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Why does top Cabernet cost so much more than top Pinot Noir?

19 comments

This question arose several times this past week, particularly after my twin posts on Cabs and Pinots I liked in 2012. As “Mike” commented:

Regarding “bargains,” while it is undoubtedly true that it is harder to find a great CA Pinot under $30 than it is with some other varieties, I think CA Pinot provides superb “value” when you consider the full QPR. Consider that your top rated wines above are $100 and average maybe $60-70. Compare that to the prices of your highly-rated Cabs. It’s one of the things I’ve always appreciated about California Pinot Noir.

This is certainly true, but begs the question, Why? It’s not because there’s an inherent difference in quality between top Cabs and Pinots. A Janzen 2009 Beckstoffer To Kalon Vineyard Cabernet Sauvignon (97 points) is not a better wine than Failla’s 2010 Occidental Ridge Pinot Noir (also 97 points), even though the former retails for $135 while the latter is a “mere” $60. So what gives?

Here are some factors that could raise the price on the Napa Cabernet: buying grapes from Beckstoffer, who charges a lot, price of new barrels, cost of consultants, cost of bottles (Napa Cabernet generally is in heavier and presumably more expensive bottles), cost of corks. Without knowing the details, I will assume that all these costs were higher for the Janzen than for the Failla. Still, that can’t account for a difference in price of $75!

So we have to go to factors that are unrelated to the cost of production. One that’s obvious right off the bat is the influence of peer pricing. In Napa Valley, you can’t price a wine below the price of your perceived competitors (or so the argument goes). If your wine costs significantly less than the “neighborhood” you want to live in, then buyers—consumers, somms, retailers, even, alas, some “critics”—will perceive you as “lesser” and conclude that your wine cannot be as good, even if it is. This is why, when Screaming Eagle raised its list price some years ago, you saw a kneejerk reaction up and down Napa Valley: everybody who perceived himself as in the same elite category as Screaming Eagle felt it necessary to jack up their prices accordingly.

So that’s one reason, but there’s another, more related to history: California mimics Europe in its approach to the pricing aspects of wine, and Bordeaux in general always has been more expensive than Burgundy. While there are obvious exceptions, this statement is true. It’s curious, because the average Bordeaux chateau has a higher production than the average Burgundy domaine, so you’d think it would be the other way around. But no. For some reason, going back hundreds of years, consumers (wealthy white western Europeans and, a little later, Americans like Thomas Jefferson) were willing to pay astronomical prices for top Bordeaux wines like Lafite and Latour. That tradition is larded through our wine culture and remains in force today.

What’s changing, of course, is that an entire younger generation of Americans couldn’t care less about Bordeaux. Report after report proves this. As Eric Asimov wrote, for a greater number of Americans,  especially younger ones, Bordeaux “is now largely irrelevant.” Pressure on the Bordelais to ease up on prices has been neutered only by the false and thus unsustainable popularity of these wines in Asia. But the marketplace eventually rationalizes everything (if Adam Smith is correct), and so we should see an equalizing of Bordeaux and Burgundy prices internationally sooner or later.

In California, the distorting effects of this historical imbalance between Bordeaux and Burgundy struck early, but are now in an interesting state of flux. We saw the Great Recession pose a threat to triple-digit Napa Cabernets. Now that we’re in recovery, we see a consumer who’s no longer willing to blindly plonk down whatever it takes to buy the Cabernet of the moment. And to the extent this consumer exists, he probably has gray hair.

This is Pinot Noir’s moment to shine, and it can happen, if—and it’s a big if—the top producers manage to resist their hubris and keep prices moderate. And by “moderate” I mean less than  $100.

  1. “Bordeaux in general always has been more expensive than Burgundy. While there are obvious exceptions, this statement is true.”

    I think this is a common misperception and NOT as true as you would have it. Perhaps in the last few years, with Bordeaux chateaux driving up prices, maybe. But as little as 5-10 years ago most classified Bordeaux (except First Growths and a few others) could be had for $25-$50. Generic Bordeaux was and still is a <$10 wine, and there is a lot of it! Now the top Burgundy are more expensive than the First Growths and there are more of them (Jayer, Leflaive, DRC, Leroy, Coche-Dury, etc.). Lesser grand cru and premier cru Burgundy are still $100+ wines. Bourgogne AOC wine is not a $10 wine in the US. More like $15-$30.

