Comments on: How much does that bottle of wine cost to make? Where $13 becomes $500 http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/ wine talk that goes down easy Sat, 21 Nov 2009 08:56:23 -0700 http://wordpress.org/?v=abc hourly 1 By: How much does that bottle of wine cost to make? Where $13 becomes $500 | Dr Vino’s wine blog « Weekly Food & Wine Finds http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-235555 How much does that bottle of wine cost to make? Where $13 becomes $500 | Dr Vino’s wine blog « Weekly Food & Wine Finds Wed, 08 Apr 2009 21:43:44 +0000 http://www.drvino.com/?p=3580#comment-235555 [...] Wow, talk about return on investment! I actually get asked the question a lot about whether a winery’s costs are really reflected in a higher priced bottle. Certainly, there are expensive ways to make wine and there are inexpensive ways to make wine. via drvino.com [...] [...] Wow, talk about return on investment! I actually get asked the question a lot about whether a winery’s costs are really reflected in a higher priced bottle. Certainly, there are expensive ways to make wine and there are inexpensive ways to make wine. via drvino.com [...]

]]> By: How much does that bottle of wine cost to make? Where $13 becomes $500 | Dr Vino’s wine blog « All I Could Read This Week http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-235551 How much does that bottle of wine cost to make? Where $13 becomes $500 | Dr Vino’s wine blog « All I Could Read This Week Wed, 08 Apr 2009 21:41:33 +0000 http://www.drvino.com/?p=3580#comment-235551 [...] Wow, talk about return on investment! I actually get asked the question a lot about whether a winery’s costs are really reflected in a higher priced bottle. Certainly, there are expensive ways to make wine and there are inexpensive ways to make wine. via drvino.com [...] [...] Wow, talk about return on investment! I actually get asked the question a lot about whether a winery’s costs are really reflected in a higher priced bottle. Certainly, there are expensive ways to make wine and there are inexpensive ways to make wine. via drvino.com [...]

]]> By: G20, Bordeaux pricing, Cake wine, Australia - sipped and spit | Dr Vino's wine blog http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-234731 G20, Bordeaux pricing, Cake wine, Australia - sipped and spit | Dr Vino's wine blog Tue, 07 Apr 2009 18:17:58 +0000 http://www.drvino.com/?p=3580#comment-234731 [...] 2007, which was not a strong vintage in the region. Our previous discussion highlighted how mush pricing is relative and based on perception, rather than actual costs. And Simon Staples is back again, quoted as saying that he wouldn’t [...] [...] 2007, which was not a strong vintage in the region. Our previous discussion highlighted how mush pricing is relative and based on perception, rather than actual costs. And Simon Staples is back again, quoted as saying that he wouldn’t [...]

]]> By: Dr. Vino http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-231848 Dr. Vino Sat, 04 Apr 2009 13:28:01 +0000 http://www.drvino.com/?p=3580#comment-231848 Thanks, Carlo, for that info. True, Henri. Btw, the NY Times ran <a href="http://www.nytimes.com/2003/04/09/dining/09PRIC.html?pagewanted=all" rel="nofollow">a longish piece on the cost of wine in 2003</a>. Seems like a different era now in many ways... Has a discussion of wine price and perceived quality. Thanks, Carlo, for that info.

True, Henri.

Btw, the NY Times ran a longish piece on the cost of wine in 2003. Seems like a different era now in many ways… Has a discussion of wine price and perceived quality.

]]> By: Henri Vasnier http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-231451 Henri Vasnier Sat, 04 Apr 2009 03:55:17 +0000 http://www.drvino.com/?p=3580#comment-231451 Definitely not defending first growth Bordeaux pricing. But it must be remembered that Mr. Staples' estimate of Lafite production cost is provided in the context of price negotiations, not yet concluded, in which he is the prospective buyer, and which he, according to his statement quoted in the same article, does not expect to go well. My guess is that he's low by quite a fair margin, but that it doesn't cost more than US $ thirty or forty to produce ANY wine other than teensy production trockenbeerenausleses. Definitely not defending first growth Bordeaux pricing. But it must be remembered that Mr. Staples’ estimate of Lafite production cost is provided in the context of price negotiations, not yet concluded, in which he is the prospective buyer, and which he, according to his statement quoted in the same article, does not expect to go well. My guess is that he’s low by quite a fair margin, but that it doesn’t cost more than US $ thirty or forty to produce ANY wine other than teensy production trockenbeerenausleses.

