Wednesday, November 6, 2013

Is there any reason a $7 wine is better than a $2.50 wine?

A reader named Aaron asked this question on an older blog post of mine earlier this week. It's a pretty incisive question.

Aaron was curious about Three Wishes, the $2.50 wine at Whole Foods, as well as Charles Shaw, better known as $2.50 Chuck. Why are they so cheap?

Well, I told him, they're made from mechanically farmed and harvested grapes from productive, reliably warm areas like the San Joaquin Valley. The grapes are rarely touched by human hands because, next to land costs, labor is the biggest expense in making supermarket wine.

Isn't that also true for $7 wines?

What do you get for your extra $4.50? A heavier bottle, a nicer label, and a bigger marketing budget. But do you get a better wine?

I used to do a newspaper Bargain Wines column for which I tasted scores of wines under $10. The overwhelming majority of wines I recommended cost right about $10; occasionally $9. Rarely did I recommend a $7 wine. It's only a $2 jump. But it's a big one.

So I put Aaron's question to you, dear readers: Is there any reason a $7 wine is better than a $2.50 wine?

UPDATE: I got this answer on Twitter from Jeff Siegel, aka The Wine Curmudgeon, author of "The Wine Curmudgeon's Guide to Cheap Wine:"

The cost of the glass and cork might take up as much as 70% of the production cost of the $2.50 wine, leaving little leeway for grapes. Bronco Wine Co., which makes $2.50 Chuck, owns its own grapes, so that gives it an advantage over The Wine Group, which makes Three Wishes. Either way, Jeff says a $7 bottle cost gives producers leeway to acquire better grapes, or perhaps more accurately, grapes that aren't as bad.

Thanks Jeff!

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8 comments:

W. Blake Gray said...

I found this taste-off between Charles Shaw and Three Wishes on Fox News, of all places, and talk about wisdom from the mouth of ... well, it's a pretty good taste-off

http://www.foxnews.com/leisure/2011/01/13/buck-chuck-wine-gets-competition/

rapopoda said...

Or did "3 buck chuck" win because that's Charles Krathammer's nickname at the, ahem, "news" station?

Aaron Shier said...

I did indeed ask this question in response to a different blog post here. Thanks for the follow up.

Ever the pedant, I must point out that Three Wishes is $3, not $2.50 (at least at the Whole Foods stores I've been to)!

Ok. It seems The Gray Report is saying:
1) In my opinion, there's not a huge difference between a $2.50 and $7 bottle (below about $10, there's not much worth drinking)

2) Of course, this whole discussion is rather subjective, so, what does everyone else think?

3) The Wine Curmudgeon says: there probably is a difference, because there's not much room to purchase decent enough grapes when wine sells for $2.50. There's a chance for the wine to be good at $7.

This is interesting. But, I still don't feel I quite have an insider's perspective on wine pricing, which is ultimately what I'm after.

W. Blake Gray said...

Aaron, you need to ask a question in order to get an answer. You asked the question in the headline. I tried to answer it, brought in outside sources. Now you complain because I didn't answer a different question?

Geez. You try to help people out on this blog you write for free, and ...

Ask your second question.

Aaron Shier said...

In my mind, I was not complaining. Or rather, I did not mean to complain. And I said "Thanks for the follow up" and I meant it! Regardless, sorry if I rubbed you the wrong way. It wasn't my intention.

I don't have a good follow-up question. I was trying to express that the responses to my initial question seemed inconclusive. There's nothing wrong with that - it's perfectly reasonable to assume there isn't a straightforward answer to questions about wine pricing.

Thanks again for considering my inquiries.

Bob Henry (Los Angeles wine industry professional) said...

Aaron,

Over the years, there has been an informal rule-of-thumb on projected retail wine pricing:

Take the purchase price or production cost of wine grapes per ton (say, $700) and divide by 100.

Arithmetic result: $7.00 projected retail price.

Sure can buy some better grapes at $700 a ton versus $250 a ton.

CPA-turned-Napa winery founder Dennis Groth revealed these numbers in a Los Angeles Times article 25 years ago.

~~ Bob

Excerpt 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

[Certified Public Accountant] 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." . . .

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." . . .

Aaron Shier said...

Bob: Thanks for sharing the "industry rule fo thumb and the article from the LA Times. Much appreciated!

Bob Henry (Los Angeles wine industry professional) said...

Aaron,

Last week I attended a Cabernet trade tasting in Beverly Hills.

One exhibitor told me that contract Cab fruit from at least one Atlas Peak vineyard goes for $8,000 a ton.

No, that's not a typo.

Do the "divide by 100" math and that translates roughly into an $80 suggested retail price wine.

I don't know many California wineries that can survive -- let alone thrive -- with a business model that can accommodate fruit input costs like that.

That's the sign of a speculative bubble. Modern-day "tulip mania."

Founder Jean Phillips of Screaming Eagle perfectly timed her "exit strategy."

~~ Bob