    While you may be correct for CA, I think you're a bit off base in your comparison.

  2. Steve,

    First, let’s assume that the top NV Cabs and CA Pinots we are talking about sell out before the next vintage is released.

    Given that, there is a very simple reason Cabs cost more: There is more demand for them. It’s that simple. If there were no demand for these Cabs at these prices, I promise you they would not be Cab at these prices.

  3. I think there is a pretty simple answer to this question. The wine market is a relatively free market that is dominated by the laws of supply and demand. There is a relatively liquid supply; in other words, there is a great capacity for the supply of fine wine to increase to meet greater demand, which makes demand the differentiating factor. For whatever reason — perhaps including historical marketing, our particular culture and how we consume alcoholic beverages — there is just greater demand for Cabernet in the U.S. It is the preferred beverage for a much larger share of the relevant market. Therefore, sellers of the best ones are able to command a higher price. I have numerous friends that are big regular wine drinkers who will spend exhorbitant sums on California Cabernet,but who I could hardly pay to drink Pinot Noir. That boggles MY mind, but rich cabs are just what they want when they drink wine. It’s their taste and it’s the predominate one in this market. While the younger generation may be rejecting Bordeaux, it is not turning to California Pinot Noir. If the writers are to be believed, it’s turning to obscure international varieties that often make white wines (Riesling, Vouvray, Muscadet (!)). [Steve, I do think someone could respond to these writer claims of a sea-change in youthful tastes a bit like you respond to claims of a "trend" toward lower alc wines.] The customer market that California Pinot is competing for is a group that overlaps significantly with the California Cab market. Also, when I was part of the “younger generation,” I didn’t drink much wine at all. I drank beer or bourbon. That the current younger generation is drinking a lot of wine now, but not the same wine as the older generation, doesn’t necessarily mean they won’t grow into Bordeaux, California Cab, etc. as generations before have when the acquire the means to buy it. Bordeaux, after all, still makes some of the finest wine in the world. I don’t think that is changing.

  4. Under $100? Wow, I think I should jack up my prices.

    Seriously though, Pinot Noir is an experience, like a great symphony is or meal is an experience. Sure you can scalp tickets to justin Bieber for $500, but someone who truly appreciates music will buy season tickets to the symphony just to see one particular piece. So it is with wine. Sure you have the first growths, Petrus, Haut Brion, and a hand full of others demanding premiums, but is seems like there are a lot more top burgundies at higher prices, and why the average price per acre in burgundy is higher than in Bordeaux ( or so I’m told).

  5. I won’t reiterate what Mike said above about supply and demand, but I believe the demand Mike discusses is directly correlated to the perceived “prestige” factor of NV cabs (especially cult cabs). I believe that buyers of CA pinot, to a degree, do not include those who only buy the “gotta have” wines that you see with buyers of prestigious names or cult status cabs. This segment of the wine buying public helps drive the demand and prices of NV cab.

    We can go on to discuss whether this segment of the buying public truly enjoys or appreciates the wines they chase, or if the wine is even worth chasing. But from an economic perspective, this is a significant driver of demand for NV cabs that has helped cause the divide you wrote about and the effect has compounded over the years to what it is today.

  6. Steve,

    I won’t fiddle with perceived numbers regarding Cabernet vs Pinot Noir, but a look at two hard figures will be useful: land prices and grape prices.

    Vineyard land prices in Napa in 2010 ranged from $30,000 to $300,000 an acre. I choose Napa as Cabernet-Sauvignon 1) represents almost 44% of the county’s grape acreage (the other “Bordeaux red varieties add another 18%) and 2) represents 69% of all the Cabernet Sauvignon planted in the cooler coastal counties, the source of the great majority of the more interesting Cabernets. How many of the most written about Cabs come from this county? Lots.

    Grape prices are less striking state-wide: an average ton of Cabernet-Sauvignon grapes costs $1,154 per ton in the state as an average with Pinot noir pulling in $1,272 per ton. But again, the Napa figures are noteworthy: Cabernet-Sauvignon went for an average of $4,660 per ton in 2011 vs Pinot’s $2,529.

    Hope this helps.