]]> By: Carlos Silveira http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-230025 Carlos Silveira Thu, 02 Apr 2009 15:51:23 +0000 http://www.drvino.com/?p=3580#comment-230025 See Dave Coffaro'cost (also US$ 10.00) in http://www.coffaro.com/BrendansTruth.html. See also Hugh Johnson and Jancis Robinson (in The World Atlas of Wine, 5th Edition, page 83 estimates of production costs for a typical AC Bordeaux (A), a typical AC Médoc (B) and a typical well-run classed-growth (C) Cost per bottle: A: 5 French Francs or € 0.762245086 or 1.02449596 USD. B: 10 French Francs or € 1.524490172 or 1.37735009 USD. C: 28 French Francs or € 4.268572482 or 5.737988857 USD. These are 1998 estimates. I have used the XE currency converter and the EU Currency Conversion Table (http://www.unitconversion.org/eu-currency/french-francs-to-euros-conversion.html See Dave Coffaro’cost (also US$ 10.00) in http://www.coffaro.com/BrendansTruth.html.
See also Hugh Johnson and Jancis Robinson (in The World Atlas of Wine, 5th Edition, page 83 estimates of production costs for a typical AC Bordeaux (A), a typical AC Médoc (B) and a typical well-run classed-growth (C)
Cost per bottle:
A: 5 French Francs or € 0.762245086 or 1.02449596 USD.
B: 10 French Francs or € 1.524490172 or 1.37735009 USD.
C: 28 French Francs or € 4.268572482 or
5.737988857 USD.
These are 1998 estimates. I have used the XE currency converter and the EU Currency Conversion Table (http://www.unitconversion.org/eu-currency/french-francs-to-euros-conversion.html

]]> By: Dr. Vino http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-229498 Dr. Vino Thu, 02 Apr 2009 01:16:27 +0000 http://www.drvino.com/?p=3580#comment-229498 Yes, if any (other) winemakers/vintners would like to chime in with experiences in other countries, that evidence would be most welcome. Does it cost more to produce wine in the New World? Obviously that's a pretty broad brush as labor costs vary from Argentina to California. Land value per se might not matter (Burgundy acreage sure ain't cheap). But how about how new the winery is? Yes, if any (other) winemakers/vintners would like to chime in with experiences in other countries, that evidence would be most welcome.

Does it cost more to produce wine in the New World? Obviously that’s a pretty broad brush as labor costs vary from Argentina to California. Land value per se might not matter (Burgundy acreage sure ain’t cheap). But how about how new the winery is?

]]> By: Larry Chandler http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-229414 Larry Chandler Wed, 01 Apr 2009 23:14:24 +0000 http://www.drvino.com/?p=3580#comment-229414 Wine prices have little to do with the cost of making the wine. Prices are set by how much the winery thinks people are willing to pay. The winery's history, people's perception of quality, wine ratings, all of that has far more impact on price than the cost of land, grapes, barrels, winemaking, etc. Winemakers actually will taste their wine against the competition, and set their prices accordingly, taking into account reviews and reputation. At one winery I worked, their lowest priced wine was $14, and it cost $4 to make. Their highest priced wine was $60 and it cost $8 to make. All wines are worth whatever you are willing to pay for them, and a wrong guess on the winery's part will cost them either in lost income or in lost sales. Wine prices have little to do with the cost of making the wine. Prices are set by how much the winery thinks people are willing to pay. The winery’s history, people’s perception of quality, wine ratings, all of that has far more impact on price than the cost of land, grapes, barrels, winemaking, etc.

Winemakers actually will taste their wine against the competition, and set their prices accordingly, taking into account reviews and reputation.

At one winery I worked, their lowest priced wine was $14, and it cost $4 to make. Their highest priced wine was $60 and it cost $8 to make.

