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Why Napa Cabernet costs so much

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The most interesting quote in the Napa Valley Register’s article on the 30th birthday of the Carneros Wine Alliance is from David Graves. The co-founder of Saintsbury said, “There’s no ‘Napa of pinot noir.’ No one place dominates the market.”

Isn’t it interesting how the cultural evolution of the market has treated our two leading red wine types so differently? One, Cabernet Sauvignon, has become almost exclusively dominated, in the mind of the consumer, with a single appellation: Napa Valley. The other, Pinot Noir, resists being associated with a dominating region. Indeed, if you were to ask leading wine critics, What is California’s top Pinot Noir appellation, they would tell you the question makes no sense.

Beyond being merely of academic interest, this is a pocketbook issue. How much a winery gets for its wine (and how much, in turn, the consumer pays for it) are intimately linked with the wine’s origin. While the average statewide price for a ton of Cabernet Sauvignon grapes in 2013 was $1,339, in Napa Valley it was $5,469, a difference of 308 percent. Pragmatically, this is why the average bottle of Napa Valley Cabernet is many times higher that the average bottle of Cabernet from, say, Alexander Valley.

This is not true of Pinot Noir, whose price tends to be more consistent across all the top coastal growing areas. Here are some examples, all reflective of the price of a ton of grapes in 2013:

Sonoma: $3,078

Santa Barbara/San Luis Obispo: $2,586

Mendocino: $2,652

Statewide: $1,594

Indeed, as I have long suggested, when it comes to Pinot Noir, it is somewhat misleading to focus on individual growing regions. Instead, the way to look at things is that we have a single Pinot Noir terroir that stretches from Anderson Valley down to Santa Barbara County, extending inland perhaps 20 miles. No single A.V.A. within this vast stretch can plausibly pretend to supremacy because, in truth, all of them are roughly equal, although, of course, wine writers and critics make their livings discerning differences within the similarities.

In the case of Napa’s lopsided price for Cabernet, this cannot be credited to matters of terroir. Napa Valley demonstrably is not the best, only place to grow qualitatively significant Cabernet Sauvignon in California. Alexander Valley has equal precedence. So too do the Santa Cruz Mountains, Paso Robles, the easternmost parts of Santa Barbara, Lake County and other regions of Sonoma County, including Sonoma Valley, Dry Creek Valley, Knights Valley and Chalk Hill. (I refer, in all cases, to the top wines.) I don’t think any critic who’s being objective would object when I say that prime Cabernet growing areas in California are at least as widespread as those for prime Pinot Noir.

Why, then, the incredible price differential on behalf of Napa Valley Cabernet Sauvignon? One reason and one reason only: perception. Napa Valley is perceived as being the best place to grow Cabernet. That perception clearly impacts the choice of consumers (and the restaurateurs and merchants who sell wine to them), but it also distorts the impressions of a surprisingly high number of critics, who do not taste blind and thus are subject to the biases within their own unconscious or subconscious minds.

Now that I’ve been “relieved” of the job of tasting many thousands of wines a year, I find I’m developing a refreshingly clearer sense concerning these matters of terroir. Perhaps it’s a form of now being able to see the forest for the trees. If one is looking for pleasure and complexity in wine (and what else would one look for?), then it’s simply astonishing how easy it is to find those qualities in California wine. This is not to suggest that quality differences do not exist, but it is my considered judgment that these differences are neither as vast as I once thought, nor as distinctive as consumers believe. This may be due, in part, to the 100-point system, which I long employed and for which I will never apologize. But I am glad that, when it came to very high scores for Cabernet, I always included Alexander Valley right up there with Napa Valley, for I was able to get past the “perception thing” and focus on the wine itself.

The history of California wine is replete with paradigm-shifting events, such as the Paris Tasting, the advent of the current era of Pinot Noir, replanting after phylloxera, and, if we go back far enough, to the use of French barriques and the creation of the Federal labeling laws. To these, I will predict a gradual shifting in the consumer’s perception, a widening of appreciation that great Cabernet Sauvignon can in fact come from many more places than only Napa Valley. When this will occur is open to question, but I have no doubt that it will.

  1. Bob Henry says:

    Consider this a footnote to your wine blog entry.

    Excerpt from The Sacramento Bee “Business” Section
    (February 14, 2008, Page D1ff):

    “Full Bouquet on Wine Costs;
    From grapes to glass, prices vary by region and quantity”

    Alternate link:

    http://www.record-eagle.com/news/business_the_biz/article_1d40b347-9132-54ea-bb2d-fc3fbdfa3db9.html?mode=print

    By Jim Downing
    Staff Reporter

    [This accompanying sidebar exhibit titled “Breaking Down a Bottle” is not archived online. Transcribed from the print edition of the article. — Bob]

    The value of wine grapes depends on where they’re grown. While grapes are the primary ingredient in wine, they make up only a splash of a bottle’s retail price.

