. The husbands decided to go into our respective wine cellars and select two “Cal Cabs”: one everyday selection and one higher-end wine that we were saving for a special occasion (“special occasion” being a state of mind).
As we were enjoying our well-paced evening of food and beverage (Four wines? Yes, over six hours with equal amounts of water and wine being consumed), the thought occurred to me that both the $75 and the $20 wines were impressive, in their aroma and flavor profiles and their balance of fruit and acidity. How was it then that these wines carried such different price tags? What justified such a disparity in price? Quality? Craftsmanship? Costs of production? Marketing hype?
Afterwards, as I pondered this question (with wine glass in hand), I began to consider the individual quantitative and ethereal aspects of winemaking. Is the ultimate price of a bottle of wine commensurate with the underlying cost to bring the bottle to the retail shelf?
I decided to restrict my analysis to California Cabs, specifically Napa Valley, the mother lode of fine wines across a broad spectrum of prices.
I segmented my analysis into two distinct but interrelated components: the macro issues that differentiate California/Napa Valley from other wine-producing regions and the micro issues of producing wine in the vineyards and wineries. Below, the macros. Next week, the micros.
Each wine region around the world has varying elements of cost-to-produce: costs of land, grapes, labor and technology. These factors are markedly different in France (and other Western Europe countries), where land may be in family hands for multiple generations (no recent investment, no outstanding mortgage) and where grapes may be produced in a basic, agrarian manner without the use of modern equipment or technology (low cost).
In Napa Valley, the wine industry is younger and certain nouveau riche winery owners have deeper pockets. Hence the cost of land tends to be higher and the temptation to invest in the latest (expensive) technology is compelling. A few macro factors to consider:
1) An acre of prime vineyard land in Napa Valley may fetch as much as $400,000, exponentially more than any other wine region in the world.
2) Grape harvests are intentionally managed to low yields to improve fruit quality, thereby raising the average cost of a bottle of wine.
3) The average cost of a ton of Cabernet grapes last year was $8,000, compared to less than half that in other wine regions.
These factors contribute to the higher entry-level price of many quality Cal Cabs ($20 to $25) when compared to Cabernets produced elsewhere.
A caveat is in order. The current economic climate has upended the price of wine up and down the price brackets. Certain consumers have increased their budgets to restaurant-level prices for bottles, while others have been experimenting with lesser-cost wines, marking a new quality/price paradigm in the marketplace. Are these buying habits short-lived? Will the future market for Cal Cabs be permanently impacted?
Food for thought: is the incremental cost to produce cult wines with price tags of $75 (and higher) as great as the ultimate premium commanded for these wines in the marketplace? Or is this simply a case of marketing hype (the if-it-costs-more-it-must-be-better school of thinking)? And the ultimate question: who reaps the rewards of these stratospheric prices?
(Next week, the accountant’s report on the micro questions presented in this week’s column.)
Nick Antonaccio is a 45-year Pleasantville resident. For over 25 years, he has conducted numerous wine tastings and lectures. Nick is a member and Program Director of the Wine Media Guild of wine journalists. He also offers personalized wine tastings and wine travel services. Nick’s credo: continuous experimenting results in instinctive behavior. You can reach him at nantonaccio@theexaminernews.com or on Twitter @sharingwine.
