Friday, June 25, 2010

Friday Lineup: The Price of Wine

Over the past few days, I have had several casual conversations about the price of a bottle of wine with colleagues in the trade and with my wife last night at dinner at Twelves Grill, our neighborhood BYOB in West Grove.

In each case, I said I really don't give much consideration to the price of a wine, whether I am tasting samples sent to me or sampling at wineries as I often do, other than to pass the SRP (suggested retail price) along to readers if I write about the wines in question.

I also said the only time I really seriously consider price personally is if

1. I am buying a bottle with my own money, or

2. Someone is paying me to consult with them on establishing their wine prices, which, thus far, no one has been bonkers enough to do, although I have has many casual conversations over dinner or in the cellar with winemakers about their pricing.

At VinExpo last year, my friend and colleague, Washington Post columnist Dave McIntyre, and I were tasting and commenting very positively on a fantastic bottle of Aussie red at 9 a.m. in the morning. Dave asked the winemaker the SRP for the U.S., then later commented to me, "I like it, but I don't know if I like it that much at $86 a bottle." And there you have the differences in philosophy. Dave and some other wine writers like to pontificate on what a wine is "worth," while I and some other writers are happy to describe the wine and its provenance and let the potential buyer decide whether he or she wants to spend that much. Sometimes I might be tempted to comment on the great value of an excellent wine being sold at $15 a bottle, but seldom comment the other way around.

Price, like beauty, is in the eye of the buyer, who may want to purchase a bottle to drink now or in a few years, give as an impressive gift, lay away for a child or grandchild, put in the cellar to impress people, retain as an investment to sell at auction when the price goes up or gambling debts mount, or give to charity. I have no intention of setting up shop within these potential buyers' minds as they make those decisions. A bottle that cost $20 or $200 or $2,000 will be "outrageous" to one consumer and a "bargain" to another, depending on why the wine is being purchased.

People who are new to the business often think price is just a matter of cost of goods and labor plus a profit. If the cost of producing a bottle is $10, give $2 profit to the producer, and the retail price will emerge at somewhere around $25 to $30 a bottle. Simple. Deal done. In real life, other factors come into play, such as the 3 Rs - ratings (Enthusiast, Parker, Spectator), rarity of the bottle if little is produced or remains available, and the reputation of the winery and the region.

Additionally, a producer - being a farmer - has to consider other factors, most notably quality and quantity of the harvest. Having a 30 percent crop reduction in a cool year might bode well for quality, but seldom can the producer simply raise his price per bottle to recover that loss. Plus there is investment. Drug companies love to point out the years of research costs that must be recovered in defending the prices of their medicines. The same is true of wineries who, say, need to replant three acres of old vines. Not only does it cost a lot to do that, but replanting also deprives them of any income off that land for three years or more. And they complain about the price of new oak barrels the way consumers complain about the price of bottles. Plus, if a wine has to spend extended time in barrel or bottle before shipping, there's the cost of carrying inventory.

Competitive pricing is another factor. For years, the trade mantra has been, "I can get the same quality wine at a lower price in Australia or Chile or Argentina," whenever a producer tried to sell a wine to importers or distributors or retailers or consumers. This particularly hits American East Coast wineries where production costs are higher by double digits than West Coast or foreign producers ("why" is another discussion). Local restaurateurs and retailers often complain that local wine pricing is not competitive. Yet local wineries - especially where I live in southeast Pennsylvania - find that it means something to consumers to buy good local wine even at an increased price. One, they like to buy local wine just as they like to buy local produce. Two, there is the social value of being able to go out with friends to the local tasting rooms for an afternoon of moderate drinking and lots of talking. Three, for lovers, it's a cheap date. Four, there is pride in having "my local winery," just as you identify with a certain football team or soccer club. Five, going to local tasting rooms provides entertainment for out-of-town guests. In short, there can be a built-in value added for a wine that costs more than an outsider perceives its true value.

Nowhere is competitive pricing more evident - and more fun to follow - than in Bordeaux. There are several reason for this. Bordeaux is the world's most-visible wine region. Production at the middle and top levels is sold through a level of middle-men - the negociants - who can influence price greatly but never set it, at least not at the top houses. Finally, Bordeaux has traditionally lessened the impact of carrying inventory by selling the wine in advance to these "negoces" who then sell the wine-in-progress in advance as "futures" to importers and retailers, who do the same to consumers. So in Bordeaux, setting the price on a new vintage is very complex and nerve-wracking for many producers. They have to ask, what was the reaction of the negoces, the trade and the wine press when the last vintage was officially tasted at just a few months old as barrel samples at primeurs in April of the following year? What did I charge last year? How much inventory of previous vintages is still on the market? What is the state of the world economy? If America isn't buying, can I sell it in China? What price will my neighbor or my competitors charge? Should I wait for them to "declare" first, or should I? Should I price before Parker gives the vintage - and my wine - a tentative score? This dance - called locally in Bordeaux "the campaign" - starts even before primeurs week is over and can extend two to three months into mid-summer with some vintages.

As I write trade pieces for such publications as Beverage Media in the U.S. and Drinks Business in the U.K., I absolutely love to report on these pricing issues and especially Bordeaux' campaign dance. Writing about both wine the drink (for consumers) and wine the business (for the trade) is a delightful experience that is worth those 12-hour days when traveling or at home trying to meet deadlines.

But to answer the question for a consumer, "Is the wine worth the price?" - you tell me.

Wines of Interest

2006 Rubicon Estate ($145). Fans of Rubicon Estate will certainly enjoy this one - smooth, mellow red and purple fruits with an underlayer of forest floor and ripe tannins. To me, however, it could use a bit more stuffing for the long haul and a bit more definition in the middle palate.

2009 Montecillo Verdemar Albarino ($14). Very refreshing white from Spain's Rias Baixas, it has fresh green flavors with a light creaminess, and is more floral than vegetal in impact. Good spicy notes around the edges. A party or a table wine.

2007 Peter Lehman Clancy's ($16). This is a very satisfying red in the style of most of Lehman's reds - good balance and some leaness to go with dried blackberry and raspberry fruits and a touch of violets. Blend of Shiraz, Caberbet Sauvignon and Merlot.

Until next time...

Roger Morris