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High wine prices? Pogo figured it out long ago

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Kudos to Jancis Robinson for decrying the hubris-inspired prices on so many of the world’s wines these days.

I don’t know if this is a new position for her to take, or one she’s held for years, as I have; but either way, it’s refreshing to see the most famous female wine writer in the world join the anti-high price crowd.

Jancis points out, in particular, three red wines, one from the Languedoc, one from Australia and one from our friend Raj Parr, a $90 Central Coast bottling I have not yet had the pleasure of reviewing. But since I know Raj, and I know California wine, let me share with you some thoughts.

First of all, it is simply fantastic that a new wine brand can charge $90 a bottle and expect to get away with it. I mean “fantastic” as in unbelievable, mind-blowing, and wrong. But what is even more unbelievable is that people are actually going to be lining up to buy that wine. Why?

For the answer, you have to look no further than the great People’s Republic of China. We Americans love to giggle at the Chinese, so pretentiously buying Lafite and putting it on the edge of the table in the restaurant so everybody can see just what they’re drinking. For we are defined by what we possess and consume, aren’t we? And if we lack the self-esteem to value ourselves intrinsically for who and what we are, then we turn to possessions, to fill that gap. I may be a worthless nothing, but if I can afford Lafite, that makes me better than you.

Well, I exaggerate, of course, but that is the view many Americans have of the Chinese. But let’s look at ourselves. Americans, too, line up to buy the most expensive, talked-about wines (if they can afford them). Why doesn’t everyone laugh Ray Parr right out of his shoes for attempting to foist an unknown, unproved wine on us at such a ridiculously high price?

Because he’s Raj Parr. He’s associated with Michael Mina. And that, my friends, is your window into the world of celebrity and wealth, a world closed to most of us. Yet the more closed it is, the more we want in, to make ourselves feel better than we are, to reassure us that we really are as good as the handsome, well-dressed and tasteful people whom we see laughing in the windows of Michael Mina as they dine on herb-roasted lamb ($47) washed down with Raj Parr’s new wine.

So you see the phenomenon is fundamentally psychological. Yes, it can be dressed up in Armani and Gucci and made to appear natural and tasteful, but this aspirational behavior, I would argue, is fundamentally neurotic. These vintners can get away with charging an arm and a leg for wines that–let’s face it–no matter how good they are, are not worth the price, because they take advantage of the human tendency to associate high price for quality, even when reason and common sense tell us this is a false association. In this sense, the enemy is not Raj Parr, or the Australian or Languedocian vintner charging those prices. No, as Pogo pointed out a long time ago, “We have met the enemy and he is us.”

  1. I’d love to agree, but this is a weak piece of writing that offered no journalistic follow-through. I get it; it’s a blog post, and you don’t think of blogging as real journalism. But how about a phone call or email to Raj?

    Here’s the issue: I don’t want mass-produced wines. I want wines of distinction. Is it possible to produce wines of distinction for $25 a bottle? In some places, sure. Is it possible to produce wines of distinction for whatever arbitrary low prices you’re imagining for Domaine de la Cote? I have no idea. Do you? You didn’t seek an answer, and nor, apparently, did Jancis.

    I am not defending $90 for Raj’s wine. What I’m saying is: I’ve been to those vineyards. They are very, very difficult to farm. They don’t produce a lot of wine. I suspect they’re not making very much money (and it’s not just Raj; you have to include Sashi Moorman, one of the finest winemakers in the world for my money).

    It’s possible that Raj isn’t making money at all from this operation. You are no obligated to purchase the wines, nor am I. But if we want to complain about prices, we ought to first ask some basic questions. Even for a blog post, that should not be too much to ask.

  2. I see no reason to decry the pricey wines. Wine isn’t sold naked on merit alone, we just pretend it is. The price of the wine can add value to the experience just as well as knowing the story behind the winery or a beautiful label. A high price adds exclusivity and a sense of value, so if people want to buy that, why should we object?

  3. Its simple, if he (Raj, or anyone else for that matter) sells it all its priced correctly. If not, its not.

  4. John Anderson says:

    I love Steve Heimoff’s writing and his sentiments. In fact, I’d love to meet him sometime. And Jancis Robinson strikes me sometimes as the voice of reason in the loony bin. Singling out one particular producer might not have been the best form, but in my many years in the wine business, plus raising two kids and learning all the stories, I’ve never seen a better example of “The King’s New Clothes” than wine pricing: people drink with their eyes and ears, not their mouths, and conclude that an expensive wine must be good. If they don’t like it, good luck getting them to admit it. Yes, some grapes are inherently difficult to grow, and some wines are inherently more expensive to make, but it the marginal cost really shouldn’t exceed $5/bottle. Unless, as in too many cases, you have to factor in the producer’s life-style component. The winebuying public, until people are honest with themselves, will get what they pay for, and pay for what they get.

