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California Takes on the World

During the roaring 1990s, the Golden State challenged Bordeaux as the global leader in wine prices, but does it have staying power?

Kim Marcus
Posted: December 18, 2002

 
Araujo Estate's Napa Valley Eisele Vineyard Cabernet Sauvignon 1991 was released at $40; the 1999 was $150.
 
 
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Is California's bubble about to burst?

That's the question being posed with increasing frequency by leading vintners, retailers and restaurateurs across the United States. It comes after a decade of price hikes that have made California's top red wines some of the most expensive in the world. While the swell in the ranks of $100-a-bottle Napa Valley Cabernets confirms the state's status as a premier winegrowing region, it has also placed California front and center in the debate over high wine prices.

These high profile reds are also causing a tectonic shift in the wine world. It's now clear that California has become a global price leader, rivaling other top red wine regions in cost and demand. This is the key finding of an investigation conducted by Wine Spectator's tasting department into the pricing trends of 60 top wines from California, France and Italy over the past decade.

Until recently, Bordeaux was the undisputed market leader, but our figures reveal that since 1992, and especially since 1997, the relative price increases for California Cabernet-based reds have far outpaced those for the reds of Bordeaux in real dollars as well.

When it comes to discussions about pricing, few consumer goods rouse as much indignation as wine does. Complaints about high priced wines have probably been around since the first wines were sold in an ancient marketplace. Everyone, it seems, shares the opinion that wine prices need to be lowered. That such thinking flies in the face of the basic laws of economics -- supply and demand -- is not seen as a paradox by wine lovers, or even by those who make and sell wine.

"California wines have been the darlings of the wine industry, and they've become snotty and think they can charge whatever they want," said Wilfred Wong, a wine buyer for Beverages & More, a discount retailer with 26 locations in Northern California. "The wines are absolutely too expensive."

David Breitstein, owner of the Duke of Bourbon in Canoga Park, Calif., one of the state's leading fine-wine retailers, agrees that California wines cost too much. "Look at what happened in Napa Valley: Everybody wanted to have first-growth [Bordeaux] pricing. There are just too many trying to get the big bucks."

While there are still many large-volume brands that offer good value for $20 or less, they are not the driving force in the market today. For that, you have to look at the $100-plus wines, whose numbers have ballooned since our last major price survey, in 1997. Their ranks comprise cult wines and various other top Napa Valley Cabernet-based reds.

Just how expensive have California wines become? To answer that question, we tracked the suggested retail prices throughout the 1990s of 20 top Napa Valley varietal Cabernet Sauvignons and Cabernet-based proprietary wines.

The list includes cult Cabernets such as Harlan, Viader and Araujo Eisele Vineyard, as well as more readily available wines such as Pine Ridge Stags Leap District, Mondavi Reserve and Beringer Private Reserve.

The price escalation of most these wines is nothing less than phenomenal. For wines from the 1990 vintage, the highest release price per bottle was $75, claimed by Caymus Special Selection. In the same vintage, there were only four other wines priced at $50 or higher (Stag's Leap Cask 23, Opus One and Harlan, all at $65, and Robert Mondavi Reserve at $55).

The contrast with 1999 prices is stark. All 20 wines from the vintage cost at least $50 a bottle, and 14 of them are priced at $100 or more. The most expensive wine on release is the Harlan at $250, a 285 percent increase over its 1990 price. Next in the lineup are a trio of $150 wines: Araujo Eisele, Opus One and Stag's Leap Cask 23. However, a few producers held the line, including Dunn (from $33 in 1990 to $55 in 1999) and Flora Springs Triology (from $33 to $50).

The average release-price for a 1990 California wine in our shopping basket was $42.42, while the average for the 1999 vintage was $114.75. That is a 171 percent increase. Taking inflation into account, the price should have increased to just $53.24. Interestingly, the rise in California prices almost directly mirrors that of the surge in the Dow Jones industrial average from the mid- to late-1990s.

In a comparison with Bordeaux using the same two vintages, California's performance stands out in greater relief. Our shopping basket for Bordeaux includes all the first-growths, as well as other key classified-growths, and Pomerols such as Château Pétrus and Château Le Pin.

Bordeaux began the decade at a much higher level. Seven of its wines were priced at $100 or more in the 1990 vintage. By the 1999 vintage, however, there was only one addition to this elite club (Château Cheval-Blanc, at $213 a bottle).