All wines are worth whatever you are willing to pay for them, and a wrong guess on the winery’s part will cost them either in lost income or in lost sales.

]]> By: Jeremy Parzen http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-229379 Jeremy Parzen Wed, 01 Apr 2009 21:14:59 +0000 http://www.drvino.com/?p=3580#comment-229379 Dr. V, this is a great post. Can you point us to a post where you (or someone) discusses what actually goes into the cost to produce a bottle of wine? Dr. V, this is a great post. Can you point us to a post where you (or someone) discusses what actually goes into the cost to produce a bottle of wine?

]]> By: Michael http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-229365 Michael Wed, 01 Apr 2009 20:37:59 +0000 http://www.drvino.com/?p=3580#comment-229365 Well lets just see how well the '07's and '08's sell at these prices and see if the bordelais have this right. Well lets just see how well the ’07’s and ’08’s sell at these prices and see if the bordelais have this right.

]]> By: Steve Raye http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-229108 Steve Raye Wed, 01 Apr 2009 14:24:40 +0000 http://www.drvino.com/?p=3580#comment-229108 The issue here is in the definition of the terms "value" and "worth". The fallacy is in the logic of trying to relate cost of goods with an image product like a First Growth (note the caps)...in this category it's basically irrelevant since the market is driven more by collectors than consumers. That said, there is a direct correlation between COG and MSRP for the vast majority of other wines, and not just Bordeaux. My experience as a brand marketer has been that COG is a place you start, but that retail price is based on what the market will bear: the competitive set, distribution channels (e.g. e-commerce, vs. open vs. control state), Advertising/Merchandising/Promotion support funding,as well as indirect costs such as organizational expenses (sales force vs. brokers) etc. Put all that into a blender and you come out with an MSRP, and your retailers and consumers will send you a message pretty quickly if the wine is fairly priced. The issue here is in the definition of the terms “value” and “worth”. The fallacy is in the logic of trying to relate cost of goods with an image product like a First Growth (note the caps)…in this category it’s basically irrelevant since the market is driven more by collectors than consumers.

That said, there is a direct correlation between COG and MSRP for the vast majority of other wines, and not just Bordeaux. My experience as a brand marketer has been that COG is a place you start, but that retail price is based on what the market will bear: the competitive set, distribution channels (e.g. e-commerce, vs. open vs. control state), Advertising/Merchandising/Promotion support funding,as well as indirect costs such as organizational expenses (sales force vs. brokers) etc. Put all that into a blender and you come out with an MSRP, and your retailers and consumers will send you a message pretty quickly if the wine is fairly priced.

]]> By: Dylan http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-229099 Dylan Wed, 01 Apr 2009 13:58:17 +0000 http://www.drvino.com/?p=3580#comment-229099 And, I guess to add to that point. For anyone that disagrees with the price being charged--if people weren't buying enough of it at that price, then they couldn't sell it at that price. The consumer group is equally responsible for encouraging the value of the product at that price by showing they're willing to pay it. Just to show both sides of the coin. And, I guess to add to that point. For anyone that disagrees with the price being charged–if people weren’t buying enough of it at that price, then they couldn’t sell it at that price. The consumer group is equally responsible for encouraging the value of the product at that price by showing they’re willing to pay it. Just to show both sides of the coin.

]]> By: Dylan http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-229098 Dylan Wed, 01 Apr 2009 13:56:54 +0000 http://www.drvino.com/?p=3580#comment-229098 I agree that specific case of ROI is extraordinary, but I can't say it's the only case where this happens. Even infomercials which charge only 2 easy payments of $19.99, while giving "a $500 value, absolutely free" pull this off in their own way-- almost every form of consumer good charges more than the cost of production and regular profit. As it relates to the demand of the product, if more people are offering a higher demand, then you can charge more. I agree that specific case of ROI is extraordinary, but I can’t say it’s the only case where this happens. Even infomercials which charge only 2 easy payments of $19.99, while giving “a $500 value, absolutely free” pull this off in their own way– almost every form of consumer good charges more than the cost of production and regular profit. As it relates to the demand of the product, if more people are offering a higher demand, then you can charge more.