    Here’s a breakdown of the estimated costs in a typical $20 bottle of wine:

    Grapes = $ 1.95 Petite Sirah (Mendocino)
    Winemaking ops = $ 3.25 medium-volume
    Oaking = $ 0.75 American oak barrel
    Bottle glass = $ 0.90 Midrange glass
    Label = $ 0.25 Midsize order
    Closure (cork) = $ 0.30 Midquality cork
    Capsule = $ 0.10 Aluminum
    Bottling = $ 0.45
    Subtotal . . . $ 7.95

    Winery mark-up = +75%
    Winery mark-up = +$ 5.96
    Subtotal . . . $13.91

    Wholesaler mark-up = +20%
    Wholesaler mark-up = +$ 2.78
    Subtotal . . . $16.70

    Retailer mark-up = +20% supermarket
    Retailer mark-up = +$3.30
    Total . . . $19.99

    Here’s a breakdown of the estimated costs in an $80 bottle of wine

    Grapes = $ 5.75 Cab Sauvignon (Napa)
    Winemaking ops = $ 6.25 small lots
    Oaking = $ 2.00 French oak barrel
    Bottle glass = $ 2.00 Heavy European glass
    Label = $ 0.65 Small order, fancy label
    Closure (cork) = $ 1.00 Highest-quality cork
    Capsule = $ 0.18 Tin
    Bottling = $ 0.50
    Subtotal . . . $18.33

    Winery mark-up = +150% Small, renowned winery
    Winery mark-up = +$27.50
    Subtotal . . . $45.83

    Wholesaler mark-up = +35% Low volume = high m-up
    Wholesaler mark-up = +$16.04
    Subtotal . . . $61.86

    Retailer mark-up = +30% Wine shop
    Retailer mark-up = +$18.13
    Total . . . $$79.99

    Sources: Sacramento Bee; Robert Yeltman, UC Davis; National Agricultural Statistics Service

  2. Nice article and your points are well taken. I’ll add that the average Pinot Noir grape prices in the state report tends to have a downward pull due to sparkling wine production. The yield per acre allowed for those contracts can be several times that for top tier red wine. It’s a weighted average number, and the high number of tons at that lower price has a huge affect.

  3. Excellent article Steve….I’m not sure how the per bottle costs above were originally obtained, but as a producer of Sonoma Valley, Moon Mtn. District Cabernet Sauvignon in the 1500-1800 case range, I sure as heck cannot generate those margins indicated. Whilst the packaging cost are similar , my Estate fruit costs are more than 2 1/2 times higher( which is expected when one holds the crop level to below 2 tons/acre and farms “organically”). You are correct that perception has certainly played a part in elevating Napa Valley Cabs to their high level…. We need to do more homework in marketing for Sonoma County….I am hopeful that the future of the original home of California’s “vinicultural heritage” will take it’s rightful place in our consumers minds sooner vs. later…. Again , thank you Steve for pointing out what I too think will be realized in the not too distant future…..I’m pretty certain that most of us in Sonoma Valley’s Moon Mtn. District will do our part to make it happen!

  4. Steve, I enjoyed your post. I wonder if some of the Napa price differential (for both fruit and the end product of wine) is also due, or at least sustained by, the tourism brand in a given area. Someone should look at the relationship between wine prices (and fruit prices) and average hotel room rates. Perhaps it would lend more support for the “perception” theory.

    One note: in select areas of Pinot Noir growing areas in California, fruit prices actually exceed those for Napa Valley Cabernet. Case in point: the extreme Sonoma Coast, where high-quality pinot noir is routinely sold for prices >$6000 per ton, and in some cases $7000-$8000/ton now. As a grower there, I see different dynamics impacting this including yields and farming costs. But over the last 5-10 years, we’ve also begun to see our own consumers’ perceptions of the region change in a way that now supports such pricing. I believe scarcity has something to do with it too.

  5. Fred Reed says:

    Let’s keep it simple.

    Nothing will sell for more that someone is willing to pay for it.

  6. Stefano Poggi says:

    Hi Steve,

    Good points throughout – but I’m a little surprised on your thoughts of not treating Pinot Noir as MORE terroir focused. With such a sensitive grapes, taking off the influence of terroir seems to fly in the face of, say, Burgundy.

    I’ll have to read up on your past posts on the subject.

