Who Determines The Price of A Bottle of Wine

[newsguy]

bottom line on pricing is supply and demand, with wine being the same as other goods. here's an article on wine pricing that i for the St. Petersburg Times:

Copyright Times Publishing Co. May 26, 2004

You're cruising the wine aisles of your local supermarket or wine shop, looking for a bottle to take home for dinner. On the labels, you see names of wineries that are familiar (Sutter Home) and most likely obscure (Chateau Canon La Gaffeliere).

Then you see the prices.

$5 - Okay, you say.

$25 - Hmmm, that's a little high.

$125 - Come on! Why so much for a bottle of fermented grape juice?

And why such a huge difference in prices?

Quality plays a part in pricing, which is determined by factors such as crop yields, land prices, volume and demand.

A lot goes into putting that bottle of wine on your table. Everyone along the way who handles it gets a cut.

The process starts at the vineyard.

Anderson's Conn Valley Vineyards in St. Helena, Calif., makes wines typically found at high-end retailers and restaurants. Winemaker Todd Anderson says that, as with any other business, quite a few factors go into pricing.

"We started 23 years ago and had to buy land. We bought our own vines, built our own vineyards," he said. There is the cost of building and equipping a winemaking facility. And then there's the price of labels, corks and bottles, and a bottle alone can cost $2.

There are labor costs for making the wine and producing the grapes. "It can cost over $5,000 an acre to farm grapes," Anderson said.

There are many reasons for the wide range in pricing, and it starts with "terroir - the land, the location," said Carmen Castorina, director of communications for Gallo of Sonoma. That well- known winery sells wines at bargain, midlevel and top-end prices.

The better juice a grape yields, the more expensive the land on which those grapes grow. "As individual blocks of land are proven to produce the best quality grapes, that's when supply and demand takes over," Castorina said.

What the grower does on that land affects what the winemaker can charge. Older vines and lower yields produce more concentrated flavors in the grapes, which is a good thing. Harvesting grapes at their optimal ripeness must be done by hand, Castorina said.

These factors affect - mostly increase - the cost of the wine. Lower grape yields mean less wine can be produced from a particular plot. The smaller the production, the more a winery must charge per bottle for that land to be profitable.

Many wines get barrel-aged. "We use new French oak, which is the most expensive," Castorina said of Gallo. One of Gallo's top-end wines would go into the barrel first, with the barrel being used subsequently for less expensive wines.

To allow them to mature and gain complexity, the better wines are then aged in the bottle, from a few months to several years. That means warehousing is needed.

All these factors combine to produce a higher quality wine. And quality is a big factor in pricing.

In determining a price for a debut vintage, Anderson said, "You go out and see what the wine compares to in terms of the characteristics of the wine," and price it accordingly. In other words, if your wine compares favorably with Chateau Lafite Rothschild, you're not going to price it along the lines of Mogen David.

If that bottle on your table came from abroad, it was handled by an importer. Stacole Fine Wines of Boca Raton is an importer that also distributes in Florida. The company sold about 130,000 cases of wine last year, according to Michael Rugers, Stacole's product development and educational manager.

"There are certain margins you have to make. Usually, that's around 30 percent," Rugers said. "You have to pay commissions to salespeople, administrative costs and shipping costs."

The last stop is the retailer, who has the final say on pricing. Leading the way nationally in sales are monster membership warehouses such as Costco and Sam's Club. Their combined wine sales in the United States last year was about $1-billion, according to Wine Enthusiast magazine. Grocery store chains such as Publix also sell a lot of wine.

But independent shops operate differently.

"Generally, dealing with fine wine, grocery stores deal with set margins and wines that are made in the hundreds of thousands of cases. That's big business, that's bulk business," said Bob Sprentall, owner of B-21 in Tarpon Springs, which stocks more than 3,500 wines.

At B-21, "There's not a standard margin," Sprentall said of his pricing. "It's all about supply and demand.

"The marketplace dictates what you can sell wine for. Simple supply and demand."

Demand can be hugely affected by what wine critics say about a bottle or an entire vintage. "Scoring by the Wine Spectator and (Robert) Parker affects pricing," Sprentall said.

Parker, a Maryland lawyer and wine lover, is now the mostfamous American wine author and critic, known for his love of Bordeaux, iconoclasm and tough judgments of wine on a 100 point scale published in his influential newsletter, the Wine Advocate.

Winemaker Anderson said educating consumers on what it actually takes to produce wine can only help the industry. He mentioned a program where consumers were invited to Conn Valley Vineyards to observe and participate in making wine. Anderson recalled that after being exposed to the process, one participant passed along what surely had to be magic words to the winemaker's ears:

"He said, 'I'll never complain about the price of a bottle of wine again.' "