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Is there an upper limit to Napa Valley cult Cabernet prices?

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I know the Recession is supposed to be ending–let’s hope so. But I’m struck by the hopefulness coming out of Napa Valley. To judge from the escalating prices, people up there are convinced happy days are here again.

I’ve reviewed, since last June 1–not even a year ago–85 Cabernet Sauvignons over $100. That doesn’t even count the ones just under $100. My eyes got tired combing through the database. But wait, there’s more! I also reviewed 30 red Bordeaux blends over $100, almost all of them based on Cabernet. That’s 115 wines, more than all the classified growth red Bordeaux put together.

Beyond even that, I must’ve tasted at least 2 dozen more Napa Cabs or Bordeaux blends that I didn’t formally review, because I wasn’t able to taste the wines blind. Almost of those cost above $100, too. Then, as if to gild the lily, I received in the mail the latest Bounty Hunter spring offering: still more triple-digit wines, some I never even heard of.

This is all very interesting, as Arte Johnson’s character used to say on Laugh-In. Until recently, the take on expensive wines was “they’re not selling.” Believe me, I talk to a lot of people who know about these things, from the marketing and sales side, and that’s what they’ve been saying for the past three-plus years, ever since the dreadful fourth quarter of 2008, when the economy fell off the cliff.

So what do these $100-plus proprietors know that I don’t? Do they have a crystal ball predicting that demand for ultra-luxury Napa Cabs is going to explode? I don’t know. What’s exploding are sweet red wines and Moscatos. But those are inexpensive wines. People in Napa Valley don’t care about inexpensive wine. They leave that to everyone else.

It needs to be said that these expensive Napa wines are very good. No, make that very, very good. Of course, I have a palate that can appreciate them. I love a rich Napa Cabernet; my scores reflect that. I give few California wines 100, 99 or 98 points, but when I do, Napa dominates that category, for a simple reason: sheer fabulousness. I often use the word “dramatic” to describe these wines. By that, I mean the feeling that people must have felt when they watched Gielgud play Hamlet. Electric. Or seeing Nureyev at his height, doing Giselle, in the early 60s, at the Royal Ballet. There’s something about a great Napa Cabernet or Bordeaux blend that brings you to the edge of your chair, celebrating the sheer beauty of a performance you know is rare and historic in the long story of wine.

Maybe this onslaught of expensive wine is a leading indicator of an economic recovery. Maybe each is produced in such small quantities that the proprietors feel they can find enough club memberships and restaurants to sell it all. Maybe they have visions of Chinese markets dancing in their heads. Maybe some of them will never sell it all, and don’t care; they’re rich enough for wine to be a hobby, not a real business. It makes me wonder if Napa will always be proliferating new brands, like mushrooms popping up after a spring storm, or if it will settle down to a respectable middle age, like Bordeaux, where hardly any new wineries ever appear. But then, Napa Valley is in California, and one of the state’s purest expressions of our weltanschauung, which is: ferment, reinvention, change, evolution, radical transformation. These always have marked the Golden State, and I hope they always will.

  1. Any particular AVA that had the most expensive Napa Cabs in your sampling? Rutherford? Oakville?
    Love the Gielgud analogy :)

  2. As a consumer and small-time collector of fine wines the $100 mark represents a threshold for me (i.e. it better blow my socks off or have tremendous aging potential).
    I rely heavily on well known publications and your reviews to guide my choices since some of these wines aren’t available for me to taste prior to purchase.
    That being said, how many wines, once in glass, are really worth that kind of money? There’s a show-off factor both in the cellar and on the table, but if I’m just drinking a glass all by itself for the pure pleasure of it, is a cult wine at $20-$30 per glass really that much better than say an ’07 Franciscan Napa Cab(Which you gave 94 points) that I paid $17.97 a bottle for?

    Or is it the exclusivity that -makes- it seem to taste better?

