What Factors Influence the Cost of Wine?

Ep 48

Does price matter when it comes to a bottle of wine? 

Is a $10 bottle really that different from a $50 bottle of wine? What about a $50 bottle versus a $500 bottle? And what goes into the cost of wine anyway?

I’m breaking it all down in today’s episode! From costs involved in grape production and harvesting…to the markups added by distributors, wine shops and restaurants. I’m sharing the many pieces involved that make up that final price of your favorite bottle of wine.

I’m also digging into the additional elements that contribute to wine pricing. These include the impact of supply and demand, skill and experience of the winemakers, and prestige associated with different wine regions, among others!

So, if you are curious what goes into the cost of your favorite bottle of wine, or you’ve wondered why wines are priced the way that they are, press play and listen in!

Percentage breakdown for a domestic bottle of wine - source Juicy Tales by Jo Diaz - https://www.wine-blog.org/index.php/2013/09/18/marketing-costs-50-bottle-wine/

Episode Highlights:

• The cost of grapes which impacts overall price of wine

• Production costs from harvesting to packaging

• How the three-tier wine system influences the cost of wine

• How much does marketing cost for your favorite wine

• How do taxes and currency changes affect wine prices

• Supply and demands affect the cost of wine

• Does the aging process affect the cost of wine

• How does prestige factor into the cost of wine

• Can sustainability affect the cost of wine

• A breakdown of how much profit is made on one bottle of wine

Transcript

0:05

Welcome to another episode of the Cork and Fizz Guide TO Wine podcast. Today, we're gonna be answering a question I get a lot and, honestly, a question that I had really early on and and still now when I'm drinking wine. But it has to do with the cost of wine. You know, you see wines priced at pretty much any price point, everything from, like, $5 a bottle to 100 of 1,000 of dollars for a bottle of wine, and then you also see different prices for the same bottle. Right? You're gonna see something different at the winery versus at a wine shop versus, at a restaurant. And I think a lot of times, it's, you know, it's believed that first, there's this belief that, you know, the higher the price on the bottle of wine, the better it will be. Right? And all cheap wines are, well, cheap and low quality. And that's not always true. But then there's also this idea that wine is priced too high. Right? It's it's ridiculous. Who would pay 50 to a $100 for a bottle of wine? And so I thought it'd be really fun to kinda deep dive into the idea of the cost. Now this is all coming from someone who has just done a lot of online research. I am no expert by any means on this, but this is just a lot of the information that I could find that just really helped me understand what goes into the price of a bottle of wine, and so, hopefully, that will help you. So we're gonna break this down into 3 sections. 1st, we're gonna talk about the cost to make a bottle of wine and all the different pieces that go into that. Then we're gonna get into the cost to distribute and sell wine, and this will be specific for the most part to the US just because I'm the most familiar with that. I know that's where most of the audience is from. I'm sure it's very similar where you are if you are not in the US, And then we will go into some factors that make wine cost less or more that don't really have to do with these first basic ones of, like, making it or distributing it. So starting things off, let's just break down all the different things that go into the cost of making a bottle of wine. So, obviously, starting off, you need grapes. Right? There are a couple different ways that you can get grapes. 1st, you can buy grapes. Right? You can simply somebody else makes them, harvest them, and you buy the grapes. So what's really interesting here is the cost of grapes matters a lot, or, I guess, the yeah. So the cost of grapes depends on the variety and where those grapes are from. So just for example here, these were some numbers that I was able to get. I wanted to get try to, like, find some, like, cost of grapes around the world, but the data that I was able to find was for in, California. So any guesses so a Cabernet Sauvignon. If you were wanting to buy a ton of grapes, not just like a ton of grapes, but like a a literal ton, t o n, of Cabernet Sauvignon in Napa in 2021, oh, so it's 3 years ago, that would cost you just over$8,000 for a ton of Cabernet Sauvignon grapes. Comparatively, in the same region of Napa Valley, if you wanted to get a ton of Sauvignon Blanc grapes, that would cost you $2,635. So nearly a quarter of the price to get Sauvignon Blanc versus Cabernet Sauvignon. So now you can see why Cabernet Sauvignon is grown so much in Napa. I mean, hell, if that If I could get 4 times the amount for growing that grape, why wouldn't I grow that grape if I were as a grower? And then of course, this also makes sense why Cabernet Sauvignon costs so much in Napa Valley. And, again, this is an average number. It depends on, you know, where you are, in the vineyard. It could be higher or lower than this. But, again so, yeah, almost over$8,000 for a ton of Cabernet Sauvignon versus 2,600 for a ton of Sauvignon Blanc. Now just in the neighboring region of Sonoma, the same year, if you wanted to buy a ton of