Luxury goods

Luxury goods

Is a R500 bottle of wine really 10 times better than a R50 bottle wine? Joanne Gibson looks at the tangible factors in wine pricing - and ponders the not-so-tangible ones.

Johann Krige of Kanonkop.

 

I once spent a hazy afternoon drinking Latour '90, Petrus '93 and Cheval Blanc '89. And I do mean "drinking" - it was dark by the time I stumbled out of The Arches Wine Bar in London NW6.

However tipsy I may have been though, I'll never forget those wines or the man who so generously opened a thousand quid's worth of bottles on a perfectly ordinary midweek afternoon simply "because I've got so much great wine and I'll never be able to drink all of it, so it's nice to be able to share it with people who appreciate it".

Harry Gill had never spent more than £15 on a bottle of wine when he bought The Arches as an investment. It was only when one of his suppliers said he was bin-ending a case of Margaux '85 for £625 that his curiosity was pricked. "If that was a good deal, I had to try the wine to see why it cost so much money. It blew my head away."

When I met Harry in July 2003, he boasted a personal collection of over 1 100 cases of wine. Serious wine. "I only keep wines that are between 98 and 100 points," he told me. "Or the rare ones, like Le Pin 2002."

He had things pretty well sussed, did Harry. He would buy 20-odd cases and keep them for a couple of months, then push most of them back into the market to recover what he'd initially spent, leaving him with "five or six cases for nothing".

But outlaying hundreds or even thousands of rands on a bottle of wine, never mind fi nding the perfect moment to liquidate the investment, is not so simple for most of us. And nobody - not even Harry Gill, for that matter - likes to pay more than necessary for a bottle of wine. But how much is necessary?

COSTS IN BLACK AND WHITE
An obvious way of approaching the above question is to compare production costs with sales price. De Grendel winemaker Charles Hopkins provides an eye-opening breakdown - along with the following disclaimer: "Pricing varies considerably from farm to farm because each has its own philosophy.

One owner might have invested R40 million and want to get a 10% dividend back every year; another might want to plant trees or donate a case of wine to his friends whenever he feels like it. All of these things have a massive influence on price."

That off his chest, Hopkins reveals that the industry-agreed vineyard running cost per hectare per year is R25 000, which includes everything from labour and spraying to viticultural consultant costs.

"So if you harvest seven tons per hectare (t/ha), you are paying R3 571 per ton. For white wine, you get 500 litres or 670 bottles of wine per ton, which works out to R5.33 per bottle. But that's if you grow all the fruit yourself. If you're buying grapes in at, say, R7 000 per ton from a sought-after vineyard, it works out to R10.44 per bottle.

Assuming you blend 2/3 of your own grapes with 1/3 bought-in grapes, you're looking at about R7 a bottle for the liquid." In terms of winemaking costs, he says: "In a co-op which utilises its space, equipment and manpower to process large volumes, vinification works out to around 80c per bottle. In a small cellar, processing less than 600 tons, winemaking costs about R2.50 per bottle."

With packaging (bottle, cork, capsule, label, carton divider and so on) setting producers back between R10 and R12 per bottle, a pretty decent unwooded white in a locally manufactured glass bottle, tightly sealed, neatly labelled and safely packed in a carton, costs between R20 and R22.

"To which you need to add 40-50% to get it into wholesale, and retailers will then add their 40-50% mark-up. So consumers will see the wine on the shelf for about R50."

As far as red wine is concerned, Hopkins says that the yield per ton is 600 litres or 800 bottles, which works out to a mere R4.46 per bottle (for own-grown fruit). But red wines typically spend at least a year in oak, with new French barrels costing around R9 000 (depending on the cooper, the grade, the exchange rate...).

"Maturing red wine in new oak barrels for 18 months adds a cost to company of R80 to R100 per bottle, and then of course if you want to put it in an imported, embossed bottle, you're looking at up to R30 per bottle, as opposed to between R4 and R6 for a locally manufactured bottle."

