Essay: Price vs. Quality in Wine

“Red Nosed Taster” writes: Tasting expensive but not so good wine on my trip to the wine country last weekend made me think… How do they price wines anyway? A recent study showed that in blind tastings, cheaper wines consistently do better than their more expensive brethren. I was hoping you could elaborate on this mysterious world in your blog.

Like any product, wine prices are determined by myriad inputs. It starts with the type of grapes used, where the grapes are grown, and what the yield of those grape vines are. (Grapes pruned down to two tons per acre are more expensive than those pruned to five tons per acre.) Then there’s who’s making the wine and how they make it. Everything from the type of barrels used to age the wine to whether cork or a screwcap is used to close up the bottle plays into it.

But all of that is academic. Of course, the real price of a bottle of wine ultimately comes down to what the market will bear. Wine pricing is one of the truer examples of pure supply and demand pricing you’ll find in economics. Because there’s a finite supply of any given wine in a year, and a new, but different, supply the following year, you’ll almost always see prices change for a wine from one year to the next as producers try to capture every last dollar for a given bottle of wine. If not all the wine sells one year, the price will go down or stay the same. If it sells out, watch it start to climb. I was drinking Caymus Cabernet for $20 a bottle in 1995. The wine became a big hit right about that time, and the 2005 vintage goes for about $70 today. That’s just simple economics: Caymus knows it can sell out even at 3 1/2 times the price. If it doesn’t it just knocks the price down a few bucks for 2006 and people think they’re getting a bargain.

For some real fun try tracking the price of a given bottle of wine on the secondary market. Auction prices fluctuate up and down just like the stock market. It’s fascinating stuff.

But to your other point, does a high price mean you’re getting a quality wine? Studies are studies, so I decided to look into my archives of wine ratings to see if there were any patterns in my own data. Below you’ll find the chart of all the ratings of wines that I’ve done where I had a reliable retail price available for the wine (which excluded a lot of older bottles, auction tastings, and restaurant wines). I ended up with about 1,800 data points. Because letter grades don’t plot very well, I converted everything to the widely-used 50-100 point scale. A+ got 100. F got 50.

The results are interesting, I think. There’s not a lot of order to the data for most wines; for wines under about $50, the ratings are all over the map. Things get more interesting when prices start to climb. I don’t have any ratings below a B- for a wine over about $50, with one exception. And as prices tend higher, the ratings tend to go up as well. That said, only one of my 100-point/A+ wines cost more than $50, and some cost in the $20s.

Overall, the trend line points vaguely upward, but even the cheapest wines merit an average rating of a solid B. Also interesting: Virtually all wines costing more than $80 fell below the expected trendline, so maybe the big takeaway is that yes, you can buy quality, but with each extra dollar you spend, you get only a marginally better wine.*

price vs quality in wine 300x182 Essay: Price vs. Quality in Wine

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* Fair warning: I’m not an economist by trade, and all data is based on my own tasting reports, which may very well be skewed, particularly since very few of my ratings are based on blind tastings. Ultimately it’s just one man’s data, but I have tried to be as honest and accurate as possible.

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10 Responses to Essay: Price vs. Quality in Wine

  1. So, is there a secondary market for beer — other than ebay?

  2. Very rarely you see a bottle of some old beer for sale at auction, but that’s extremely rare. You actually see old spirits (Scotch, etc.) for sale more than that.

  3. Excellent article. Looking at your data and as a trained economist I can safely conclude that you drink a lot of wine!… on a serious note- very good analysis… given the price to point difference the incremental taste benefit for the expensive wines do not seem worth the extra cost. A $25 bottle seems to have the best price to taste ratio.

    As for me I’m going to stick to doing the non-reserve tastings for a while.

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  6. In my too brief wine industry career in the mid 1980′s I was involved in extensive blind tastings e.g. 50 California Cabs before lunch with the objective determining the pricing of wines with quality we judged comparable to ours. One of the samples was Opus One. I drew two conclusions: 1) there was no correlation between price and quality; 2) my lower lip became anesthetized from contact with that much alcohol.

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  8. Hello! I’d just like to offer a huge thumbs up for this awesome piece you’ve got here. I will be returning for more soon. Cheers.

  9. Pingback: Il marketing del vino: tanto fumo | Sol Invictus

  10. Arlette Imbert

    Je vie au Québec Canada et j’aimerais commander des caisses de vin blanc MOSCATO que je ne trouve pas chez nous et que nous avons découvert en Floride.
    Nous adorons ce vin et désirons en aquérir plusieurs caisses. SVP, nous dire comment faire et ou aller.
    Merci

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