  3. Vinogirl, the pricy wines are spread evenly around the valley, but I suspect, if you studied it [which I have not], that Oakville would have more of them.

  4. I think I’d rather drink $20 glass of really nice wine, than a $20 cocktail. I know WE added alcs recently, but it would be nice to see production as well, especially on these kind of wines.

  5. Great points Jake and Bill. I’m really reticent to pay >$40 on a wine that isn’t totally transparent in how it is made. Why? Because at that price, I can surely afford to not pay for it! If it’s premium, it’s got to truly be premium and not the cloying, I’m done after one glass b/c it’s simply too much (which is nice every now and then).

    My overall firm limit is $100, but in reality the only wines I pay for in that range are Dunn and Ridge Monte Bello futures and nothing else goes above $70 and actually rarely above $40. If I did, then when we drink those bottles, it wouldn’t be special.

    I admit to paying more for Cabs and blends b/c the market, but my indulgence is so limited because from an economic perspective it doesn’t make sense. In no other varietal do you pay so much for ego. To make a gang-busters wine simply doesn’t cost much more than ~$30 to bring it to market (there are exceptions, such as pinot and certain farming methods, 100% new oak, etc). Where does the rest of that $$$ go? It’s ego.

  6. Zack, Google California Annual Grape Crush Report and look up Napa Cab prices on page 62-63. The weighted average price per ton in 2011 was nearly $4,700 and a significant amount of fruit was delivered priced between $10,000 and $50,000 per ton.

    The old-school rule of thumb is that one’s bottle price is the grape price per ton divided by 100. Grape pricing in Napa suggests the median bottle price should be nearly $50 (not $30) and that a significant fraction should be priced between $100 and $500 a bottle. Ego-free.

  7. . . . and we continue from yesterday . . .
    Napa. Cab. Bordeaux. Cab.
    Napa. Bordeaux. Cab. Cab.
    $100 . . . 100 points.
    Gielgud.
    Nureyev.
    Heimoff.
    Fabulous!! . . . Dramatic!!
    “Of course, I have a palate that can appreciate them.”
    $100 . . . 100 points . . . WE94.
    Pseudo-Quantitative.
    Psuedo.
    Where is Bob today?
    Napa. Bordeaux. Parker. Parker.
    Cab. 100. Parker. Parker.
    Cab. Gieglund. Nureyev. Napa. Bordeaux. Steve.

  8. @Robert: somebody woke up on the snarky side of bed!

  9. John, I think you are missing the point. Yes, Cab grapes from Napa is expensive. Of course they are! It’s expensive at every level whether you’re buying an acre to grow it or a ton grapes. These prices are based on supposed market value of what cab sells for, which are ridiculously bloated to the agricultural practice that takes to grow the grapes.

    How much it costs to actually make the wine is a different story in Napa. That means growing the grapes and making the wine to make a top notch Cab is ~$30/bottle. This # is straight from Napa Valley winemakers! If you charge so much for your grapes that a buyer has to sell their product >$50/bottle just to break even, then of course you’d price your wine accordingly.

    Let’s compare $$$ to Pinot. Go look up Sonoma Pinot prices and you’ll see they are much cheaper than the Napa Cab! Pinot is harder to grow, grows 1/3 of the volume of Cab, and more fussy and yet dramatically cheaper. Hirsch grapes, last I knew, sold for ~ 5000/ton, which is on par with a run of the mill Napa Valley Cab! Price in wine has to do with the market and if you see a mediocre wine selling for $50 then you’ll price your’s at $100.

    If you’re stuck paying a mortgage in Napa, I feel sorry for you. You’ll have to charge a high price for a wine they might not sell in this economic climate. I come from an agricultural background and that’s tough, no bones about it. But why did land and grapes get so expensive? Keeping up with Bordeaux prices. Their’s ego both sides of the Atlantic.

