Are Wine Prices Too High? Or Too Low? (Wine’s Golden Age & Its Discontents)

ukwineAre wine prices too high? Or are they too low? Two prominent wine writers raised these questions in different columns and it is worth pondering them separately and then together.

Tim Atkin: Race to the Bottom

Tim Atkin recently complained that British wine prices are too low in a column titled “Mad Frankie Fraser and the Price of Wine.” The average price of wine in the UK has risen slightly in recent years to £5.50  (about $8.75 at recent exchange rates), but the increase is mainly due to rising taxes (I have called this the UK government’s “war on wine”), which disproportionately impact lower-priced wines.

UK consumers resist paying more (having been trained by supermarkets to look for loss leader 3-for-£10 sales and BOGOF promotions), so the tax burden has been shifted back onto producers, who apparently have had to cut corners to cut cost and try to hang onto what were already slender margins.

The result, Atkin says, is that the quality of the average bottle of wine is now very low, which damages the reputation of wine generally. You used to be able to find a few nice wines at £5, Atkin says, but not any more with the tax soaking up so much of the retail price. £5.50 is the average and so if these wines are unworthy of attention, you can just imagine what must be true of the many wines selling for less.

Wine needs to cost more to be better, according to Atkin. Some UK consumers have figured this out, of course, and so the market, which is always segmented, has become even more bifurcated with one market for decent wines and another for mediocre stuff.

The problem is approaching crisis, according to Atkin. “I hesitate to say this, but maybe what wine needs is a minor scandal that exposes the way bargain basement wine is made, blended and traded,” he writes.  “Otherwise, I can’t see the UK’s polarised wine markets converging. It would take more than a sadist with a pair of pliers [the Mad Frankie Fraser of the column title] to change the wine buying habits of a nation.”

The Amazon-ification of Wine?

Atkin focuses on the impact of low prices on wine quality in the particular UK market environment, but there are other reasons to be concerned about bargain pricing. In the publishing industry, for example, some people are concerned about the larger implications of Amazon.com’s continuing quest for market share through low prices for books and ebooks.

The argument here is that by driving the price of books so low Amazon risks turning literature into a commodity. In the short term it might get more books and articles into more hands (and Kindle e-readers). But since consumers have a tendency to equate price with value, will this ultimately devalue the entire industry? Will literature become simple interchangeable “content?”

You can see how this argument might apply to wine. If wine is so cheap that it is no longer seen as having any special qualities, will it lose its distinctive identity and become just an alcoholic beverage, vulnerable to competition from beer, spirits and cider? Has this already happened? Perhaps it is has in the UK, especially if Atkin is right about collapsing quality.

This is food for thought, although the theory depends upon a lot of assumptions.  Some say that Amazon.com’s book prices are not so cheap as they once were because the company needs book profits to fund its rapid expansion into other markets.  Are book prices too low? I don’t know. Are wine prices too low? Or …  are they too high?museo

 Matt Kramer: Museum-ification

Here in the United States Wine Spectator columnist Matt Kramer is concerned that wine prices are too high. His article is called  “The Museum-ification of Wine: Have ultrahigh prices distorted our understanding and enjoyment of wine?” and its clear that the sort of wine he’s concerned about is much different from the nasty, cheap stuff that Atkin finds so revolting.

Fine wines are a luxury, Kramer notes, but it used to be possible to actually drink them occasionally and to really enjoy their special qualities. Now, however, the prices of the best wines get bid up to stratospheric levels and the top wines become trophies that are collected and exchanged but not necessarily consumed.

Kramer gets to taste these wines on occasion because he’s an influential wine writer, but even he isn’t able to actually drink them — to enjoy them in the ordinary way that wine is meant to be enjoyed. For the rest of us who are not famous wine writers, the wines might be like works of art in a museum. Look but don’t touch (or sip).

“Now, tasting for exploratory or analytical purposes, such as occurs with critics or anyone’s learning experience, is not only essential, but admirable,” Kramer writes. “But there’s a limit. If you’re buying wines only to “taste,” then you’ve museum-ified wine. And that, I feel free to say, is not just mistaken, but genuinely wrong. It objectifies wine. It denatures the experience, transmuting pleasure into comparative performance.”

Touchstones No More?

I framed this issue in a less sophisticated way in my 2013 book Extreme Wine (see chapter 5 on “Money Wine”), focusing on cultural significance. I compared the great Bordeaux wines to grand opera not museum displays. Once upon a time opera was the music of both the masses and elites, I wrote — everyone knew and sang, whistled or played the tunes and arias — it was a basic cultural reference point. And fine Bordeaux was once a fundamental reference point for wine in about the same way.

But things have changed. Opera, with its elaborate productions, costumes, orchestras, singers, chorus and sometimes dancers, is now perhaps the world’s most expensive art form and the prices of the best Bordeaux are sky high as well. Both risk being priced beyond the means of wine and music lovers and must work to maintain there relevance. Bordeaux almost disappeared here on the Pacific coast (Costco seems determined to bring it back now, if the current wine selection is any indication — or maybe they just got screaming deals).  Opera’s niche seems more secure, but is still vulnerable.