Cabernet Sauvignon, it costs $2,635. And that number should sound familiar. That's how much the Sauvignon Blanc cost in Napa Valley. So, again, where you are, the grapes that you're buying have you know, make a really big impact on that price. So, okay, you need to get grapes to make your wine. You can buy the grapes. You can also lease a vineyard. I was talking to a winemaker, and this was kinda new to me. I never thought about it this way, but they don't buy the vineyard. They lease it. And so they're also not buying the grapes because they are in charge of, like, how those grapes should be grown and harvested. And so they essentially kind of agree to a multiyear lease with that vineyard in order to get those grapes every year. And then the other way that you can get grapes is you can own a vineyard or buy land. And so this is actually one of those one of those reasons why you'll find that a lot of French or European wine, costs less than a lot of, American wine. Main reason being that a lot of the people who have wineries in France or Italy, they own the vineyard that they have the grapes on, and it's been within the family for, you know, multiple generations. They don't really have that cost anymore, whereas anybody in the US, if you wanna buy land, it's freaking expensive. Right? And so they likely have a mortgage or a loan that they have to pay back on the land that they purchased in order to grow their grapes, and that goes into the cost of a bottle of wine. Now, of course, just for funsies, I was trying to look up some price of vineyards and one that I think will absolutely shock you. Well, maybe not. In Champagne, so Champagne, France. And, again, this is where, like, most people just own they've owned the land forever. So this isn't really a cost they have to pay. But if you wanted to buy a vineyard in Champagne, The average price of a vineyard is about $600,000 per acre. How wild is that? Damn. Okay. So okay. We have our grapes. That is the one of the costs of making a bottle of wine. Then you have the cost to harvest the grapes. Now you might do this by machine, which means you will have to pay for the cost of the machine and somebody to operate the machine, but usually that drops the cost of this quite a bit. A lot of places, though, choose to harvest by hand, and this means you need to bring in a team, of people to harvest the grapes, and you have to do a lot of it all at once. It's really hard to you know, the the timing, you have to do it really early in the morning usually, so that is a decent cost as well to harvest those grapes and then transport them to the winery. Then within the production of facility, 1, you either need to rent or own a production facility, so you have cost there, then you need to if you are owning a facility, if you're creating your own facility for, making the wine, you need machines for destemming, crushing, bottling, more. Right? Like, all of these things cost money. Then, depending on how you plan to age your wines, you need potentially oak barrels or steel tanks. And, of course, my curiosity got the best of me on this one too, and I looked up what a new 225 liters this is the typical just like the size when you think of an oak barrel. This is the size. So a French oak barrel is, I just looked it up online, and one of the first things that came up and then I kinda checked it against some other prices for a new French oak barrel, $1,355 just for one of them. Like, damn. And then in terms of new American oak, which is a little cheaper, anywhere between $308100. Because keep in mind that you're not just paying for the barrel itself, you also have the you know, the Cooper, when they are making this, you get to decide, like, what type of toasting that you want on the barrel as well, in a lot of different pieces. So you'll notice if a wine is on new oak barrels, that's going to cost more than a wine that was on used oak barrels because one, if you're buying used. What's really interesting, I've noticed with a lot of wineries, is that, like, wineries that use new oak, they buy their new barrels, and then they sell their, like, 2 3 to 5 year old barrels to wineries that want slightly used barrels. And then it's just like and then it just, like, keeps going down the chain based on, like, what that winery wants. There's always a winery that wants a certain type of barrel or a certain age of barrel. And then, of course, the steel tanks, they only have the one upfront cost. Right? But a lot of them, you need the temperature control, and a lot of those different pieces, which again cost money. Then most wine is put into a glass bottle. Glass bottles are really, really expensive, and especially the darker glass which protects the wine, and thicker glass, so, like, you know, sparkling wine bottles are going to cost more. One way that wineries are trying to reduce cost is find other ways to package their wine. Things like cans, and boxes and plastic and all these different things. Then you gotta put a label on your wine. Right? And maybe you have a branding team or a graphic designer or an artist to work on that. And then you have to close your wine, so you need to pay for the the cork or you need to pay for the, screw top on it. And I think that's all I could think of for right now. I am sure there are plenty more things that go into the cost of making a bottle of wine. Alright. So now all we've done is we've made the bottle of wine. Now there's the cost to distribute and sell