Why are some wines $200 and more a bottle?
What makes a bottle of wine cost more than the average person is willing to pay?
The other day I had a few minutes to spare, so I stopped to say hello to a friend who owns the St. Helena Wine Merchant-Jeff Yates. As most of my friends will attest, nothing is a quick hello with me. So what was intended as a quick stop turned into a very long discussion about drinkable wines that sell for more than $100 or even $500 (my subjective number)? Jeff has been in the wine business in Wine Country his whole life so I posed the question to him: What makes a bottle of wine cost $500 to $1,000? Now understand, that is a different question than: Is a bottle of wine worth $500 or even much more? Jeff says the short answer to the first question is: perceived value, costs of the finished product, quantity produced and quality of the winemaking processes.
As a point of reference, we are not talking about auction pricing. For example, in the U.S., Sotheby’s sold at auction, 3 bottles of Château Lafite-Rothschild that fetched a cool $232,692. William Koch paid $500,000 for 4 bottles of Bordeaux Vintage 1784 and 1787. These 4 bottles are reported to have been wine originally owned by Thomas Jefferson. The most paid for “drinkable” bottles of wine sold, in the U.S., again at auction, for $167,500—7 bottles of Montrachet 1978. Last month, May 2011, a 1945 Burgundy went for $123,899.
The most expensive bottle of wine Jeff has consumed is the Screaming Eagle Cab which is a $750 bottle of this “cult wine”. “I truly appreciate this wine,” commented Jeff. On the other hand, he sells much more expensive wines to his U.S. customers. Recently he sold a three liter bottle of Grace Family Cab at $10,000. Another bottle he had was a 750ml which sold for $3,500. “The most expensive I’ve ever had in the store was a 1992 Magnum of Screaming Eagle and that was a $25,000 bottle,” said Jeff.
But, enough of the wine ‘war stories’, let’s examine how a bottle of wine can get expensive by starting in the field.
First, you must consider whether the wine comes from an established winery or a start-up. Let’s assume the winery owner is starting out fresh; new winery and a small vineyard of their own. For land suitable for planting, you will be paying approximately $200,000 per acre in today’s market. So now you have your 11 or so acres and you then need a facility for equipment-crush, fermentation, barrel storage etc. So, let’s call a small respectable showcase winery a $4 million investment. Now you are ready to wait more than 6 years before your $500 bottle of wine is ready for prime time. Prime time is defined as a period when the wine is rated and written about to help you create a reputation.
No matter how you arrived at your decision to make a high-end wine and whether you buy or build a winery, it starts with the land or terroir. It is a fact that some areas produce better grapes. Even within an AVA there are some pieces of land, that may be only a few feet apart, that will produce better fruit.
The better the grapes the more they cost. Prime example of this is the famous Beckstoffer To Kalon Vineyard near the Mondavi Winery in Oakville. Granted this is a unique situation, but these grapes are in high demand. Andy Beckstoffer can and will price a ton of cabernet grapes based on the price per bottle that his customer will charge. The price per ton can be $10,000 or even $20,000. Yes boys and girls, you get what you pay for.
Other factors impacting cost in the field depends on who you select as your vineyard manager (if you own your own vineyard) or who manages the vineyard where you will buy your grapes. There are ‘rock star’ vineyard managers such as David Abrue and others who probably command more money than others. Then you get into vineyard certification such as certified organic or Biodynamic/Demeter.
There is also the situation where you want to limit the production of your vines. The theory here is that if you limit your production, then the quality of the remaining fruit is better. So, instead of 4 or more tons per acre you are down to 1.5 to 2 tons per acre.
Other factors in the field are fertilization, weed abatement, cost of the vineyard workers, tractors, gas, etc.
When it comes to picking the grapes, the grapes for better wines are hand-picked as opposed to machine involvement. Hand-pick grapes require more labor and more time, therefore more cost. In addition, for some of the higher priced wines, the grapes are picked in lower boxes so as not to crush the grapes at the bottom of the container before de-stemming. Coming from the field, the grapes for higher priced wines are run along a conveyer belt towards the de-stemmer. This conveyer belt is manned by people who pick out things that you do not want to go into your wine, such as, leaves, rotten or dried out fruit or anything else that impact quality. Then the grapes are fed into a de-stemmer, carefully so as not to abuse the grapes. Another process that adds quality to the wine as well as costs; the grapes are fed onto a sorting table where once again workers go through the grapes looking for stems that the de-stemmer didn’t get and for leaves or anything else that was missed, further adding to the cost.
Some other issues to consider: the winemaker is the orchestra conductor, and good winemakers are expensive. Even when they are only consultants and not on staff, their costs add to the cost of wine. Names like Bob Levy, Phillip Melka, Thomas Brown and others are well known; they make great wines, and using their name helps sell the bottle. Some part-time consultants can cost $30,000 for 4 days of consulting services during the year. There are winemakers turning out 90+point wines in Napa, working for a winery, that make $250,000 per year. “I knew an owner of a vineyard who told me that between his vineyard manager (well known) and winemaker (well known) that he had to sell his wine for at least $100,” said Jeff.
