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Dear Dr. Vinny,
Besides the obvious answer of “all they can get,” how do wineries—especially smaller boutique wineries—arrive at their price points? What are the factors involved?
—Rick J., Mesquite, Texas
Like any product, part of the price of a bottle of wine typically reflects the cost of production. You have to weigh in the cost of grapes, vineyard management and development, winery equipment, utilities, barrels, labor and packaging. There are also sales, marketing and distribution costs, and wholesale and retail markups. Like any business, the wine business is susceptible to economic downturns. But wine is also affected by vintage variation and other whims of Mother Nature, who can just as easily offer a bumper crop as a vintage where yields are down by 30 percent or more.
A small start-up winery might have substantial initial costs, while bigger, more well-established operations might have some costs go down. Wine is also unusual in that it’s often tied up in barrels or bottles for years before it’s released into the market, and wineries have to account for this delay in cash flow.
After all of those factors are taken into account, there are more difficult things to weigh in: demand and perceived value. A $100 bottle of wine probably costs more to make than a $10 bottle, but not necessarily by $90. I find wines are typically priced where they will sell, and if wine lovers are willing to pay $100 because they’re fans of the producer or believe in the quality of the wine, that’s probably where the price will stay.
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