Understanding Why Wine Costs As Much As it Does

November 23, 2018

Understanding Why Wine Costs As Much As it Does

Why does wine cost as much as it does? It's a simple question, and one that every wine lover has, at some point, asked themselves. If you stand in front of a selection of wine in a shop or supermarket, you may notice that the price points vary significantly. Wines from the same regions, from the same years can be at completely opposite ends of the scale in terms of cost, with little to no explanation as to why. Does that mean that the expensive wine is better? Does it mean that the less expensive wine is excellent value for money? These are questions that are only possible to answer truthfully with context, but there are certainly elements of production, transportation costs, taxes and supply and demand that, if you understand them, will give you some indication of why wine costs as much as it does.

So, that's what we're going to do! Starting in the vineyard itself all the way until that bottle of wine sits in a shop or restaurant, ready for you to open it, we're going to break down the various costs of making and selling a bottle of wine. There isn't a one-size-fits-all calculation, sadly, which mirrors the complexity of the world of wine quite aptly, but we hope that by digging into the details of how wine gets from a grape hanging on a vine, to a glass in front of you, we may be able to shed some light into just why there are so many differing prices.

Cost of Wine Production

Production


The first, and most obvious element of a wines cost; making it in the first place! Wine is ultimately an agricultural product, grown in different regions around the world, with all the inherent costs that's associated with. What's sometimes misunderstood is that where you grow your grapes, and how you grow them, makes for an enormous difference in cost. Then of course, there's the winery itself. Wine-making equipment is expensive and some of the wines we love have had a lot of money invested in them, whether it be for new oak or a slow, careful assortment of the grapes to ensure quality. Below we've written down some considerations that aren't immediately available when you're looking at that bottle of wine!

Firstly, is the land owned or is it still being paid off? Wineries in the US, for example, are likely to be 1st generation wine-makers and probably still have the cost of the land to pay off, which will be significant. Comparatively, a winery and its related land in Spain may well have been passed down through several generations, meaning that the cost of ownership is no longer there for the current wine-maker.

Is the land flat or on a hilly slope? Slopes tend to produce better wine as they get more exposure from the sun, but often if the incline is too sleep, machines and tractors can't be easily used and in some extreme cases, every element of viticulture has to be done by hand! The vineyards of the Mosel Valley in Germany, Cote Rotie in France and Ribeira Sacra in Spain are often referred to as 'heroic' viticulture for this reason, and adds significantly to the cost. In the Mosel, it's calculated that 3-4x as much time needs to be spent on the steep slopes than the same vines on flat ground!

How high is the yield? Yield is the amount of grapes produced per plot of land, and obviously, the more grapes you produce, the more wine you can make. However, some vineyards have limitations set on the yield by local authorities and, past a certain point, higher yields are detrimental to quality. This is a huge factor in cost. Generally speaking, the more famous European wine regions have strict limitations on yield, so that bottle of Burgundy isn't just $10 more expensive for the sake of it! Case in point – the average yield in Priorat, Catalunya, hovers around 30hl/ha (Roughly 4,000 bottles) whereas a high yielding vineyard in Germany may produce up to 100hl/ha (13,000 bottles)! Yields can be affected greatly by the weather in a vintage as well, particularly in the cooler, wetter regions of the world.

Is the producer certified organic or biodynamic? Especially in cooler, wetter regions, farming organically, whilst admirable, is an uphill struggle to try and maintain your vines in good condition. Grapes will be lost, lowering the overall yield, whilst more money will be spent in the vineyard, meaning a squeeze from both ends. Look for the organic and biodynamic labels on the back of bottles; vineyards farmed in this way will always have to factor in that extra cost.

Which quality control methods are being used? Top quality estates will be making various selections throughout the entire process, including spending more time in the vineyards to discard poor quality fruit, harvesting by hand and, once the grapes have been received into the winery, putting them through an entirely different selection process to ensure quality. This can cost thousands more than machine harvesting, fermenting everything together and then filtering out any MOG (Material other than grapes) afterwards.