New oak barrels add costs. My go to expert on barrels is Mark Heinemann who is the sales genius for Demptos USA. He seems to have forgotten more than most will ever know about barrels. But sufficed to say, barrels are a science. Demptos is a French company and they have a lab that does nothing but test the chemistry of the oaks used in their barrels. If a wine maker wants a certain result in the barrel aging process they can specify their desires and Demptos will give them an oak from their sources that will deliver the results; smooth tannins, great aromas and even specific bouquets. Mark says, if a winemaker wants a tight grained white oak, air dried for a minimum of 3 years and from a specific country; they call that barrel a “Reserve Barrel”. That category barrel will cost a winery about $1,250 each. Not all wineries use 100% new oak barrels every time, but great wines do. I believe Harlan always uses new barrels.
Now you have another issue such as the amount of time the wine spends in the barrel. Then once it is bottled how long does it stay in the bottle. Many wineries will released their 2009 Cabernet in May 2011; Silver Oak will not release their 2009 Cabernet until 2013. Time is money!
What kind of glass will the wine be bottled in, premium winemakers like to use premium glass, and some even have special bottles manufactured. An average wine bottle with wine weighs about 3.3 pounds; some of the premium bottles weigh in at over 4.5 pounds. Then there are corks to buy. Premium wines use longer and better corks. A top quality cork, handled under very rigid standards to eliminate contamination can cost $1.00 each.
Then there is the label, the neck foil, advertising and marketing, although on some of the cult wine’s, advertising and marketing aren’t important, but getting a good rating is the issue. Label design can cost $20,000 and printing of small run labels can cost $1.50 per label with 2 labels on a bottle.
But once your per bottle costs exceed, let’s say $150, what are you really paying for is the wine’s Score and Availability.
Scores – Wines highly rated by the Wine Advocate or Wine Spectator Magazine, or Steve Tanzer, and the Wine Enthusiast and other publications add value, but the first two are still the most important.
Scarcity – Once a wine is highly rated, then the wine sells out quickly. Add to that, what if they only produce 125 to 300 cases of this highly rated wine. Everyone wants highly rated wines. To get access to that wine you might join the winery’s mailing list, but once the mailing list is full then no one else can get the wine. Therein lies the dilemma. There are some wineries with waiting lists just to get on the mailing list that could take you up to ten years. There are exceptions to this; Opus One is a nearly $200 bottle of wine that is quite available, Joseph Phelps makes a fair amount of Insignia.
Once a winery has a wine that gets good scores and has a full mailing list, then the price can start to go up. The winery knows that at a higher price some of the customers may drop off the list, but there are more customers waiting to join who will pay the money. For example, Screaming Eagle Cab at $750 can get closer to $830 a bottle by the time you pay for tax and shipping. Harlan is at $500 a bottle, and many others are at $300+.
There is an interesting phenomenon that happens when a wine reaches the ‘cult’ status. Some people are willing to pay more than the wines original selling price. There is a secondary market out there that used to see prices for Screaming Eagle go up to $2,500 a bottle, a bottle of Harlan’s moves up to $800 and $900 a bottle. Since the economy hasn’t been doing as well, some of these secondary market prices have dropped, but still Eagles have gone for $1,500 or more.
Still after having tasted some of these wines, I still walk away wondering, was that worth $500 a bottle, $300 a bottle, or even $200 a bottle? Wine lovers today can buy a darn good case of wine (12 bottles) for $500. Taking this logic further, it is still about perceived value. The sommelier at Aureole Restaurant in Mandalay Bay Resort in Las Vegas confirms that they have a bottle of wine at $14,000 and swear that it will sell for consumption. They claim that wine in this price range can be moved around to sister restaurants around the world. Right now, Asian markets are seeing strong demand for high priced wines.
In summary, there are a myriad of ways a winery can establish and enhance value. Here is our recap:
- Cost of facilities and land
- Cost of fruit if a winery buys high quality varietal fruit
- Fruit impacted by the vineyard management and growing costs
- How select the winery becomes in selecting the clusters
- Hand selecting and handling the fruit once cut from the vine…brought to be crushed in smaller containers
- Quality of the barrels
- Quality control of the fermentation process
- Length of time wine stays in the barrels…storage expense
- Quality of the packaging and labels
- Amount of cases produced to spread the cost across
- Cost of marketing/sales and G&A
- Professional costs-winemaker, wine consultants and ratings of the vintage
- But the most important element…what is the perceived value of the finished product in the eye of the consumer.
Wow. This blog is so helpfull.