How much should a bottle of wine cost?
Jonathan Hesford reveals the hidden costs that dictate a bottle’s final price tag
A year in the vineyard
I often get asked, both by visitors to my winery and by friends outside the wine world, “How come some wines cost so much more than others? Can they really be worth that much money?”
It is often a difficult question to answer because it becomes a personal issue based on wealth and how much they know and love about wine.
Some people try to work out how much a bottle of wine should cost based on how much it costs to make. Some by trying to find an objective level of its quality. For lower-priced wines, this can be done to some extent but once we get into higher-priced wines, desirability and rarity take over. This month we will look at the costs of producing a bottle of wine. Next month we will look at why the price asked for that wine may have little to do with the cost of production.
Looking at basic level wines – the kind 99% of people buy and drink – we can use production costs to work out the lowest price it could be sold for and see how additional costs add to the price.
We can add up the costs of all the work in the vineyard, from pruning through to harvest, and divide that by the yield. Those costs will differ depending on the amount of care or the difficulty of the growing conditions. A meticulously tended organic vineyard on a steep slope costs twice as much to run than a mechanised one on flat land. Yields can vary from as low as 15hl/ha for old vines in dry, stony soils to over 100hl/ha for productive vines in fertile soils. So the yield is more important than the methods of farming. So the cost of producing the grape juice could be anything from €0.20 to €3.60 per bottle.
Winemaking costs are perhaps more standardised but making vast quantities is cheaper than working with small volumes. Winemaking equipment is expensive but it’s a long term-investment so difficult to cost the production of a bottle but it is probably somewhere between 5c and 25c. Ageing in new oak barrels is the most expensive extra cost. A new barrel adds about €2.50 to the cost of a bottle. Hiring a top consultant oenologist can also add significantly to the expenses.
Bottling costs are also volume dependent and types of bottle, label and cork can increase the cost but we are still talking about relatively small differences. At the bottom end, with millions of similar bottles, plastic corks and cheap labels it probably costs about 30c per bottle. For a small run with heavy-weight, custom bottles and the most expensive corks and labels, we could be reaching €4.50.
So we can work out that making a basic wine from the highest-yielding, mechanised vineyard and cutting as many costs as possible in the winery and packaging, we arrive at a figure around €0.55. Meanwhile a low-yielding, meticulously hand-tended vineyard whose fruit is handled in small volumes with ageing in new barrels and packaged in the most luxurious fashion could cost as much as €12 to produce.
So that gives us some idea of how the cost of producing a wine can vary. Yet it does not explain why some wines cost considerably more than €12 to buy.
That is because we have not included any capital costs for the purchase of the vineyard land, the winery or any of the administrative and financial overheads. We have not included any profit for the producer. Nor have we looked at getting that wine to the consumer and encouraging them to buy it.
A hectare of vines can cost as little as €8,000 in the Languedoc to around a million in regions like Burgundy, Northern Rhône, Pauillac and St-Emilion. Investments in land are often ignored when costing wine but it stands to reason that wine from a hugely expensive piece of land would cost a lot more than one from a cheap, readily available plot.
Shipping wine, even half way around the globe, is relatively cheap. Probably no more than 75c per bottle if done in large volumes. However, getting that wine into a shop may involve it passing through several hands, each of which takes a cut, adding between 10% and 120% to the cost. France has a low level of duty on wine, only about 3c per bottle. But the UK and Ireland tax wine often many times its cost. The duty on wine in Britain is £2.16 a bottle and VAT is applied to that and all the other costs.
Getting people to buy the wine does not come for free either. Wineries work on giving away between 10 and 15% of their production in samples of some kind. Entering competitions, entertaining critics and potential customers, attending wine fairs and employing sales and marketing staff adds to the cost of the wine. Add in advertising and we can be talking several Euros per bottle. Getting people to pay more money costs more money. I once saw costings for a $100 Napa Valley Cabernet where the majority of the costs were the salaries of the consultant winemaker and the salesman.
When you consider all those factors, it is easy to see how a wine can easily triple in cost before it reaches the consumer.
However, the value of a bottle of wine is not how much it costs, it is how much people are prepared to pay for it. Next month I will talk about how that value can be distorted and what good value actually means in the world of wine.
Jonathan Hesford has a Postgraduate Diploma in Viticulture and Oenology and is the winemaker of Domaine Treloar in the Roussillon – www.domainetreloar.com. If you have questions on this column, email him at firstname.lastname@example.org