How much money is being spent on equipment to make the wine? Some wines are quite simple, refreshing and uncomplicated and don't generally cost a great deal to make. Conversely, some of the worlds greatest wines have care and attention lavished on them. A producer intending to use a significant proportion of expensive, new French oak is going to be spending upwards of $1,000 for a 225l barrel, which will only be enough for 300 bottles of wine, making that an immediate increase of $3.33 per bottle!

Even closures and packaging have a part to play in the cost of a wine. Heavy, thick glass bottles cost several dollars each whilst the best quality, natural cork can cost up to $1 each. Affordable wines tend to be sold in lighter glass bottles, with little fanfare whilst more ambitious bottlings can spend a lot of money on ensuring their wine is well packaged and protected. This isn't even considering costs like label design and any other innovation a winery might be using to make their product stand out!

Wine Transportation Costs

Transportation, Logistics and Taxes


So, once the wine has been made and the production costs are finally over, which as you've seen can vary drastically, it's time to get that wine from Point A to Point B, with all the obstacles in the way. If the wine is being sold locally, this is a relief as it'll cost a lot less to get it onto a supermarket shelf, but the reality of a global wine business is that often wine is pouring in from all over the world, with all the complexity and cost that entails.

So, the wine is about to hit the road. How far is it going? Wines being sold from closely neighbouring countries or even better, in the country of origin, are going to be a lot less expensive than wines being sent from the other side of the world. Not only that, but wines going through many different time-zones and climates will need more protection if they're to arrive in one piece.

Has the wine been shipped in bottles or in bulk? This is a relatively new practice but one that sees over 20% of the worlds wines shipped in bulk containers. Particularly for high-volume, New World wines, it's a lot more cost effective to ship them in large, plastic containers known as Flexi-Tanks and bottle them in the market of sale, than it is to ship those bottles. If you're shipping in a standard shipping container, you can usually fit 12-13,000 bottles inside, depending on their shape and size, which is around 9,000 litres of wine. Comparatively, shipping wine within a Flexi-Tank within that same container allows you to transport almost 3x as much; 26,000 litres. That's quite a saving!

Has the wine been shipped using temperature control? This is a huge issue for us and a big part of the reason we created the Lazenne Wine Check; high temperatures and large fluctuations will kill your wine faster than almost anything else. A wine being shipped from South Africa to the USA will go through many different changes in temperature, and wines not protected by a temperature controlled reefer may well suffer the consequences! It's over twice as expensive to ship a wine using a temperature controlled shipping container, but it's most certainly worth it, particularly for higher quality wines.

How much are the taxes to import the wines? This is a big one and accounts for a great deal of price variations when looking at the same wine in different parts of the world. Some countries have prohibitively expensive duties to be paid on alcohol, whilst others encourage the trade of wine and tax it minimally. The UK, a mature market that has been purchasing wine for hundreds of years from abroad is a good example of a country with expensive importation duties. For a bottle being brought from outside the UK, a duty and tax of $3.50 for each and every single bottle is charged, which has a huge impact on the bottom end of the market. If you ever needed a reason to trade up, having over 70% of a wines retail price being pure tax is a good one! These taxes are the same whether you buy the wine in a shop or bring it into the country yourself. Check our our Guide on Taxes and Duties at the Airport to learn more about the minimal costs of travelling with wine!

Certain wines are taxed more highly than others. If you're buying a fortified or sparkling wine, chances are, taxes will be higher for these products than a normal bottle of wine, and spirits will often be even higher as countries often determine their tax rate by the % of alcohol in a wine. To use the same UK example, a bottle of wine over 15% ABV will go up in tax duties from $3.50 to almost $5! Within the US, this is also true albeit at a lower tax rate, and then individual states may then have their own taxes to add on top.