  5. Good for you Steve!
    There are a bundle of ‘Rajs’ out there, so no comment on that.

    But Steve points out brilliantly the human behavior for acquiring these expensive wines. And it is time to open up the issue because so many people feel intimidated.

    You can spend as much money as you want, it’s your money. But it is a good thing to have the courage to tell to those consumers who are sincerely interested in wine that it may be just “Emperor,s new clothes”… Trust your own taste. It will never let you down.

  6. Cameron, of course you are correct, from an economic point of view. The price of anything is what the market will bear. No argument there. I’m simply pointing out the irrationality of the market and the role of human psychology in shaping it.

  7. Bill wertzberger says:

    I am one of many who think that the high end of the wine business is ridiculous…and at the same time wish that I could get away with selling out at $90 retail. If people with too much money end up putting some in the pocket of a winemaker, that’s fine with me. In fact, if anyone out there wants to own THE MOST EXPENSIVE WINE IN THE WORLD, I will be happy to sell them a bottle.

  8. QUOTING OSCAR WILDE:

    “What is a cynic? A man who knows the price of everything and the value of nothing.”

    ONE THE SURPRISINGLY LOW COMPARATIVE COST OF PRODUCING “EVEN THE [WORLD’S] BEST WINES . . .”

    Excerpt from The Atlantic Magazine
    (December 2000, Page Unknown):

    “The Million-Dollar Nose”
    [Robert Parker profile]

    [Link: http://www.theatlantic.com/past/docs/issues/2000/12/langewiesche3.htm

    By William Langewiesche

    ". . . For those in the business, maintaining that [elite drink] image is important not only for commercial reasons but also for reasons of personal prestige. Every stage of the trade is involved in establishing the high prices, but ultimately those prices can be sustained only through the retailers and their sales efforts. The problem for the retailers is that wine — unlike luxurious hotel rooms and other hyperinflated products generally covered as business expenses — is usually paid for directly out of the consumer’s pocket. This makes for a scary business, especially toward the high end, where The Wine Advocate roams.

    “The truth is that even the best wines cost only about $10 a bottle to produce, and they are not inherently rare. If the initial cost is tripled to allow for profits along the path of distribution, one can reasonably conclude that retail prices above $30 are based on speculation, image, and hype. . . .”

    ON THE SUBJECT OF LUXURY GOODS PRICING . . .

    Veblen goods – http://en.wikipedia.org/wiki/Veblen_good

    [Excerpt: “Some types of luxury goods, such as high-end wines, designer handbags, and luxury cars, are Veblen goods, in that decreasing their prices decreases people's preference for buying them because they are no longer perceived as exclusive or high-status products.”]

    Giffen goods – http://en.wikipedia.org/wiki/Giffen_good

    [Excerpt: “Some types of premium goods (such as expensive French wines, or celebrity-endorsed perfumes) are sometimes claimed to be Giffen goods. It is claimed that lowering the price of these high status goods can decrease demand because they are no longer perceived as exclusive or high status products.”]

    ON THE RELATIONSHIP BETWEEN WINE PRICING AND PERCEIVED QUALITY . . .

    Excerpts from New York Times “Dining Out” Section
    (May 7, 2008, Page D1ff):

    “Wine’s Pleasures: Are They All In Your Head?”

    [Link: http://www.nytimes.com/2008/05/07/dining/07pour.html?pagewanted=print

    By Eric Asimov
    “The Pour” Column

    . . . In press accounts of TWO STUDIES on wine psychology, consumers have been portrayed as dupes and twits, subject to the manipulations of marketers, critics and charlatan producers who have cloaked wine in mystique and sham sophistication in hopes of better separating the public from its money.

    ONE of the studies was devised by Robin Goldstein, a food writer, to try to isolate consumers from outside influence so they could simply judge wine by what’s in the glass. He had 500 volunteers sample and rate 540 unidentified wines priced from $1.50 to $150 a bottle. The results are described in a new book, “The Wine Trials,” to be published this month by Fearless Critic Media.

    The book wraps the results in a discussion of marketing manipulations and statistical validity, but a brief article in the April 7 issue of Newsweek magazine, naturally, seized on the book’s populist triumphs: a $10 bottle of bubbly from Washington state outscored Dom Pérignon, which sells for $150 a bottle, while Two-Buck Chuck, the cheap Charles Shaw California cabernet sauvignon, topped a $55 bottle of Napa Valley cabernet.

