They Always Buy the Ten Cent Wine

Ernest and Julio Gallo built their business in the years after the repeal of Prohibition according to a strict division of labor: Julio made the wines and Ernest sold them. I don’t know if Ernest Gallo really appreciated the spiritual element of wine, but he did know that selling wine is not just about selling what is in the bottle. Selling wine, like selling anything else, is also about selling image, mystique or terroir.

The story is told of a sales call that Ernest Gallo made to a New York customer in the dark days of the depression. He offered sample glasses of two red wines – one costing five cents per bottle and the other ten cents. The buyer tasted both and pronounced, “I’ll take the ten-cent one.” The wine in the two glasses was exactly the same. Clearly, the customer wanted to buy an identity – the image of someone who wouldn’t drink that five-cent rotgut- even if he couldn’t actually taste the difference.

They always buy the ten cent wine, Ernest Gallo said.

I wonder how much things have changed since the days when Ernest Gallo made his calls? Two recent studies provoke this question.

Price and Taste

The first, which has been widely reported, is a study that was published in the Proceedings of the National Academy of Sciences that showed that test subjects displayed the Ernest Gallo effect. Their ratings of wines changed when they were given price information — even bogus price information. Identical wines received different ratings depending upon price information provided. “Expensive” wines, naturally, were rated higher than their inexpensive twins.

A second study, just released by the American Association of Wine Economists, answers the question Do more expensive wines taste better? The answer, based on a large sample of blind tastings, is that there is no correlation between price and wine evaluation (or perhaps a modestly negative one). This will be no surprise to readers of wine publications like Wine Spectator. Sure, the top wines are usually expensive, but there are also a lot of costly wines that get low ratings.

These findings will give bring great satisfaction to my friend and part-time research assistant Michael Morrell, who prides himself on drinking cheap wines, trusting his own tastes not ratings or price “signals” of quality. Michael would buy the five cent bottle every time.

But ask any wine distributor or retailer and you will find that price is the critical factor in retail wine sales. Although wine enthusiasts like to think of themselves in complicated ways — favoring red versus white, old world versus new world, merlot versus pinot noir, fruit bomb versus barrique reserve — the dirty little secret of wine retailing is that price is the key to most wine buying decisions. When push comes to shove, buyers are really looking for an $8 wine or a $10 wine and and make their purchases within a relatively narrow price range, regardless of other factors.

Evidence from the Wine Aisle

The wine aisle in your grocery store is probably organized this way. Yes, I know there is a California section and an Import section and even a jug/box wine spot, but look within each wine display and you’ll see the clear price stratification effect. The wines you have come to buy are probably on the shelf just below your natural eye level, so that you cannot help but see those special occasion wines just above them (and the higher priced wines above them on the top shelf). Cheaper wines are down below, near the floor, so that you have to stoop down to choose them.

The physical act of taking the wine from the shelf mirrors the psychological choice you make — reach up for better (more expensive) wines, stoop down for the cheaper products. The principle will be the same in upscale supermarkets and discount stores but the choices (what price wine will be at the bottom, middle and top) will differ as you might expect.

Studies suggest that people establish a wine price comfort zone (and corresponding wine shelf) and stay there, moving up a rank for special occasions and down a shelf for parties and other higher-volume purchases. A lot of factors drive this behavior, including fear. I have some $8 wine friends who are afraid to start drinking $12 wines for fear that they will be able to taste the difference — and have to upgrade their wine budgets.

One local supermarket has taken this principle to its logical extreme. It is a discount store that counts a lot of immigrants and retired people among its customers. The wine aisle is not organized as you might expect — by country of origin or wine varietal. It’s logic is simple and clear. This rack has wines that cost $3 and less. The next rack has $3 – $5 wines. And so on up to the $15+ wine rack. Large signs efficiently guide buyers directly to their target zone. Do they sell a lot of wine? You bet they do!

The relationship between the price of wine and our evaluation of it is complex. These recent studies indicate that we shouldn’t let price information influence our decisions, but marketing experience shows that most of us do.

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