Hopkins again stresses that it is dangerous to generalise: "I have a 30-year-old Sauvignon Blanc vineyard that only yields 1.5 or 2t/ha. Divide R25 000 by 2t/ha, and again by 670 bottles, and my cost for that component of the wine is R18.65 a bottle."

However, he says he cannot see how producers can honestly use production costs to justify selling any wine for over R250 a bottle. "Anything higher than that is probably because the owner is a celebrity," he jokes, adding on a more serious note: "This is where we enter the very grey area of marketing and added value. It's each guy's right to ask for a high price, but then it's up to him to sell the wine at that price - and that's not always so easy."

SHADES OF GREY
In recent years, South Africa has seen a number of wines put on the market at super-premium prices: among others, the Ernie Els Bordeaux-style flagship launching in 2002 at R500; Vergelegen V hitting the market in 2005 at R750; the Rust en Vrede 1694 Shiraz-Cab blend now taking top SA wine into a new league altogether at R1 200 a bottle.

From whites like Hamilton Russell Vineyards' Chardonnay at R250 a bottle or Eben Sadie's Palladius blend at over R400, to reds including Cloof Crucible Shiraz at R450, Bouchard Finlayson Tête de Cuvée Galpin Peak Pinot Noir at R590, Waterford The Jem at R680 and Boekenhoutskloof's The Journeyman at R1 000, all are examples of luxury positioning.

The producers might wax lyrical about hand-picked fruit from selected vineyards, low yields, extra barrel time and the finest packaging, but by and large these wines have been priced to be on par with wines of similar quality from elsewhere in the world.

Indeed, they are still downright cheap when you consider that a bottle of Dom Pérignon costs Champagne house Moët & Chandon €22.28 to make, yet sells for €129 (not bad for a massmarket product, with five million bottles produced annually), while in 2005 a bottle of Petrus cost €30 to produce, yet was selling for €4 500 last February when French trade publication La Revue du Vin de France ran its fascinating exposé of these and other wine prices - prices, let's not forget, that people are willing to pay.

As Anthony Hamilton Russell points out, it is consumers who eventually decide the price of wines. "A producer initially chooses a price with all or a few of many different considerations, such as where the competition is priced, costs, pride/ vanity, specialist advice, the size of their market and their volumes.

Often it's just a thumb-suck based on their personal consumption habits. However, even the wealthiest ‘vanity' farmer cannot keep making wine that does not sell, so a wine will eventually settle at a level which offers value to the consumer.

There is so much choice for a consumer, and a whole publishing industry devoted to helping the consumer navigate that sea of choices, that under-priced wines sell-out fast and over-priced wines hardly sell at all."

The most expensive wine of the moment might initially find a market among people who will buy it for the same reason they wear Jimmy Choo shoes and drive expensive sports cars.

"Because they can," is how Thelema Mountain Vineyards sales, marketing and general manager Thomas Webb puts it. "The wow factor. The problem being that these people will almost certainly move on when the next, even higher-priced wine comes along, so it's not sustainable."

Kanonkop Estate proprietor Johann Krige says he would never spend a million rand on a sports car: "I'd rather buy 10 VW Golfs for the same price." But he'd happily pay top dollar for a great wine.

"Not for an expensive wine that I've never heard of, because then I don't know what I'm getting. It needs to have a good track record and, above all, it must have credibility."

IS DOUBLE THE PRICE TWICE AS GOOD?
It is precisely Kanonkop's good track record that has recently enabled Krige to release 1 000 bottles of Black Label Pinotage 2006 at R1 000 each - all sold virtually overnight. But is this icon in the making really nearly six times better than the standard Kanonkop Pinotage at R170 a bottle?