  7. Tom Farella says:

    I have to disagree that perception is the key difference. With all due respect to our neighboring counties and all the fine wines produced, every day I gain a greater appreciation for what makes the Napa Valley special. Spend a little time on Google Earth and tool around. Notice that almost every morning hot air balloons drift downvalley as Napa’s natural air currents move through it’s narrow upper reaches and open to a large marsh at the bay. Look at the geology of 2 distinct mountain ranges and their alluvial fans, take note of the temperatures throughout the season and how they compare to neighboring regions. Track the sun through the day and notice how it plays on the valley floor and hillside vineyards. Yes, there are exceptions but the large body of data points to a special place being the Napa Valley. Terroir is no accident.

    That rumbling you felt earlier was Robert Mondavi rolling in his final resting place.

  8. Bob Rossi says:

    As usual, a very thoughtful post. While I almost never drink California wine (except for an occasional Zinfandel), I continue to read your posts because they’re often so thought-provoking (as well as well written). In the past 2 years we’ve made 2 visits to Burgundy, and never set foot in the Cote d’Or. Instead, partly because of where we stayed, we visited several producers in the Cote Challonaise. The wines there were outstanding, at a fraction of the price of good Cote d’Or wines. Why, I don’t know. And we’ve also been drinking lots of terrific sparkling wines from the Savoie, Bugey and Jura. Again, a fraction of the price of Champagne (albeit, unlike Burgundy, different gaps).

  9. Bob Rossi says:

    As usual, a very thoughtful post. While I almost never drink California wine (except for an occasional Zinfandel), I continue to read your posts because they’re often so thought-provoking (as well as well written). In the past 2 years we’ve made 2 visits to Burgundy, and never set foot in the Cote d’Or. Instead, partly because of where we stayed, we visited several producers in the Cote Challonaise. The wines there were outstanding, at a fraction of the price of good Cote d’Or wines. Why, I don’t know. And we’ve also been drinking lots of terrific sparkling wines from the Savoie, Bugey and Jura. Again, a fraction of the price of Champagne (albeit, unlike Burgundy, different grapes).

  10. Bob Henry says:

    Napa Valley Grapegrowers 2015 Ahead of the Curve seminar . . .

    From Wines & Vines Magazine
    (April 23, 2015):

    “What Makes Napa Valley Valuable?;
    Analysts discuss ways to boost value of wineries and vineyards ”

    Link: http://www.winesandvines.com/template.cfm?section=news&content=150099

    By Paul Franson

  11. Dear Bob Rossi, thank you. You’ve hit the nail right on the head.

  12. Steve:

    You left out the Livermore Valley in your summation of coastal appellations that have the potential to make great Cabernet.

    If the folks in Sonoma think they have a large marketing hole to climb out of differentiating themselves from Napa, try selling expensive Cab from Livermore.

    And despite the (some would say quixotic or herculean or sisyphean) efforts of the last 20 years, the results of a number of wineries here have proven my founding thesis about the Valley. The lack of marketing know-how and the gravity-warping influence of Napa cannot vitiate the viticultural “facts” that have been known about my little growing area for more than 150 years.

  13. Michael Caldarola says:

    Have I been hallucinating the big difference I taste in Pinot Noir from Anderson Valley, Russian River, Carneros, and growing regions farther south because they apparently all come from a single appellation?

  14. Russell Bevan says:

    At 25k per ton for the best Cabernet Grapes the cost of grapes per bottle is around $50. The economics are so different than any other county or varietal.

  15. Steve, You have more experience tasting wines of the different viticultural areas in CA than I do. So, it’s hard for me to argue with you. But, for me, as a winemaker in Napa and other CA regions, Napa is better at Cabernet by a significant margin. Sure, there are some very good Cabs elsewhere and some less than stellar Cabs in Napa. But, exceptions do not make the rule.

  16. Bob Henry says:

    Russell:

    Recall this excerpt from The Wall Street Journal “Off-Duty” Section
    (March 19, 2011, Page Unknown):

    “The Most Powerful Grower in Napa”

    [Metric: $25,000 per ton for To Kalon Vineyard Cabernet grapes]

    Link: http://www.wsj.com/articles/SB10001424052748704893604576200842057088206

    By Lettie Teague
    “On Wine” Column

    “The Beckstoffer pricing formula calls for the price of a ton of To Kalon Cabernet grapes to equal 100 times the current retail price of a bottle. (This is true of all his heritage vineyards.) For example, if a bottle of Paul Hobbs Beckstoffer To Kalon Cabernet Sauvignon costs $250 (as it did at my local store) then Mr. Hobbs paid $25,000 for a ton of the fruit plus a base amount per acre that may vary. By contrast, the average price per ton of (average) Napa Cabernet is just north of $4,000.”

  17. James Robertson says:

    Has anyone tried http://undergroundcellar.com?

    I love cabs but I’m not a fan of online shopping so I’m hesitant… but they always have cabs deals.

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