    . . .

    Two caveats are in order here. First, it turns out that the results of the tastings are more nuanced than the Newsweek article let on. In fact, the book shows that what appeals to novice wine drinkers is significantly different from what appeals to wine experts, which the book defines as those who have had some sort of training or professional experience with wine. The experts, by the way, preferred the Dom Pérignon.

    Second, there is, of course, no such thing as the “average oenophile,” as Newsweek put it. Most people in the wine trade understand that consumers have any number of reasons for their buying decisions, whatever their psychological and financial state. . . .

    But assuming for the moment that it’s true that most drinkers prefer the cheap stuff, why does anyone bother buying $55 cabernet? One answer is provided by a SECOND EXPERIMENT, in which presumably sober researchers at the California Institute of Technology and the Stanford Business School demonstrated that the more expensive consumers think a wine is, the more pleasure they are apt to take in it.

    The researchers scanned the brains of 21 volunteer wine novices as they administered tiny tastes of wine, measuring sensations in the medial orbitofrontal cortex, the part of the brain where flavor responses apparently register. The subjects were told only the price of the wines. Without their knowledge, they tasted one wine twice, and were given two different prices for that wine. Invariably they preferred the one they thought was more expensive.

    . . .

    “It’s not just about wine, it’s about everything!” said Prof. Dan Ariely, a behavioral economist at the Massachusetts Institute of Technology and author of the book “Predictably Irrational: The Hidden Forces That Shape Our Decisions” (HarperCollins, $25.95), which examines how people make all sorts of real life decisions. Regardless of the situation, Professor Ariely found, suggestion has a powerful effect on perception and belief.

    . . .

    AND FINALLY, THIS NEWS REPORT . . .

    “Wine Knowledge Extremely Limited Among China’s Wealthy Elite”

    Synopsis: Almost one-third of China’s richest citizens have admitted they know nothing about wine and just buy top end brands for gifting or displaying.

    [Link: http://www.thedrinksbusiness.com/2013/09/wine-knowledge-extremely-limited-among-chinas-wealthy-elite/

  9. Dear Bill Wertzberger, how much would that wine cost?

  10. Jonathan O'Bergin says:

    ….”Yes, some grapes are inherently difficult to grow, and some wines are inherently more expensive to make, but it the marginal cost really shouldn’t exceed $5/bottle.”

    …..“The truth is that even the best wines cost only about $10 a bottle to produce, and they are not inherently rare. If the initial cost is tripled to allow for profits along the path of distribution, one can reasonably conclude that retail prices above $30 are based on speculation, image, and hype. . . .”

    Both these comments could ONLY come from folks who have NEVER farmed wine grapes for a living. Every farmer knows the vicissitudes which are fundamental to that greatests of gambles, working with nature. The egregious use of the word truth is the most galling, as the statement is easily proven false. Need I even begin to enumerate the plentiful and easily researched examples? Certainly many wines are produced inexpensively, but these blanket staements reveal a hubris that is laughable.

    I drink wines regularly that cost less than $20 a bottle and which easily compete with far more costly ones on quality. There are great values to be found, but that does not mean every producer has low costs. Do your homework and you can enjoy great wines at reasonable prices, eschew those that are overpriced and avoid making ridiculous statements.

    As for China, a wine called QUEEN LAFITE (complete with an image of Chateau Lafite on the label) now serves the purpose of putting a bottle of LAFITE on the table for far less money. The world is a funny place.

  11. I often times go back to this blog post by Rob McMillian of Silicon Valley Bank (our bank, in full disclosure): http://svbwine.blogspot.com/2012/08/how-much-do-wineries-really-make.html.

    It reveals that, on average, a winery makes 6.9% pre-tax income. In my opinion, that’s a pretty thin margin. I’ve read a great deal about the COGs on wine…with the $10 figure, and I get it, but also know that running a business is more than just the cost of the product that you create. Apparently, a great deal of the profit is eaten up by those other expenses.

    Adam Lee
    Siduri Wines

  12. Honestly Steve, you must be the #1 worst writer in the entire wine industry. There are no facts and as you seem to do every few months a backhanded slap at someone plus a bite off another writers piece to boot. How about sharing something informative, interesting or news worthy. For all we know he makes 50 cases of wine at $90 and 8,000 cases of wine at $28. From what I also think I read, he bought the vineyard and isn’t simply buying fruit like 99% of the other producers in the US. It’s am embarrassment to the industry for you to ever pen another article as it’s not far from spam.