]]> By: Ned Hoey http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-228779 Ned Hoey Wed, 01 Apr 2009 04:38:20 +0000 http://www.drvino.com/?p=3580#comment-228779 The Media-Critic and Marketing Industrial Wine Complex The Media-Critic and Marketing Industrial Wine Complex

]]> By: Michael http://www.drvino.com/2009/03/31/how-much-does-that-bottle-of-wine-cost-to-make-where-13-becomes-500/#comment-228679 Michael Wed, 01 Apr 2009 01:43:52 +0000 http://www.drvino.com/?p=3580#comment-228679 I've actually had this discussion elsewhere with some very prominent California (Napa) vintners who have expressed the opinion that the bottom line, even on prime Napa land, is still under $20 a bottle by a good bit. For one thing organic or biodynamic farming shouldn't really cost more than using chemicals, that is one of the supposed benefits, that the method is naturally effective. As for land costs, you have to remember that to view this as an endeavor the land costs must be amortized at the least. Sure money must be borrowed and repaid, but the land isn't losing value. If they had to recover all of their land costs in a couple of years then yes, the cost per bottle would be staggering, but then they would reap a huge windfall if they eventually sold, so that should be considered as well. Another important consideration is how, especially in Bordeaux, library wine stock is considered a very valuable asset, and can be used, if necessary, as leverage. I mean, even replanting, though expensive, is very rarely needed. I think that when people see high costs they say, "oh, well land is expensive", but they fail to look at this as a business, where the land is factored in but is also unique in that it tends to appreciate in value while most other business assets depreciate. Guess what, if the land doesn't lose value, then the only real cost to be passed on from the land to the bottle is the interest on the loan, and that isn't $487/bottle. Oh, and I'm pretty sure that Rothschild has had the land in the family for a bit, so I wouldn't worry about his land costs. I can't think of many industries where the customers are treated so badly, that even inferior product (such as a bad vintage) is inflated thousands of times before sale. It makes you respect those producers who exercise even minimal consideration for their public. As a last note, I know that I am speaking only of the those rarified wine royalty who are guilty here, and that many others struggle to gain recognition and greatly appreciate their customers. I don't mean to insult them. And I'll take it one further and say that I have know idea what I would do if I had such a desired product to distribute. But as a consumer who has watched the stratospheric price increases, it irks, and I want to see the worst of it rolled back, as I honestly believe that it should be. I’ve actually had this discussion elsewhere with some very prominent California (Napa) vintners who have expressed the opinion that the bottom line, even on prime Napa land, is still under $20 a bottle by a good bit. For one thing organic or biodynamic farming shouldn’t really cost more than using chemicals, that is one of the supposed benefits, that the method is naturally effective. As for land costs, you have to remember that to view this as an endeavor the land costs must be amortized at the least. Sure money must be borrowed and repaid, but the land isn’t losing value. If they had to recover all of their land costs in a couple of years then yes, the cost per bottle would be staggering, but then they would reap a huge windfall if they eventually sold, so that should be considered as well. Another important consideration is how, especially in Bordeaux, library wine stock is considered a very valuable asset, and can be used, if necessary, as leverage. I mean, even replanting, though expensive, is very rarely needed.
I think that when people see high costs they say, “oh, well land is expensive”, but they fail to look at this as a business, where the land is factored in but is also unique in that it tends to appreciate in value while most other business assets depreciate. Guess what, if the land doesn’t lose value, then the only real cost to be passed on from the land to the bottle is the interest on the loan, and that isn’t $487/bottle.
Oh, and I’m pretty sure that Rothschild has had the land in the family for a bit, so I wouldn’t worry about his land costs. I can’t think of many industries where the customers are treated so badly, that even inferior product (such as a bad vintage) is inflated thousands of times before sale. It makes you respect those producers who exercise even minimal consideration for their public.
As a last note, I know that I am speaking only of the those rarified wine royalty who are guilty here, and that many others struggle to gain recognition and greatly appreciate their customers. I don’t mean to insult them. And I’ll take it one further and say that I have know idea what I would do if I had such a desired product to distribute. But as a consumer who has watched the stratospheric price increases, it irks, and I want to see the worst of it rolled back, as I honestly believe that it should be.

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