How much are distribution costs? Distribution and logistics to get the wine from importation to a store can also vary widely. Within most markets, importers sell directly to distributors who may also have a retail outlet. In countries like the US, this is a little more complicated, as importers aren't also allowed to be distributors or retailers, meaning that wine has to go through a compulsory 3-step process before it even appears on a shop shelf. The issue here is that each of those steps requires a margin to be taken from the same, making it more and more expensive.

Is the wine being served in a shop, a bar or a restaurant? The differences in price in the on-trade vs the off-trade are often staggering, particularly in large expensive cities, and it can be hard to justify paying 5x the retail price to drink a bottle of wine in a restaurant. This is, sadly, the result of the restaurant industry where margins are getting ever tighter. Customers know the cost of food well and are unlikely to suddenly be comfortable paying 2-3x as much for their steak as they're used to. However, with wine being something of an unknown for most people, this is where a lot of restaurants make their margins which allows them to stay in business. Bad news for us wine lovers!

Supply and Demand of Wine

Fashion, Demand and Everything Else


So, that bottle of wine is finally there in front of you. Are there any other considerations other than the ones we've mentioned that may have gone into the price tag? Absolutely!

Supply and demand is just as important and powerful a mechanic in wine as it is in anything else, and often exaggerated by the differences in production sizes. Burgundy is a good example as it's a fragmented industry full of smaller producers, many of whom make between 10,000-25,000 bottles a year. It doesn't take a lot of demand for those wines to suddenly become very expensive! Compare this to a big brand like Yellow Tail from Australia, who are producing well over 100,000,000 bottles a year and it's easy to see how this can make a big difference in price!

The whims of fashion is also a surprisingly important element of the cost of wine. Famous, desirable regions can command more money for their wines. If you ever get the chance, the next time you visit a wine shop look at the difference in price between a bottle of Cabernet Sauvignon from Sonoma County vs a similar wine from Napa Valley. There are land costs to take into consideration, but a great deal of the difference is simply that Napa Valley is considered a more desirable area for wine production and has far more clout as a name. Did you read our guide to our Top 10 Under-Rated Wine Regions? There's some wonderful value to be had here!

Critical scores can also have a bearing on the price of a wine. Have you ever been in a wine shop and seen stickers on wines, with a score out of 100 being displayed, usually 90+ points? These are so-called 'Parker Points' due to Robert Parker's adoption of a 100 point system to evaluate wines. This isn't as much of a factor now as it was 20 years ago, but a wine that has a good score from celebrated wine critics still tends to be considerably more expensive than those that don't. A wine that costs $30 in one vintage can add as much as $20 to their price tag with a hefty score from a renowned name!

Finally, the place where you purchase the wine is also going to make a difference to the cost. If you're buying in a supermarket, chances are the wine is as affordable as it's going to ever be, as margins are cut to the bone to work in this ultra-competitive market. Smaller retailers and independent stores will be more expensive by comparison, but in our experience that little extra cost is well worth the care and attention afforded, as well as the more interesting selections!

King Valley Cabernet Sauvignon

Conclusions


As you can see, there's a lot of different factors that go into how much a bottle of wine costs, and we've only really scratched the surface! Trying to determine a wines quality by price, as a result, is a misleading exercise and as long as you avoid the wines at the very bottom of the price-chain, there's good value to be had at every step of the way. As a general rule, under the $25 thresh-hold, increases in price are often related to production costs and packaging costs, whereas over $25 there's more scope for supply and demand, as well as the whims of fashion to come into play.

We often make the case to buy wines from smaller, independent or even from the winery itself, and we hope this guide has shed some light as to why. Wine is such a complex, nuanced product and just from looking at a label, it's often difficult or even impossible to fathom the steps that have gone into making the wine the way it is. Shopping at stores where dedicated, trained members of staff can help guide you through this process isn't just a good way to learn about the world of wine, it's a great way to find bargains as well! Then, should you find yourself in a position to visit a winery, we hope it goes without saying that bringing back your bottles with you is a great way to avoid a lot of these costs.

For more on our specially designed wine luggage and more detailed information on how to travel with alcohol, check out the links below:






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