  13. Bill Haydon says:

    In 1998, I was invited to tour the cellar with a noted Napa Valley winemaker (everyone would immediately recognize his name) and taste through the barrels of his soon to be launched personal label. After tasting through several rather overblown Syrah barrels, I asked him how much he planned to charge. His answer was $125/bottle. Now, keep in mind that this man had NEVER made Syrah commercially in his life….not under his own label nor for any of his various employers. Being polite, I just nodded and moved on.

    Later, I asked his assistant winemaker why on earth he thought he could come straight out of the gate and charge that price. The groupie….err assistant said that Winemaker X had “looked at what his peers were charging.” I replied, “who the hell does he think his peers are?” The response, “you know, guys like Chave and Rayas.”

  14. Bill Haydon says:

    You know what I find really interesting in some of the hostility directed at Steve and this post? It’s that it just proves entirely the Napa Valley hubris and “Emperor Has No Clothes” character of the high end California wine industry and Napa culture (napatude!) in particular.

    Now, take me. I can give two #$%@s about high end Cali juice and Napa in particular. I’ll pull out the figurative lawn chair and cooler of beer to watch their self-immolation with a mixture of schadenfreude and amusement. I see their increasing rejection in the market as a sign of a maturing American wine consumer and palate–as a reaffirmation of all that is right and decent in wine.

    Steve on the other hand is a true believer and supporter. He’s been supporting Napa wines since before many of his erstwhile critics could drink. My take is that he’s coming at this from a position of love. Yet despite this lifelong career as a proponent of California wine, the minute he dares question the Emperor’s attire…..the minute that he strays from the orthodoxy of the Napiban, he is somehow the enemy and a horrible writer. In this and other columns, he’s telling you people some hard truths that you had better wrap your feeble little minds (and winemaking philosophies and marketing departments) around before your rejection in the market is ultimate and complete.

    BTW, I saw boxes of Kongsgaard wines both on the floor and on sale at a retailer in Ohio last month. That should tell you where the market is headed.

  15. Hi, I know Raj and I know that he has spent countless hours studying, tasting, analyzing, visiting, presenting and serving some of the greatest wines this world has to offer. His dedication to and knowledge of the wine world is unrivaled. His hard work and commitment has produced a valuable commodity – his time.

    So — when Raj sets out to invest in a vineyard (Central Coast!) that he feels can produce the type of fruit that his is knowledge and passions can steward into an unique expression of a time and place — there is a real value to that. Add the price of the fruit, quality barrel program, quality packaging, brand development, wine making and custom crush costs – it adds up quick. Market forces will determine if the wine is priced right and Raj will determine whether he gets out there and sells it or ends up collecting it. He has risked his capital and his personal reputation on this and the whole point of risk is reward.

  16. Thanks for the post. I make a small amount of wine – and can give you a perfect example of your points: my wine (a Napa Cabernet from a “premiere” vineyard, was blind tasted with six other Napa Cabs at a “local establishment in Napa town” that shall remain nameless. There were some big names involved – my wine was the cheapest at about $60 a bottle (I only do about 200 cases a year and pretty much make no money – it’s a labor of love). My wine placed first. Then in a twist, they took all the brown paper bags off the wines and let the “judges” taste them and look at the labels. My wine placed last – no name recognition. Pretty interesting…

    Though one point, which you may have addressed – but how about the bias in wine writers such as yourself (no offense intended) toward the high profile wines that everyone goes ga-ga for? Certain writers who shall remain nameless, have veritable winegasms over some of the high profile, expensive wines…

  17. Dear Richard, “winegasms.” Love it! To your point, I’ve given seriously high scores to some of the usual suspects in Napa, but I’ve also given seriously high scores to $25 Cabs. And I’ve given scores from 88-93 to most of the cult Cabs. Then again, I taste these wines blind. I have believed for years (and so written) that some of the critics, including RMP, who taste openly are indeed biased, whether consciously or subconsciously, by knowing what they’re tasting. These critics have replied that they do not believe they’re biased. But I don’t buy it.

  18. Dear Ken Bryant, I was not being critical of Raj, whom I know, like and respect. I was criticizing the wine consumers who line up to buy these celebrity-associated wines.

  19. Dear Bill Haydon, thank you for your spirited defense! It sounds like you’re more upset by my critics than I am. I tend to ignore them.

  20. POGO would be annoyed at the people paying a lot for an unknown bottle of pinot noir, not that the producers have the high prices and get what they suggest you pay for a bottle. It is a bit like being upset at the crazy right wing media. I don’t have any problem with Fox newscasters- just have a problem with the few million that believe that they’re factual newscasters…Cheers and good on you again Mr Steve.