Is any wine that costs R1 000 really 10 times better than a R100 wine? "It's not as clear-cut as saying that the cheaper one has 10 units of flavour whereas a more expensive one has 100," says Webb. "Both wines are no doubt of sound quality, clean and well made. However, the expensive one can probably give you 10 times more enjoyment if you're looking for more intrigue and stimulation."

Hamilton Russell stresses that the pleasure pricey wines bring is an aesthetic pleasure, and that aesthetics differ from person to person.

"But a wine made in small quantities, which has consistently told the story of a particular place in a complex and compelling manner while capturing the personality of vintage year on year, is a thing of great beauty. It is something you can form a longstanding relationship with. All the associations of place - the landscape, views, history, architecture, people, character of the soil, and the almost mystical connection to the site it affords a non-resident - build value into a wine."

This value cannot necessarily be tasted blind, unfortunately. As Hamilton Russell points out: "Where a group of people with different aesthetic preferences meet to taste and then average their scores, unthreatening, average wines tend to do better than they should, and great wines often divide opinion and do not do well."

A good example of this was Chateau Libertas, which retails for around R28 a bottle, outscoring several much more expensive brands in WINE magazine's category review of red blends (January 2010).

Hamilton Russell's opinion of audited, averaged scores as an authoritative, unbiased judgment of wine quality is that "nobody would choose their art that way and few, if any, of the great enduring artists in history would have come to light through a similar process".

Although wine is often likened to art, there are some key differences. "Artists can tear up the canvas and start over," observes Bouchard Finlayson winemaker/ viticulturist Peter Finlayson. "In winemaking, the harvest comes along and there's no turning back."

Unlike paintings or music recordings, which don't change over time, wines do develop and eventually fade. "I always compare winemaking with sport. Every vintage, you've got to come out and play the best game you can - and every time a cork is pulled, you've got two or three or four spectators commentating!"

After talking to Finlayson, I find myself imagining the spectators at a cricket further away from "wine as an alcoholic beverage, where price is paramount and the interest is mainly the alcohol", as Hamilton Russell puts it, through "wine as the expression of a variety, where the ‘what from' is of primary interest", to "wine as an expression of place, where the ‘where from' is of primary interest" - and where the best examples are priced more like art than agricultural produce.

Even those who can easily afford the price will find it hard to justify if they approach expensive wines like an accountant, in search of value for money. If they can approach them more like a gambler or lover, in search of beauty and singularity, they should (mostly) find themselves greatly enriched by the experience.

SA's most expensive wines

As rated in WINE magazine over the past 12 months:

RED WINES
Rust en Vrede 1694 2006 R1 200
Spier Frans K Smit 2004 R695
Waterford The Jem 2005 R680
Bouchard Finlayson
Tête de Cuvée Galpin Peak Pinot Noir 2007 R590
Saxenburg Shiraz Select 2005 R550
Sadie Family Wines Columella 2007 R556
Ernie Els 2005 R525
Val de Vie R480
Cloof Crucible Shiraz 2006 R450
Adi Badenhorst 2005 R400
Warwick Trilogy 2005 R400
Constantia Glen 2007 R350
The Grande Provence 2005 R350
Vilafonté Series C 2006 R350
Fairview Spice Route Malabar 2005 R350
Rudera Cabernet Sauvignon 2006 (ARP) R350
Emineo Liver II JLS 2007 R350

WHITE WINES
Sadie Family Palladius 2008 R411
Deetlefs Familie Weisser Riesling 2006 R320
Deetlefs Familie Semillon 2007 R320
Schalk Burger & Sons Myra VCC 2007 R275
Glen Carlou Quartz Stone Chardonnay 2008 R275
The FMC Forrester Meinert Chenin Blanc 2008 R260
AA Badenhorst Family Wines White 2007 (ARP) R250
Sterhuis Astra 2007 R250
Hamilton Russell Vineyards Chardonnay 2008 R250
Mont Rochelle Miko sur lie 2006 R250
A Rupert Nemesia 2006 R240
Avondale Les Pleurs Viognier 2007 R210