  10. Mitch Cosentino says:

    I will tell you that Napa Cab prices will not be going lower. With 2010 and 2011 being smaller harvests and demand up. You will see the lower priced wines disappearing and the mid priced Cabs from Napa escalating somewhat. It is a dogfight out there right now for grapes. This will have an effect on everyone. I will have trouble maintaining a $38 price on my baseline pureCru Winery Cabernet Sauvignon in future vintages. On my extremely limited elite Cab and MCoz Meritage I have set a release price of $100 and I plan to hold the line on these at least until I have to spend over $10,000/ton. But I should point out the grapes used in the two high priced wines previously went into wines I made for others that retailed for $140 to $160/btl. My pledge is hold the line.
    (none of these comments relates to Cosentino Winery wines which I don’t control, but the current ownership/management seems to want to also keep the prices at the previous levels also),
    It will be interesting. At $100+ the wines should be wines of special interests and occasions.
    But what about other wines like Colgin $279 SYRAH!!!! There are several other Syrahs over $160!
    Yikes!

  11. Thanks for the heads-up Zack. I grow Sonoma Valley Pinot and Rhones and have been making wine commercially for a while, so I’m pretty familiar with the costs of doing business. You are going to have to do better than “[t]his # is straight from Napa Valley winemakers!” and provide a citation because a number like that assumed to be a constant across all the Napa wine industry suggests that it covers a fixed class of costs.

    Your point was that pricing was based on ego. I disagree – the costs are based on market forces. On the supply side, land in Napa is roughly 2x as expensive as land in Sonoma. Farming costs are generally higher in Napa (according to discussions I have had with sources at MKF and Silicon Valley Bank). And Cab can be a fickle to farm as Pinot – ask any Napa Cab grower about “shatter” in 2011 and you will see what I mean.

    On the demand side, producers pay more for Napa Cab because there is competition for that fruit. The prices are what the market will bear. Producers can afford to pay those prices because of consumer demand. Consumers like yourself excepted, enough are willing to pay more for Cab from Napa that higher bottle prices and hence higher grape prices are supported by the market. It is consumer demand that drives up prices on Napa Cab, as it does on prices of 1st-Growth Bordeaux and Grand Cru Burgundy, along with everything else.

    And on the producer cost side, let me assure you: that $100 Cab doesn’t put $100 in the producer’s pocket, especially if the winery is not selling 100% direct. FOB pricing on that wine would be $50 in a good market, but today there is so much pressure from distributors and retailers to discount, discount, discount that nobody is making even that margin.

    This outrage over pricing reminds me a bit of Fred “no wine should cost over $10″ Franzia. The goalposts have just been moved a little.

  12. Steve,
    If you added up the production of all of the $100 plus Napa Cabs, would it come close to the production of the first growths combined, or the first and second growths? I would guess not, though I have never done the actual math. I would think in limited quantities it would be easy enough to sell a +$100 bottle of wine in almost any economic climate, it is when you get into the 1,000 of cases where I think it would be tough. Thoughts?

  13. John, The quote about wine economics came directly from George Hendry. My exact response was “Really? At $30, that gets you the new oak you need and everyone gets a living wage?” “Yup.” When discussing the matter with other vintners, including Ridge, they’ve agreed more or less on the numbers. Obviously overhead and production year to year. $30 is not a hard limit but I take it as a good ballpark number to keep things in perspective.

    I’m fully aware of tough markets. In college I worked for a bookstore, so if you want to talk about tight margin then how about 10% if you’re lucky! Once land prices really rise in a wine region, the floor price/bottle is more or less set for all new ventures and they should realize that they are inherently going to make an exclusionary product. Many people will find this off putting.

    As I said before, Napa is no longer a great market to get into. You say “market forces” are determined by demand. That’s a little simplistic, but again endorses the idea that you’re not charging based on costs of production, but how much someone is willing to pay for it. As prices double and triple, the concept of price gouging will enter a few peoples minds. Remember, I didn’t say you can’t sell your wine for more than $30 or $100, but you have to give me a good reason. Most wineries don’t.

