Musings from the Bench

High and dry in Zabriskie Point - Recently some commentors

have said to me, "Hey Mac, how about being a little more PC?"

At yesterday’s Brunello and Super Tuscan wine tasting (very casual, at a local store, for shoppers) I had the chance to talk to several folks shopping around for wine. The topic of the Wine Spectator #1 wine of the Year came up. Seems the 2001 Casanova di Neri Brunello Tenuta Nuova (the WS #1 pick) sold out rather quickly. (Online it is selling for up to $185.00 a bottle). But there was still some of the 2000 in the store, both the regular Tenuta Nuova (under $50.00) and the single vineyard Cerretalto (over $100.00) were still available. So a couple of folks started talking about their scores. Scores, scores, scores…

The WS #2 wine, 2003 Quilceda Creek Cabernet Sauvignon (retail $85.00 but now up to $285.00) really punctuated the relative value of a wine. Or the outer limits of the value of a wine.

Reuben Swartz had a posting about this recently on his Dollars & Sense: The Pricing Blog entitled, The Price of Wine—Not About the Wine . One of his quotes, “Wine valuation is a great example of people not really knowing what something is worth, or even why. In many cases, we do not buy a product, we buy an experience.”

He links a recent piece in The Economist, Fruity Little Numbers, regarding a way wine is valued.

An interesting piece here from CNBC about Wine Economics, if you have a QuickTime player (free download here)

Probably the driest thing about the wine industry can be found here, but if you like numbers, you might find it illuminating. Fasten your seatbelts, the American Association of Wine Economists can be an interesting perspective on the wine business (but hey, I like the TV program Numb3rs).

While I might be boring to the point of death on this dry subject ( reminding you my bench at the top overlooks Zabriskie Point in Death Valley, although it is in the preferred southwest direction), Sébastien Lecocqa and Michael Visserb have written a rather dry but interesting article about the subject, What Determines Wine Prices: Objective vs. Sensory Characteristics, published in the Journal of Wine Economics, Volume 1, Number 1, Spring 2006. Premise being, an controlled evaluation where “The hedonic technique is applied to wines. In the price equation we include objective characteristics appearing on the label, as well as sensory characteristics and a grade assigned by expert tasters.”

The Hypothesis

Within those pages, Jancis Robinson weighs in. “Another puzzle is the lack of correlation between price and pleasure. Perhaps it is not so surprising that a first-rate example of a little known wine can seem much more memorable than something more famous selling at ten times the price; part of the thrill is the excitement of discovery and the feeling of having beaten the system.” — Confessions of a Wine Lover, Penguin Books,1997.

Another and interesting anecdote, "Ernest Gallo, the patriarch of the family-owned E&J Gallo Winery in California (the largest winemaker in the world), recalls how, in the early stages of his career, he once sold wine in New York. He offered a buyer two glasses of the same red wine, the buyer drank the two glasses and asked for the prices of the ‘two’ wines. Upon hearing that the first wine cost 5 cents per bottle, and the second 10 cents, the buyer declared he wanted the 10 cents bottle."

The Solution - Simple, wasn't it?

In their concluding remarks (and I urge the interested one to read the whole abstract, it’s

not that boring) , “Our results indicate that characteristics that are directly revealed to the consumer upon inspection of the bottle and its label (ranking, vintage and appellation) explain the major part of price differences. Sensory variables do not appear to play an important role. Out of some fifteen sensory characteristics, only two or three have a significant impact in the hedonic price equation.”

Still there? Need an espresso? A break to pull the clothes out of the drier? Return a call from Ben Bernanke?

So what does it mean to us?

I was showing a young lad around the store, one who has some discretionary income, and is a lover of wine. And not just a number chaser. While I was talking to him, my internal “now I’ve got something to write about on the blog” monologue was really wondering why folks think there is so much difference between a Gaja 2000 Sori San Lorenzo for $300.00 and a Produttori del Barbaresco 2000 Paje’ for $50.00?

Orley Aschenfelter says, if the property brings in grapes that are worth $5,000.00 a ton, the value of the wine is 1/100th of that cost. That would mean $50.00. I dont believe Gaja's grapes are coming in at a cost of $66,000.00 per hectare. So there must another factor there, call it mystique, call it rarity, call it years of hard work in the vineyards and on the streets. It doesn't diminish the quality of the Paje' by any means. It could strengthen the appeal of it. A vineyard of barely 6 acres with wine that sells for $50.00. 1,600 bottles to the acre. You do the math, it's looking like a find. 6 bottles of Paje' for 1 of San Lorenzo?

Look sometimes, we think we’ve got a big bad machine and then a little school bus stops us dead in our tracks. It seems mainly to be a guy thing, this quest for testosterone in a bottle, like a Trophy Wife. Used to be Petrus, now it’s Screaming Eagle. Used to be a Cadillac, now it’s a Hummer. Now it’s a Trophy Wine. Above the $50.00 dollar price level, how many of us can really tell? I asked a Master Sommelier friend of mine this question. If anyone would know, wouldn’t he? Guess again. He said, "I'm a Master Sommelier, not a Super Sommelier."

I feel for the wine lover, especially the folks who want to put a few cases away for the future. And not just for their kid's college education. It could feel like trudging that heavy old boat up the river, towards some heart of darkness point of no return.

Not as much as the poor blokes who spend $20-30,000.00 a month on their obsession with cornering the market for all the Big Red Wines out there. I could give them the name of an orthopedic surgeon who went through that phase, dug a hole in his home, and proceeded to bury hundreds of thousands of dollars in it, only to find he had a cellar full of trophy wines that weren’t drinkable or, if they were to someone, not to him. Not anymore.

My long-drawn-out-point is, if as Reuben Swartz says, "you are really not buying a product but an experience", do you want a one night stand or do you want wine on your rack that you can live with?

Seth Godin said it best, today - “We sell feelings. We don't sell stuff.”