the wine. So for a wine that is made outside of the US and brought into the US, there is a 3 tier system that that wine must go through before it gets to you. So first, the winemaker makes the wine. And then an import company pays to deliver wine to a port here in the US. The importer partners with a distributor who has a portfolio with many wines that they bring to restaurants and retail shops. Then you buy the wine from the restaurant or the wine shop. And remember, restaurants mark up more than retail because there are more costs involved in getting that wine to you. Retail, they buy the wine, they put it on the shelf. Restaurants, they buy the wine, they put it in a cellar. They serve it to you. Right? And it goes with the food, and they have somebody whose job is to pair it with the food or to figure out what type of wine they should have along with their food, and all these different things. Right? So that restaurant markup is there. It typically is more expensive than a wine shop because there's more that goes into it. So if you remember that, right, we have the winemaker needs to make some money from their wine, then the importer is going to add a cost there. They need to make some money for importing the wine into the US. Then you have the distributor. They obviously need to make some money for getting the wine from the importer to the wine shop or the, restaurant. And then of course, the wine shop or the restaurant needs to make some money, and so you end up paying many, many fees above what the winemaker is making because you have to pay all these middlemen. And it is a law in the US. It must go through this process. Now for wine made in the US, it does all of this except the importer bit. So again, if you're buying wine at a restaurant or a wine shop, that wine has already been touched by, essentially, the winemaker and the distributor before it even made it to that restaurant or wine shop. Plus, on top of that, because that's not enough, you have taxes. You have, currency transfers. There was a big thing, a couple years ago where they were trying to increase taxes, on wine imported into the US, and they were they were already incredibly high. And the problem with these taxes, no matter what good things they were trying to achieve, it would have just taken out so many small wine shops. They wouldn't have been able to afford having the wines anymore. So you have taxes, currency transfers, bank fees. And when the wine is being transported between all of these different things, you need temperature controlled shipping, and that costs a lot. Now most states so one way to get around this 3 tier system, most states allow direct to consumer sales for wineries straight to the consumer. This is why you can buy wines directly at the tasting room or directly at the winery, or you can even buy the wines online a lot of times. Of course, if you're not visiting and you're buying online, you're stuck paying some incredibly high shipping fees. So all of that said, right, all of those different pieces that go into a bottle of wine, I thought it'd be fun. I found this online. This is on, this was on a blog post by Jo Diaz, on her blog, Juicy Tales, and the blog was called the marketing cost for a $50 bottle of wine. So 20% of that bottle of wine, so $10, went into production. So much, you know, production cost $10. 18%, so about $9, went into marketing and admin fees. 6%, so about $3, went into taxes They're making$2.50 off of that bottle of wine. They're making $2.50 off of that bottle of wine. The wholesaler does a 20% markup. The wholesaler is another name for the distributor. They do a 20% markup. They make they make $10 off that bottle of wine. And, finally, the wine shop, they do a 31% markup, and they're making $15.50. So you pay $50, a winery profits 2.50, a distributor profits$10, and a wine shop profits 15.50. Like I said, if you wanna see more details on this on how well this was, determined, check out Joe Diaz Juicy Tales, blog post. I will, comment it or put it in the show notes so you can check it out. Now, of course, that's just all the costs, like, kind of kept pretty similar, across the board of, like, just making the wine. Right? All the things that go into getting the wine from grapes to your glass. However, there are lots of things, that go into a bottle of wine beyond that in terms of determining the cost. And I'm a strong believer that once you get into 30 to$50 range, the quality of wine doesn't really change the higher you go. Instead, you're paying for something else. And here are some things that, what I mean by that and what that can include. So first, you have the simple supply and demand, which is, you know, e equal across all products. Right? Was there less of this wine made? Right? Some of them are special barrels that the winery has determined are the best version of that wine, and they only made one barrel of it. Or maybe they have a small vineyard, and they only made a couple cases of that wine. That's gonna make it, more expensive. Is it a popular winery? Is it well known? Does it have, you know, a lot of people? Is there there a large demand? Right? Either there's small supply, less of the wine made, or there's a large demand. I am not an econ professional, but I got that one. So right? Smaller supply, larger demand means higher cost. If a lot of people want this wine, they can mark up the price because people will pay for it. And is it a well known style or something more