    What justifies a >$100 bottle? I honestly can’t think of a single factor unless you want a status symbol which is exactly the “market forces” you reference. (sorry for keeping this in quotes, but I find it rather comical that people always want to chalk things up to shadowy ‘market forces’ as if what’s driving these is simultaneously so insular and yet fuzzy factors of supply and demand but in reality it’s mostly status and ego for both consumers and producers) If you want that bottle of Screaming Eagle and pay for it, more power to you. But when you do there is a trickle down affect on all of Napa regardless of how great the fruit actually is. And you wonder why middle class people view wine as a bit pompous in middle America? People usually do when they realized they are totally priced out of a market.

    Remember, this posting was how these Napa Cabs maybe over extended. As Steve says, who needs another $50 or 100 Cab? When “market forces” don’t function on real supply and demand, the risk of overextending is real. If this is the case, wineries the middle wineries will get squeezed (the middle always loses out doesn’t it?). Right now, Napa and Bordeaux are living at very high retail costs for a pleasure product and perhaps the $$$ is based more on status perhaps more that the actual true cost of production (meaning land in Napa is overvalued similar to a toxic mortgage). If I was a producer, I’d say that’s a scary place to be. You site a large number of good reasons that producers are charging what they are charging, but that doesn’t really describe why these prices have gone up or if the ridiculously competitive tier of Napa Cab between $50 to 100 is over extended.

    I’m not outraged by prices. I just find them ridiculous. As at $250 we’ll finally get one that gangbusters! I just don’t feel so insecure that I need to pay more than ~$100 for a bottle. There was a lot of wealth created in the last 30 yrs. It started with deregulation and that money permeated western society and led to whole economic restructuring of America for better or worse. It’s rather amusing that the price of wine, Bordeaux and Napa in particular along with most high profile leisure activities, mirrors that rise. I just wonder if strict fiscal legislation would have on Napa cab.

  14. Zack, Hendry is a great guy (and IMHO the wines are really good) but he is hardly the go-to source for cost of production analysis. Ask industry accountants and bankers rather than a single grower-producer. FYI – my own cost of doing business is at the low end of the curve – other producers don’t want to even think of having to fit their model to my very lean cost-of-goods and SG&E metrics.

    Yes, high-end Napa wines are an “exclusionary product.” Why does this cause you any cognitive dissonance?

    What I said is that the costs of production are inextricably linked to consumer demand. Land and grape costs in Napa are not over-valued so long as there are people willing to pay for the wines at the price points these valuations dictate. There is noting toxic about it.

    Sorry that you (and I) are not among those so anointed that we can charge, or pay, those prices.

    That said, I think you have finally come to the the crux of the pricing issue when you call the consumer on ego, as opposed to the producer.

    And don’t get me started on inflation metrics. Consider for a moment that it is possible – not just, but likely – that the rise in price of these wines is reflective of “true” inflation.

  15. Throughout all these comments not a single mention of the media. In a discussion with a customer that has been shopping with my family for over 20 years, he remarked how shocked he was when first growth bordx went above $100. He didn’t think the market would bear it. And now look at the prices. These prices didn’t start going up until wine publications starting dolling out 95+ scores and producing top 100 lists. From my seat, anything over $100 retail is a tough commitment. Odds that you’re going to move that inventory in 30 days are slim unless you get lucky. Most of that inventory needs to be pre-sold for a me to even touch it. And now, there’s so much competition is insane.I wish I had more time today to comment on this. It’s a fascinating topic that is a microcosm of the entire nations economic condition. And no, we are not recovered yet. When small biz retail comes back, than you can say we’re recovered.

  16. Peter, I completely agree about the media. I think that modern wine reviewing has ultimately fed into this and price inflation. I think Napa and Bordeaux prices rising are a part of Parkerization.