  7. David Rossi says:

    It is supply and demand for the end product, but there are also some real cost differences in the winery as well. Fruit cost for high end Pinot is $4,000 to $6,000 per ton. Super premium Napa Cab about $9,000-$15,000 per ton(others may have a better range, but this is about right). Pinots at 25-50% new wood. Cabs 50-100%(some 200%). We age our Pinots 15 months in barrel, but some others only 10 months. Most Cabs 22 months.

    It all adds up.

    David Rossi
    Fulcrum Wines

  8. Marlene Rossman says:

    Steve, excellent point! I am sure you are referencing New World Pinot Noir, not DRC. I have wondered about the same issue for years.

  9. Donn Rutkoff says:

    Here is my opinion: Burgundy vintages are much more variable, good to bad, and because the prod. size is small, there is no way to blend away or adjust quantity offered, compared to Bordeaux. So a average buyer, without having to study vintage by village, can buy
    Bordeaux and know what is getting. But same person cannot rely on Burgundy to always be predictable. Volatility in quality acts as a brake on price.

    Oh yeah, also, Bordeaux & Cabernet, being higher volume than
    Burg, is consumed all around the world. Not so for Burgundy. For reason stated above. As for me, I am willing to pay 2 or 3 x more for what I think is a good Burgundy vs. what I think is a good Cab. I can get good Cab for under $30 any day any time anywhere. I have to be choosier to find good Burgs for $30 or $40, and while west coast Pinots and NZ Pinots are good, they are not same as Burgundy wines.

  10. Marlene, yes, usually in my blog the wines I’m talking about are California.

  11. Donn Rutkoff, you make excellent points! Thanks.

  12. Donn Rutkoff says:

    T’anks, and to Patrick & David on Napa prices per ton grapes, those reflect the grape market sales and not cost of production. Production cost of Cab rarely justifies prices on shelf more than $60 or $70. The rest is pure profit, not always to the winery, often to Andy Beck or Dave Abreau etc. Now, as to whether Andy or Dave spend 2 or 3 x more than others per ton or acre, that is harder to verify, being private businesses. But look at the marketing costs separate from actual production. Andy B. prices good Cab grapes at a % of your shelf bottle retail, not on his costs of labor & material. $300+ Napa Cabs are retail prices, not costs. Same is true of Petrus, Lafite, etc. In Burgundy, only DRC, Leroy, maybe Leflaive, Dugat-Py, and Coche Dury can pull that marketing magic. And given the tiny size of those Burg. houses, and inability to expand volume, it is a different amt. of $$$ en toto. Margaux can do, what, 15,000 cases or more? Opus One typically offers no more than 18,000 or 20,000 out of around 30,000 cases worth of grapes. Leflaive would chop off a few fingers to have that much prime acreage.

  13. “Donn Rutkoff says:
    January 8, 2013 at 1:36 pm

    T’anks, and to Patrick & David on Napa prices per ton grapes, those reflect the grape market sales and not cost of production.”

    Donn, point is: if a winemaker wants to make a Cabernet-Sauvignon wine versus a Pinot noir wine he/she will have to pay more for the former than the latter. That’s a big reason why Cabs cost more than Pinots.

  14. Wait a second… I thought a lot of CA Pinot *was actually* Cabernet?!???

    (joke!)

  15. Carlos Toledo says:

    Someone said the other day that Bourgogne is 10% business and 90% “farm folk” whereas Bordeaux is the other way around.

    Anyone who has ever visited both areas can testify to most of that. I couldn’t believe during my visit to some famous producers in Beaune some semi-ragged-dressed woman would lead me to a cellar full with treasures.

    They barely speak english up there…bordeaux on the other hand is about scheduling time to visits, dressing up, fluent english (other languages too). Shrewd business people.

  16. Ken Moholt-Siebert says:

    As David says, it all adds up. Barrels and grapes are the most costly inputs, and tying them up twice as long makes a capital-intensive endeavor even more so. If you can invest $100 and sell for $200 in one year, then how much do you need to sell for to maintain the same rate of return after two?

  17. David Rossi says:

    Low Blow Dude!

  18. I visited a winery once and was talking with the winemaker. The winery has been around since mid ’70’s and all his wines are the same price. I asked him about his reasons.

    He looked at me and said. “They cost me all the same to make, everything else is just marketing.”

  19. Christopher says:

    @Wandering Wino: That sounds like Caparone here in Paso!

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