  21. Steve – You tend to ignore critical comments, yes. Which is the biggest failing on your site, and does not speak well to character. Substantive points are ignored, routinely. How sad.

    Bill Haydon – I’m a writer in the Finger Lakes. That’s “Napa culture”? No. Believe it or not, it’s possible to dissent without being a Napa apparatchik.

  22. Dear Evan: I ignore habitual attackers who have something to prove/gain.

  23. As someone who has been making wine for a few years (about 20), pricing has always been prickly pear…

    I tell people not in the biz (and some that are) that the most difficult wine to make is an inexpensive wine (full of character and complexity of course) Why is that? Because the buyer of this inexpensive wine has very little invested and if he or she does not like it, so be it. The opposite is true with expensive wines. In that case, the buyer has a lot invested and therefor must admit to him/herself that the wine is no good making him/her a fool for spending so much money. Few people do… They convince themselves that it must be good…easier that than admit being a fool for buying it…

    Therefor, producers of expensive wines have almost instant legitimacy…it’s expensive…it must be good…

    It may be true that production costs are rarely above $10 a bottle but when you figure in the cost of a PR firm, fancy marketing, etc that will get your wines in front of the important journalists, that cost rises very quickly. Yet none of those factors will make a wine good or “worth” it’s price…it will just get you noticed in an ever expanding sea of very competent wines.

  24. But, Steve: There are legitimate questions about this blog post that you’re ignoring. Let me reiterate that I come to your blog daily because, well, I don’t know how you do it: You produce five posts a week with high-level, interesting subjects.

    In this instance, I’m stuck on why you didn’t get a comment from Raj, to whom you refer as a friend despite ridiculing the very core of his endeavors. And isn’t it fair to say that a small-volume producer is going to require higher profit margins to pay salaries, maintain quality, etc? A winery producing a quarter million cases doesn’t need big profit margins. Right?

  25. Evan Bakke, thanks. You get to the heart of the issue, which is fundamentally a psychological phenomenon.

  26. Richard Fadeley says:

    As far as “wines of distinction” go, I had a few tonight and will again tomorrow, and will rarely spend over $30. Tonight it was starting with a 2011 Cht. l’Oiseliniere de la Ramee, Muscadet and finishing with an ’09 Cave de Tain Hermitage “Croze Hermitage”, their basic bottling. Both were world class wines (89-91 pts) and varietally correct. The Muscadet was $13, and the Croze was $17. I agree with Steve that there is way too much pretense behind CA wines. At the same time you can’t take away people’s tendencies to try to impress, and when you have an obviously easy way to do just that, a lot of people will take the easy way out and bail for a $100 bottle of wine, particularly if others have a way of knowing. Such is life, and I and happy that they leave the under-appreciated bottles for me to enjoy. You will never be able to change or completely understand the human ego.

  27. Steve,

    This nearly quarter-century old article will give readers a “benchmark” for “indexing” wine production and marketing costs.

    ~~ Bob

    Excerpts from Los Angeles Times “Business” Section
    (June 15, 1988, Page C3ff):

    “Profit a Key Ingredient of Fine Wines”

    [Link: http://articles.latimes.com/print/1988-06-15/business/fi-4284_1_wine-market

    By Bruce Keppel
    Times Staff Writer

    Dennis Groth prices his Napa Valley Cabernet Sauvignon to sell for $13 retail. That price, he said, will net his family’s young winery here just 34 cents a bottle in profit.

    Groth is far from complaining, mind you. After all, he points out, 34 cents represents a 5.2% return on the $6.50 he collects from distributors. “That’s about midway among the Fortune 500 companies and a fair return on my investment.”

    However prosaic such calculations may seem in contrast to the moonlight-and-roses image of wine making, they come naturally to Groth, a certified public accountant. . . .

    . . . the Groths market the product and handle costs, always carefully maintaining that 5.2% profit margin . . .

    According to Groth, the $13 retail price of his Cabernet Sauvignon provides for a 34-cent profit and 34 cents in federal and state taxes. Payments on the loans taken out to acquire the 165 acres of vineyards take $1.46, and he figures another $1.43 to cover the cost of growing and harvesting the grapes. Producing the wine itself costs $1.19, and marketing it adds $1.74. That, at any rate, is the way Groth allocates the $6.50 wholesale price he receives from his distributor.

    The distributor, in turn, will typically take $2.17 for bringing the wine to market, where the wine merchant will add $4.33 to promote and sell the bottles to the public, producing an undiscounted retail price of $13.

    “To survive,” Groth said, “I have to be successful at that price. Nobody in the Napa Valley will survive on producing the low-end wines. I want to be in the top third of the marketplace.”

    . . .

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