How Are Wine Prices Determined?

Photo Credit: Reuters/Regis Duvignau

Have you ever wondered what goes into pricing wine? How can one bottle of wine be as much as $100 USD or more and another only $5? How are wine prices determined? It’s a simple question that one would expect a simple answer to, but there are many factors in the pricing of wine. Your basic business costs are included for one thing. That would be your base expenses to plant and harvest the wine grapes, run the wine press, production costs (fermentation, the possible use of oak barrels, etc.), bottling costs, marketing and all the little details in between. Economic factors also play a determining role, the cost of living where the wine is produced. But these factors shouldn’t really vary that widely from one bottle to the next, should they? So how is wine priced that makes it vary so much from one producer to another and sometimes within one producer’s line?

The number one answer would be: the grapes involved.

This doesn’t mean the quality of the grapes, although that would determine a good wine of course, but it means how many quality grapes were produced. Young vines produce many grapes and so more wine can be produced from them, but older vines produce fewer grapes (the sugars are more concentrated in these grapes though, so there is more flavor to them). With less grapes comes less wine. When you produce a really great bottle of wine from few grapes, the demand for that wine skyrockets and you have to balance that demand with cost. What would you pay for a bottle of wine if there were only a handful available and it was purported to be one of the best wines in the world? You would probably fork out a lot to be one of the few to enjoy it.

So, wine prices are determined largely by availability of the wine.

What about cheap wine prices? Does that mean that $5 bottle of wine is a horrible bottle of wine? Not at all. In fact, some cheap wines can be just as good as that $600 bottle of wine. The difference is that the more expensive wines typically involved grapes from one vineyard. These are usually estate bottlings. Cheaper wines are generally outsourced, meaning the grapes used to make the wine come from several vineyards. This means the wines can be cheaper because you can find all the grapes you need to make a varietal or blend or what have you. Also, outsourcing grapes allows a wine to be more consistent from one vintage to the next. Often, estate bottlings vary dramatically from one vintage to the next because of environmental factors.

The second largest factor then would be: demand.

A $5 dollar bottle of wine that hits the market and takes off may run into supply issues. This is the old law of supply and demand. When the supply is low, the demand increases. When that happens, a wine maker may be forced to increase production and that will raise the price of wine per bottle. You may see a slow creep in wine prices or it could jump considerably.

High scores are often the culprit for an increase in demand. Good reviews can add to demand. Other factors that will raise the price of wine is reputation. A winery noted for its past vintages can certainly jack the price of their wine and still make profitable wine sales. But that’s not to say a wine maker can ask for an exorbitant amount of money and get it. The question of how are wines priced will ultimately come down to the consumer. If it’s too expensive, they won’t buy it, despite reputation, supply or score.

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