unique? And what's interesting is this can go both ways. Generally, when it comes to wine, I've noticed things that are more unique and not as well known, those tend to cost less. So this is where I say, like, if you're at a restaurant and you're looking at a wine list, pick that, you know, glass of wine that you've never heard of before. In likelihood, that's like the best deal because not a lot of people are gonna order it because it's not as well known. But on the flip side, if a winemaker makes this one unique style of wine 1 year, and, you know, one person loves it and they write a review on it, now everybody wants to get their hands on it, but there's a small supply. See how that could up the price. Now if it's a well known style, a lot of people are going to buy that. Again, there's a higher demand, so they're gonna be able to charge more. Okay. Other things that can, cause the price to go up a little bit, even if, like, quality is the same, skill. Does the winemaker have years of experience? Right? Like, you would pay more to have a wine made by a winemaker that, you know, has just been doing this for a while. Right? It's anybody. Once you've had years of experience, you tend to make more money. And maybe they used a special skill to make the wine. Maybe they're an art you know, an artist at blending the wine or something that is just special and unique to them that you can't get from someone else. Another thing that can change the price of wine is aging. How long did they age the wine before it got to you? Right? If they aged it in an oak barrel for 5 years and then they aged it in the bottle for 10 years, you kinda gotta pay for a long time that they did that work for you because they made the wine 15 years ago. They gotta make some return on profit on that wine. Right? And then they also took out the, work that you would have had to do on your end to do all of that aging. Then you have prestige. This one kinda goes hand in hand with the supply and demand a little bit, or the skill really, but just keep in mind that, you know, wine made from grapes grown in a Grand Cru in Burgundy, France will always cost more, right, than grapes grown in the lesser known regions of Burgundy or maybe in, like, Southern France. Is it made with older vines? Right? There are only so many old vines in the world, and you can't really just make your own old vines. They just have to have been around for a while. That can also add price onto it. Is it a well known region? There is a famous, sweet wine, Sauternes from Bordeaux, and there's this famous house, Yi Kim, I think is what it is. It's always gonna be 1,000 of dollars to get that wine. It's just well known. It's the prestige of it. And finally, I think one, thing that's coming into play that I would happily pay more for, sustainability. So, you know, are they taking care of the land when they're making these wines? Did they pay the workers fair wages in order to harvest and make the wine? You know? Are they organic? Are they biodynamic? Getting certified costs a lot of money. All these different things that you know, it's the same reason why, like, at Old Navy, I can buy a shirt for $10. And if I go to a small, sustainable clothing brand, I might get the same shirt for $50. Right? Like, some of that does actually just match up with the extra work that went into making it and making sure that everybody got fair wages across the board. Makes sense? Yeah. Kinda. So I know this was a super short episode, but I feel like it's just chock full of some information and hopefully answers your question a little bit about the price of a bottle of wine and what goes into it. But if you have additional questions about this, please ask. I'm happy to answer them. Come ask me at, on Instagram at Cork and Fizz, or send me an email, hailey@korkandfizz.com. So I hope you enjoyed this episode of the Cork and Fizz Guide to Wine podcast. If you loved it as much as I did, I'd so appreciate it. Take a quick second, rate it, leave a review, send it to a friend. Let them know about the price of the bottle of wine. Maybe they've asked you this question a few times because you're becoming the wine expert of the group. That would be so cool. But, yeah, let them know, and they can come listen and learn about wine themselves. Don't forget to subscribe so you never miss an episode. I release new episodes every Wednesday. In next week's episode, I will be interviewing the one and only Paul Greco of terroirtribecca and summer of Riesling fame. This man holds nothing back and brings the energy of rock and roll and a bit of a I don't give a shit what you think of me energy to the wine world, and I am all for it. It was such a fun conversation with him, and I think you're really gonna enjoy listening to it. I have a feeling it's gonna surprise you a little. Thanks again for listening. And as a thank you, I'd like to share my free shopping guide, 15 wines under $15. Simply head to my website, quorkandfizz.com, scroll down to the bottom, and join my mailing list. And, of course, don't forget, grab your free ClassPass. It is free, folks. Free. I promise you do not need to give me a credit card. You don't need to. All I need is your email so I can send it to you, and you will get that class pass so you can join a virtual tasting event with my virtual wine tasting club, The Cork Crew. We explore wines from regions all around the world every month. You can find that at corkadfizz.com/ freeclasspass. Cheers.