Why does wine cost what it does?

Why does wine cost what it does?

One of the questions I’m commonly asked goes as follows. Why does one wine cost Ł3.99 while another costs Ł30, and another still Ł130? A common variant on this theme is, is a Ł20 twice as good as a Ł10 wine and four times as good as a Ł5 wine?

It’s slightly tricky to give a concise, tight answer to these questions, but let me try. At the bottom end of the market, say Ł6 and under, the cost of a bottle of wine largely reflects the cost of production, plus duty and taxes, plus the usual margins for the importer and retailer. Duty is just over a pound a bottle, and VAT is 17.5%. So for a wine retailing at Ł3, take off VAT and duty, the producer gets Ł1.50 less the margin for the retailer and importer: this doesn’t leave a lot. Maybe that’s why it’s so hard to find decent wine at this price.

Moving upmarket a bit, towards Ł6, and production costs will largely account for the rise in price. More care might have been taken in selecting riper or lower yielding grapes, more trendy varieties cost a bit more, and the wine may even have seen some oak contact in the form of barrel staves or oak chips, or even older barrels.

It’s worth mentioning that the region makes a difference. Grape prices differ widely depending on how trendy the address they’ve come from is. Basic, entry level Chardonnay grapes, for example, will cost a lot more than entry-level Chardonnay grapes from the Languedoc. This is largely why the cheapest Chablis on the market costs more than Ł6, as opposed to Languedoc whites which begin at about Ł3.

Let’s move up to the midmarket wines: those costing, say Ł7–Ł12. Here the price is determined by a number of factors. Production costs are a factor, but the aspirations of the producer and the positioning of the ‘brand’ in the market come in to play. Where the wine comes from is a complicating factor, here: in Burgundy, Ł10 is really an entry level wine, whereas for wines from new world countries such as Chile, this price point is premium-level.

A question of quality: what makes one wine 'better' than another?

A difficult question to answer precisely. Loosely, though, you'd expect an expensive wine to be:

More harmonious, with all the components in balance
More complex, with a range of different interacting or layered flavours
More persistent (this is called 'length') with flavours that last for longer
Perhaps with the potential for future development, although this isn't always the case
More elegant and beguiling
More concentrated

This price bracket is quite a mixed bag, encompassing hand-made, individual wines from less trendy areas on the one hand, and mass market industrial brands engineered to taste more sophisticated by winemaking trickery on the other. And, of course, this is the bargain basement end of the Champagne market.

Move up to the fine wine bracket, which I’ll arbitrarily designate as Ł20 plus and the cost of wine is largely distanced from production costs. Wine at this level enters the luxury goods market, and pricing is largely an artificial construct determined by factors such as scarcity and perceived quality. If you pay Ł100 for a bottle of California Cabernet you are, by your conspicuous consumption, largely funding an expensive lifestyle on behalf of the producer in a market where it reflects badly on a wine to be priced too cheaply. There is also the phenomenon of ‘trophy’ wines, which are highly sought after collectables trading for high prices on the auction market.

But let’s return to the second of the questions we started out with. Is a Ł6 wine twice as ‘good’ as a Ł3 wine? Bearing mind the caveats that it’s impossible to quantify how ‘good’ a wine is, and the fact that entry level wines from trendy locations cost more than those from others, yes, you’ll probably get a great deal more pleasure out of a Ł6 wine than a Ł3 wine. The extra Ł3 is usually money well spent. Beyond this, the law of diminishing returns kicks in. A Ł10 wine will likely afford you a significantly better drinking experience than a Ł5 wine, but each increment in quality beyond this will cost substantially more (of course, we are talking in very vague terms here). Another complication: appreciating wine is quite context dependent. If I presented a novice with a Ł5 Chilean Merlot and a Ł50 St Emilion, there’s no guarantee they’d actually prefer the St Emilion. That’s because appreciating fine wine does require some context. With expensive wines, it is not always the case that average consumers would be able to appreciate why they are so revered by experts.

So those are my answers. They’re not as tidy or clear-cut as I’d like them to be, but this reflects the complexity of wine.

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