Voodoo Wine Economics

Jeff Morgan
Posted: February 3, 2000

Voodoo Wine Economics
By Jeff Morgan, West Coast editor

The phrase "voodoo economics" became popularized as a description of economic policies that changed our nation's status as the world's richest country to that of the world's greatest debtor. Based on wishful thinking, these policies were embraced by a dreamy-eyed public entrenched in a credit-card mentality that said, "I gotta have it now, whatever the cost."

Wine enthusiasts have now created their own voodoo wine economy as well, paying exorbitant prices for wines that--no matter how good they taste--aren't worth a fraction of their cost. They pay $250 for first-growth Bordeaux, even more insane figures for admittedly wonderful Burgundies and as much as $100 for the likes of California's excellent Caymus Special Selection and Harlan Estate Cabernets.

"Demand is crazy," says Doug Shafer, who recently raised the price of Shafer Vineyards Cabernet Sauvignon Hillside Select to $75. "We have people coming from the Far East, and they want to buy it all. There's so much money out there, it's spooky."

Whose fault is it that prices have gone through the roof for many top wines? We can't really blame the winemakers. As they would for any other commodity, they set their prices at a level the market will bear. In addition, they know that many people erroneously believe a more expensive product must be better than a less expensive one.

"It's so much easier to sell expensive wine than cheaper wine," says Sara Floyd, sommelier at San Francisco's Vertigo. "The $70 wines fly out the door, but Talley Estate Chardonnay, at $30, is a hard sell. The wine is delicious, and I've begged Talley to raise the price just because it would be easier to sell."

In such a naive, topsy-turvy world, creating an upscale image with an upscale price makes perfect sense. Wine prices are not based on production costs.

It's hard to say exactly what it costs to make a wine. Parts and labor vary wildly from winery to winery. Some vintners carry a lot of debt; others don't. Some have expensive, beautiful wineries, while others work out of shacks or barns. Certain wineries, such as Chateau Mouton-Rothschild, pay a fortune for labels, while others slap any old cheap thing on their bottles. (Personally, I don't care what the label looks like, since I can't drink it.)

Bottles and corks can cost as little as 25 to 50 cents each or as much as a dollar or two. Then there are taxes to pay as well. On a single-bottle basis, it's safe to say that a winery can spend anywhere from a dollar on up for everything except the actual wine or wine grapes. But vintners paying more than five dollars per bottle on packaging, salaries, etc. are simply burning a hole in their pockets.

It's easier to figure the value of the actual wine in a bottle based on the cost of grapes per ton. The best wine grapes in California range from about $1,000 per ton to as much as $4,000. This, too, is related as much to supply and demand as quality.

One ton of grapes yields about 60 cases of wine, or 720 bottles. At $2,000 per ton--which is close to an average price these days--that's about $2.80 per bottle. Even with a packaging and marketing program designed by Picasso himself, three art galleries in the winery, the latest in "state-of-the-art" whatever, a winemaker, enologist, viticulturist and public relations/camp director on staff, it's unlikely that a winery will pay much more than $10 to make a bottle of wine, from start to finish.

Plus, the difference between the cost of grapes for a bottle of Petrus versus any $10 California Merlot is really not that great either--maybe a few bucks. I'll admit the difference in quality may be extraordinary, but that's based on certain intangibles like winemaking techniques and a great vineyard site. And that's what makes Petrus worth more than your ordinary, fairly good, inexpensive wine. But is it worth $400 or $500 more? Only if money's no object.

And that's the problem these days. The United States seems to have survived its experiment with voodoo economics, and a bull market has created too many wine lovers for whom money is now no object. Well, let them pay overinflated prices for their favorite wines.

The good news is that many winemakers still charge a reasonable price for a bottle. Just look at Wine Spectator's tasting reports. There are far more wines rated very good to outstanding (85 or higher on Wine Spectator's 100-point scale) that cost $10 to $25 than there are in the $50 to $100-and-up category.

Instead of saying, "I gotta have it--at any cost," those frustrated by the high prices of so-called cult wines should remember prices do not necessarily reflect how good they are. More specifically, they reflect availability.

So look for the newest hot names before the big spenders turn them into cult wines. (I won't mention names here; don't want to spoil things for anybody.) In addition to reading our ratings, ask your friends and local wine shop owners what discoveries they've made recently. You'll find there is more good wine in the bargain bin than you imagined. It doesn't take voodoo to find great wine at a good price--just good sense (and maybe a little luck.)