How the Price of a Bottle of Wine is Determined | Palate Club

How the Price of a Bottle of Wine is Determined

The price of a bottle of wine is determined by the cost of grapes, land, labor, winemaking, packaging, shipping, and the distribution system

The wine in your bottle may have only cost $.50. It may sound like a rip-off, but of course, you’re not paying for the wine, you’re paying for the labor, the marketing, the transport, the taxes, and the bottle itself, which may cost more than the actual wine! Today we are going to explore how the price of a bottle of wine is determined.

What we are really talking about here is value. Why some wines cost so much and others are so crazy cheap.

Land & Grapes

Some of the best wine regions in the world were identified to be particularly good for growing grapes, maybe even down to a tiny row of vines where the sunlight hits the vines just right and the soil is perfectly suitable for grape cultivation. These sites sometimes are called “Grand Cru” or Premiere Cru,” or they might have region-wide recognition such as Napa Valley or the Cote d’Or. Since these grapes are in higher demand, the actual land is more expensive! 

Grapes from more prestigious vineyards are also more expensive to buy. Even the best-known grapes go for a higher price, which is why sometimes grape growers may plant Cabernet Sauvignon in an area that might be better for another grape like Merlot or Syrah. 

In other words, before the grapes are even crushed, a well-established grape variety from a well-known region, such as Pinot Noir from a Grand Cru in Burgundy, is going to be more expensive to cultivate or buy than lesser-known varieties such as a Tempranillo from Lodi. However, you can find some delicious wines from there too.

Winemaking Techniques & Labor

Tending to the vineyards and crafting wine in the winery takes human touch. Certain countries have legal protections or higher minimum wages that make labor more expensive. Others may find machines cheaper than manual harvesting, which means that often the higher ticket price for high-quality wines is in part influenced by the need for humans to evaluate and pick every bunch of grapes. 

Once the grapes get to the winery, the name of the winemaker may demand a high salary, especially in places like Bordeaux or California, where “rockstar” consultant winemakers have emerged. Quality-driven wineries will also set aside innovation costs to do research with different parcels or barrels to work on constantly improving their product.

These regions also share the expensive trend of new oak and wine storage. A barrel of new French oak may cost thousands of dollars, and if you’re storing it for several years, you need more winery space to store inventory. In contrast, a used oak barrel may only be a couple of hundred dollars depending on the size and age of the barrel AND you can continue to use it! It’s worth noting as well that a winery may invest in a beautiful tasting room, which ultimately is paid for with the price of wine.

Packaging & Shipping

Now, if you have spent all of this money investing in premium wine, you’re going to want to show to your customers that your bottle is special. So, you may hire a top-notch branding specialist and graphic designer to make your label, use the best paper available, a heavier bottle, and a real cork. All of these are going to take more cash that is then translated into the price of the bottle. What’s more, those heavier bottles are going to be heavier to ship and may require special boxes, such as a branded wooden box. If the bottle is really a collectible, some companies even invest in tracking technology so that the collector can trace the source of the bottle to prove its authenticity. 

If it’s a fun wine meant to be consumed early and primarily sold to locals, you’re not going to need all those extra layers of packaging quality. I do want to point out that a nice label or a dark, heavy bottle are sometimes a guise for bad wine. An average customer inherently understands that it should be better quality, like when you pick up a cashmere sweater. But it could be that an investor with a lot of money chose eye-catching packaging rather than a rock-solid winemaking team. The cost of marketing and business development must also be considered, which tends to be a heftier investment from bigger brands.

Wine at all levels requires special temperature-controlled shipping, which is more costly due to its specialization. Wine bottles are far heavier to ship than boxes or cartons and require more packing to prevent breakage. Due to the weight, bottles also require more fossil fuel to transport.

Distribution System

Finally, every step of the wine distribution process adds cost. Let’s say a winery makes wine and packages it for about 3€ ex-cellar, or straight out of the cellar door. The import company will then need to pay to deliver the wine to a port and fill up a container with many wines from a given country or region. After it’s shipped, to whichever other port the wine must again be transported and stored in a temperature-controlled warehouse. The importer then may partner with a distributor, who has a portfolio with many wines that they bring around to restaurants and retail shops. After they sell it, the restaurant or retail shop marks up the price, often 2x at retail or 3x for restaurants. Each company is making a tiny margin and must also factor in taxes, currency transfer, and bank fees. In the end, this bottle probably gets to you for around $15. 

 

As wine grapes get more expensive, there is a smaller gap between the cost of the actual wine and the “other costs,” especially packaging. In other words, when you’re buying a $5 bottle of wine, you’re mostly paying for packaging and shipping. Once you get in that $15-ish spot and above, you’re entering the zone where you’re paying a much greater percentage for the wine itself rather than packaging and shipping. You still have to watch out for marketing gimmicks as I mentioned before, but you’re generally going to find more consistency at this mid-tier level, which is perhaps why it’s a segment of the market that’s growing so quickly!

 

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