How much should you pay for a bottle of wine? It was a question raised last year by an Irish Times reader from Cork, who argued that €14-€17 was the sweet spot, and that a wine would have to be really special to justify paying €20. “On the rare occasions when I have splashed out more than €30, I have concluded that it was a waste of money,” he added.
Is he right? At the end of last month, my colleague political journalist Pat Leahy opined that “as someone who has conducted extensive primary research in the area, the greatest improvement in the quality of wine is between a bottle you spend €10 on, and a bottle you spend €20 on”.
He went on to ask: “Is a bottle you buy for €40 better than a €20 wine? Yes. Is the quality gap as big as the one between the €10 and the €20 bottle? Rarely.”
Going back to the source, how much does it actually cost to produce a bottle of wine? I have put the question to many producers over the years and have received wildly different answers. One recently told me that taking labour, wine making, barrels and dry materials into account but excluding land costs and bank loans, the most it could cost a producer to make a bottle of wine would be in the region of €9-€10. That would equate to just under €33 in a wine shop in Ireland. Another producer, whose wines sell for over €100 a bottle, argued €30 was the maximum cost price, suggesting a maximum of €75 retail. Either way, both are considerably less than First Growth Bordeaux which sell for over €400 a bottle.
Digging a little deeper, if you are fortunate enough as a producer to inherit a family vineyard, you probably won’t have a large bank loan to pay off. It’s certainly true though that vineyards can be very expensive; a small plot of vines in a Grand Cru vineyard in Burgundy could set you back €7 million per hectare. You would have to sell a lot of wine to pay that back. However, established vineyards in less fashionable regions can cost under €10,000 per hectare, although the wines sell for considerably less too.
Set up costs
As well as buying land, set up costs include buying, planting and training vines, and for some, laying irrigation pipes and paying for water rights. Annual overheads include ploughing and fertilising, pruning and spraying, and harvesting the final product. You will also have to buy all sorts of expensive gadgets and containers to crush, destem, ferment, mature and bottle your wine. So, starting up as a wine producer is an expensive business, and you have to wait three to four years to get your first decent crop. In some regions, frost or hail can lead to the loss of some or all of the year’s produce. A drought, an increased risk in many areas due to climate change, can also mean a much reduced yield.
Of course, you don’t actually have to buy a vineyard; you can rent them, or you can simply buy grapes from a grower. Many large operations do this. Some buy ready-made wine from various producers, and then blend and bottle the wine. Some don’t even own a winery, instead renting space from another producer. Once you have made and bottled your wine, you have to go out and sell it. Talking to producers over the years, many admitted that their biggest problem in life was selling their wine. In every country, you are competing with hundreds of other producers for attention in a crowded market.
So, we have a cost price of anything from €10-€30. Then when the wine arrives here in Ireland, the government of the day steps in to claim a large chunk of tax. Excise duty on still wine is €3.20 per bottle (and double that for sparkling wine). An importer/distributor would look to make 20-25 per cent profit, a retailer 30 per cent on top of that. Then there is 23 VAT added to the final price. This means that for a wine selling for €10, over half of the price will go directly to the government.
To an imported wine costing €10 including shipping and warehousing, adding €3.20 excise duty (€13.20), plus 20 per cent profit margin would equal €16.50. A further 30 per cent margin would bring it to €23.57, with 23 per cent VAT making for a retail price of €29, €8.63 of which is tax. Larger retailers who import directly can either offer cheaper prices or make higher margins. Usually, it is a mix of the two with frequent promotions.
So, based on one of my winemaker’s costings we should be wary of paying more than €30-35 for a bottle of wine. However, that doesn’t include a profit for the winemaker, set-up costs or the laws of supply and demand. As in any business, producers will seek to maximise profits. Wine is no different. We are enticed by marketing campaigns that convince us to pay a premium. Expensive wine is no different from expensive clothes, perfumes, cars, coffee, jewellery, and watches, except it doesn’t last as long as some.
With wine, you will certainly pay more if you buy well-known names. Champagne is invariably more expensive than other sparkling wine and the top wines from Bordeaux, Barolo, the Napa Valley and many other big names will always cost more than those from lesser-known regions. As a fan of pinot noir from Burgundy, California, Oregon and Germany I am painfully aware that these wines are fashionable with people who have larger wallets than mine. I still occasionally splash out, but pinot from New Zealand, Chile and the Loire valley is usually more reasonably priced. In recent years, I have gravitated towards Mencía from Spain, Syrah from Northern Rhône, and other wines too, but most of the good ones have increased in price and now cost in excess of €20.
I do cover the expensive areas in The Irish Times as they are an important part of the wine business and very popular with many readers. They are often better too, perhaps just not commensurately so.
To exacerbate matters, wine is seen as an investment by some, with buyers treating fine wines like stocks and shares. This inflates the price of the most sought-after wines, benefiting the traders but making them unaffordable to many actual wine lovers. If you are interested, prices last year hit a five-year low according to global wine exchange Live-Ex.
Restaurants are another matter. I am well aware of the difficulties facing food outlets, not just in Ireland. But some seem to have been persuaded to price their food menus almost at cost and to increase their margins on wine, discouraging wine lovers to trade up. One producer I spoke to told me of finding his wine, bought for €4.70 ex-winery, selling for £68 (almost €80) in a fashionable London restaurant.
At retail level, most wines that sell for €10 or less are well-made drinkable wines with no faults. Typically, they are machine-harvested from vines grown to produce high yields and made in highly automated processes often relying on grape concentrates and other additives to mask any lack of flavour. I have no problem with these. They make wine affordable to many despite our high excise duties.
At one time, the sweet spot, where quality rises faster than price, was €12-€15. I featured some of these in my wines of the year before Christmas, but prices have increased over the last five years so that wines that were once around €15 have risen to €20 or more. Most of the wine I buy for myself is in the €15-€30 price bracket. I have my weaknesses so occasionally I will pay a little more, but areas such as Languedoc, Portugal, parts of Spain, Chile, Italy, New Zealand and many more have plenty of great wines in this price bracket.
In my weekly column in The Irish Times Saturday Magazine, I try to feature one widely available wine that sells for €10-12 or less. I also include two inexpensive wines in my online Weekend Wines online feature on Fridays. I feature more expensive wines too. Retailers tell me that a favourable review of wines at €30-€50 quite often leads to sales, so somebody must be interested.
For the record, the most I have ever spent on a wine was €120 (of my own money) for a generous glass and a half, and I have no regrets. Sitting in a restaurant in Burgundy with four colleagues we noticed that every Friday for the month of November, they offered a selection of wines at their cost price. It was a Thursday so we returned the following day and ordered a bottle of Richebourg 2008, produced by the world famous Domaine de la Romanée-Conti. It cost €600 a bottle. The wine was magnificent, one of the greatest I have tasted. The current retail price on wine-searcher.com is €4,731 a bottle, so it was a once in a lifetime opportunity and something of a bargain. It was also a worthwhile experience for those of us who claim to be sufficiently expert in wine to make recommendations to others.