    Hendry was very, very clear on his price paradigm (he’s a fellow scientist and clearly has a mind for the numbers), which is obviously an isolated case, but one I find instructive. I’ve had this number confirmed a couple of times. The last was at Ridge where they basically said yeah plus or minus $10. Everyone’s economic model is different. As I’ve alluded to above, and you seem to be one of the many produces who by no fault of your own have been forced to raise prices, but that’s not what drives the overall rise in prices. I’m not trying to blame, but to describe. This rise in prices has to do as much with modern global economics as it does with true wine enthusiasts, producers and critics.

    True inflation? By that I mean the cost of growing premium grapes in a first wold company. Price inflation in premier wine doesn’t nearly come to accounting for the astronomical rise in top end wine, which hasn’t risen above 5% since Parker arrived with the 1982 vintage. If true inflation were the case then all prices from every 1st world wine region would have risen precipitously. This wasn’t the case.

    You asked what gets me riled up about this, it’s the gross generalizations (over simplification drives me crazy). As for my spending limit, it’s largely self imposed. I can afford to spend more on Cabs, but I don’t. I’m thankful that the same producers who seem to keep prices relatively in check also happen to make my favorite wines (basically they didn’t Parkerize, modesty and lack of Parkerization seems to go hand in hand). That and that my children, who may achieve even more than me, and still not have equivalent opportunities.

    I actually do find price inflation and exclusion to be likely detrimental as it extends further from the top producers, which hasn’t hurt much of anyone who couldn’t afford it, to all of Napa. It is just as detrimental if any quality product because exclusivity, just look at organic foods, free-range meats. Yes, it’s a fact of life not everyone can have them (anything that costs something excludes someone), but you can’t act like this is a zero sum game and pretend these increasing limitations of high quality goods, of which wine is just one, isn’t detrimental on some level is incredibly short sighted.

    In reality, it comes down to the basic dichotomy of the haves and the have-nots and unfortunately some good wine ends up being a part of this. (Surprised to find a great article on wealth division in Esquire of all places: http://www.esquire.com/features/young-people-in-the-recession-0412). I admit, I’m probably one of the haves no matter how you look at it, but there was a time when a degree of economic compassion was viewed as a beneficial thing. Heck, even Nixon created the EPA. I just think that at the very least the have-nots deserve a fair assessment. One that’s better than, well that’s how the economic cookie crumbles because of “market forces.”

  17. I’m not really buying into this $ per ton/100 formula as having much logic for the intelligent consumer. Let’s suppose there are two wineries, each producing several thousand cases of wine per vintage. One winery buys fruit for $4k per ton, the other for $6k per ton. This translates to a few $ more cost per bottle, yet one producer will list at a 50% higher price. Even at wholesale, this doesn’t really add up.

    What this tells me is that producers expect a certain ROI on cash down rather than a profit more directed related to units sold. Then the logical thing to do is throw a lot of money at small production because the more exorbitantly you spend, the more you make for tiny production. The game is pretty obvious: work smarter, not harder. And being smart means putting money in upfront.

    As long as the market supports this model, then producers should keep going this direction. Personally, I value hard work so I won’t buy from most tiny, ultra-expensive producers. Why reward a producer that only makes a thousand cases when they could be doing more with little if any loss of quality? The more money they spend on oak and fruit per bottle, the lazier they can be. Spend $50k per ton and you only have about a dozen barrels to handle. With all that free time when not making wine, I guess you do need consumers to subsidize your lifestyle!

    All that aside, proliferation of $100 bottles has little to do with the overall economy. Few middle class workers will pay that much for a bottle under any circumstances. This is purely a reflection of the upper class economy which has little to do with a ‘real’ economy. Traders made money betting against derivatives once they realized they were bound to implode. In every bull market the smart traders capitalize on the frenzy, then exit early leaving the less connected to take the loss when the correction comes. This is just transferring of wealth, not creation of wealth. Which is where we are again, though hopefully this is a legit leading indicator rather than another shell game.

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