I  develop this idea in greater detail in Extreme Wine but hopefully you get the drift of the argument from this quick summary. Both opera and Bordeaux are still great and we love them, but they are now different in terms of their cultural significance, no longer the touchstones they once were.  Have they become museum-pieces as Kramer argues? Perhaps.

A Golden Age Slipping Away?

So are cheap wines too cheap and fine wines too expensive? Prices are what they are from an economic standpoint (it’s that demand and supply thing), but we can evaluate their effects. I think both Atkin and Kramer make good points, although it is hard to know how to change the dynamics they have identified.

Fortunately the cheap wine situation is different here in the U.S. where the war against wine was fought and lost back in the Prohibition era. It took a long time to recover, but we’ve won many battles since then and wine is on the upswing. I think the Two Buck Chuck revolution of the early 2000s raised the standard for inexpensive wines, for example. Today’s inexpensive wines  are not to everyone’s taste, but they undeniably achieve a commercial standard that the British, with their high taxes, might envy. The high prices at the top that Kramer bemoans and the problem he outlines exists just about everywhere, however.

Jancis Robinson recently called this a golden age for wine  and said that our challenge is to make the most of  it. I think she’s right.  Atkin and Kramer are doing their part to try to keep all the gains we’ve made from slipping away and we should help out.

It may be cold comfort to some, but there is a world of wines that exist between the extremes that Atkin and Kramer represent. Wines that are interesting and sometimes inspiring — and that people can and do buy, drink and enjoy.  That’s what we all should do at this holiday time of the year. Embrace the golden age: find these wines, share and enjoy them as they should be enjoyed.

So two cheers to the golden age of wine, with a third cheer in reserve to use if reserve if we can find a way to navigate the obstacles that Atkin and Kramer have charted. Cheers to all!

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Opera + Champagne = Cheers to Wine Economist readers all!

5 responses

  1. The biggest issue with wine pricing at the lower end which Tim discusses has to do with the inefficiencies of the wine industry. The wine industry rules make it very inventory heavy at all “tiers” of the business and the wines then need to move about to each tier and finally the end user. This may seem to be a US oriented comment but it is true regardless of the country and prohibitionary rules.

    Wine really doesn’t have a Just In Time inventory situation that other industries take advantage of. This means that inventories build up at one tier or another and the only release valve is discounting. The amount of discounting that has occurred since 2005 in wine has created artificial price floors for wines. The rating system has exasperated the situation with higher scored wines being used at retail as customer acquisition tools, creating a discounting structure for highly scored wines.

    Too many wine businesses get into inventory problems and use low prices on the inventory to solve the problem short term, sometimes it leads to bigger long term issues. These inventory problems at the producer level is what created the Two Buck Chuck brand and others Fred has done since. Many wine labels have followed suit.

  2. It’s ironic that Kramer, whose magazine has helped push fine wine prices past the point where most people can afford them, now thinks it’s a problem. But perspective is all.

    I think, in terms of pricing, it’s important to note improving technology in the vineyard and winery, as well as the pricing clout of Big Wine. Technology has given us more grapes to make wine with, and better ways to make drinkable wine with those grapes. In this, the idea of a poor harvest as it was traditionally understood doesn’t exist, and grape supply never suffers.

    And Big Wine can make money with low-priced wine in a way that no one ever could before. The six biggest wine companies control about two-thirds of the U.S. market, and one of them, the Wine Group, makes almost no wine that costs more than $15.

    The other important thing? That what’s happening in wine parallels the rest of the U.S. economy, which some have called the barbell effect — Walmart at the low end, Nieman’s on the high end, and little in the middle. In fact, most department stores are tyring to get out of the middle and compete with Walmart on the low end. And the long skinny piece is where the wines Atkin likes are located, and the action of the economy is pushing them out.

  3. Mike – Another insightful post. Wine does indeed seem to be bipolar (and I mean that in the old balance-of-power sense, not the mental illness sense, though perhaps both apply). Most people drink cheap, while the image of wine is the stratospheric luxury, museum/opera type. That’s an image the industry and the media both promote at times. In between there is a fascinating variety of less glamorous but more exciting wine made around the world, often at reasonable prices. I certainly enjoy exploring that category to point readers toward some good wines.

    Cheers, and happy holidays!

  4. As you say, both Atkin and Kramer make good points. But they are both wrong. (I don’t expect that they expect anyone to say “yes that’s how it is” though.) The truth in my opinion is, as you also point out, that there is a wealth of wine in-between the two extremes.

    There are many more wine drinkers (outside the traditional wine producing countries) that there used to be. Wine has a much, much broader reach today. Large numbers of people that never used to touch wine now drink cheap wine. Excellent. Better that soft drinks. For a small number of people wine has become a luxury item, an item for ostentatious consumption (or not even consumption, but just for ostentation).

    For all the rest (of us), who are in between these two extremes, there has never before been such a wealth and variety of good and excellent wines at reasonable prices as there is today! Enjoy it!

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