The average price for a 1990 Bordeaux wine in our group was $83.30 (almost twice the average for the '90 Napa Cabernets), while the 1999 average was $135.65 (just $20 a bottle more than the Cabs). However, on a percentage basis, Bordeaux's price went up only 62.8 percent, more than double the overall rate of inflation.

Napa Valley's top Cabernets, in other words, increased in price at almost three times the rate of first-growth and other top Bordeaux, the wines that have long set the standard for quality and premium prices.

Although Bordeaux takes the prize for the most expensive individual wines in 1999 with the astronomically priced Pomerols Pétrus ($776) and Le Pin ($537), if these two wines are put aside, the California prices are on average higher than Bordeaux's. Granted, the role of vintage quality in deflating or pumping up prices cannot be ignored; the 1999 vintage was merely of good quality in Bordeaux, while in California it was one of the best ever.

Yet this points out the fact that Bordeaux prices were more strongly tied to quality than were California prices in the 1990s. In the disappointing 1998 vintage, many California wines continued their price rise. In the similarly disappointing '97 vintage in Bordeaux, prices fell significantly at many of the châteaus surveyed. Bordeaux prices have remained relatively constant since then, no doubt affected by the strong dollar and up-and-down quality. However, expect a major change in the status quo with the release of the highly touted 2000 Bordeaux vintage this coming spring, given its record-breaking futures prices.

The only other wine region that can give California a run for its money is Tuscany. Much like the top Napa Valley Cabernets, Italy's super Tuscan reds have soared in price and reputation. In the 1990 vintage, the average price of a bottle from our 20-wine super Tuscan basket was $39.55. By 1999, that had increased to $87.50, a 121 percent increase. The highest-priced super Tuscan in 1999 was the Masseto, at $300 a bottle; a total of five super Tuscan '99s topped the $100 mark.

Thus, while the 1990s boom spread its largesse through these three key regions, California benefited most. Mother Nature's timing helped as well: Every California vintage of the '90s except 1998 was of high quality.

For most booms, there are busts, and a wine boom is no exception. Today's glamorous Bordeaux châteaus have repeatedly been the scenes of near destitution over the past two centuries as markets collapsed. Wine, though a highly value-added product, is still in large part governed by the vagaries of agricultural economics: Expanding production leads to surpluses that are then subject to aggressive price discounts.

There are warning signs that California may be reaching such a stage. There has been a proliferation of new wines, along with tens of thousands of acres of new vineyards, while wine consumption recently has been growing at a rate of just 1 percent to 2 percent a year in the United States.

For now, the flood tide of California price hikes appears to have peaked. Anecdotal evidence is mounting that a major price correction, if not already under way, is about to occur. Sales of high priced California wines are sluggish in restaurants, price discounting at the retail level is growing, and many in the wine industry are predicting that a shakeout is at hand.

While this is bad news for those in the wine and restaurant industries, consumers would ultimately benefit, likely enjoying lower prices for and greater availability of high quality wines from the Golden State in the months and years ahead. Falling demand and increased supply are moving in concert to bring down prices. It's a classic example of the laws of supply and demand at work.

Pressure seems to be growing most on those wines priced in the $50 to $100 range. "The recession has cut demand way back," says Robert Smiley, dean of the graduate school of management at the University of California, Davis, and an expert on wine economics. "Those [high] prices and sales were driven by the Internet bubble. The great creation of wealth from the Internet and technology boom drove the 'I can be better than you' buying frenzy. That particular market is gone now, and it's not coming back."

Smiley is also starting to see changes in attitude in the aftermath of California's golden decade. A retailer survey he recently conducted shows that California's share of the American wine market is expected to drop significantly by 2006. "That is a wake-up call to the wineries if they expect to hold market share, let alone grow their share of the market. Retailers think they are going to be selling more wine from Italy and France and less from California going toward 2006."

In the closing decades of the 20th century, California went from up-and-coming wine region to world leader. The opening years of the 21st century will show whether it has the staying power to continue to lead, or whether it will become a follower once again. But one thing is for sure: Few will be happy about the price of its wines, except for the vintners who can put the money in the bank.

Kim Marcus is managing editor of Wine Spectator. He has been with the magazine since 1988.

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