Michael Fridjhon: What do top-end wine prices really tell us?
By Michael Fridjhon, 15 May 2019
It should be evident – from the flurry of articles about wine pricing – that my current soap-box issue is the concept of value (perceived or otherwise). Partly this arises from the industry’s necessary obsession about under-pricing – the cancer which has seen a frightening attrition of Coastal Region vineyard. The other side of the coin, however, involves asking the opposite question – what has happened to make us so inured to high prices?
In the early 1970s a bottle of Nederburg cabernet cost less than R1-00. Today it costs 100 times that. If you apply this multiple to the price of a bottle of Grand Mousseux (selling then at R1-30) you’ll find it’s probably too generous – in fact, 40 times will do. Using the 100 times multiple (in other words, R130) today you can buy a bottle of Graham Beck MCC. Incidentally, the same 100 times multiple works pretty well even for standard brand imports such as Champagne: Moet cost R4-50 a bottle back in the early 1970s, it’s a little more than R450 today.
The same however is not true of Dom Perignon: it’s gone from R7-50 to R2250 – in other words, a 300-times increase. Krug has seen a 450 times price hike. This trend, affecting the pricing of international deluxe wines, should offer a clue about what has happened at the premium end of the local wine market. Inflation is rampant, and in the absence of any other credible way to determine quality, price has become a proxy for perceived value. The more a producer asks punters to pay for a bottle, the more it might be seen as “worth it” (and the more it should therefore be “valued”). Price appears to invite the market to judge the quality for everyone. If a wine can sell for R500 (or R1000, or R2500 and ever upwards) then the market – as presumed arbiter of taste – seems to be telling us that it is good, or better, or even best.
However, the assumption that the market provides evidence of quality is flawed from the outset. Few people have any idea what volumes are sold at these hyper-inflated prices. Offering the wine for sale is not proof of it’s being sold – either here in SA, where we are slightly less inclined to drop hard-earned rands to indulge producers’ fantasies, or off-shore, where some of the high-profile high-priced wines are used to leverage shelf space or induce purchase of container loads of less prestigious bottles.
The discounted off-shore sale of wines which are pitched at rarefied price levels on South African wine merchants’ shelves serves to short domestic supply – which in turn creates the illusion that the R1000 – R3000 per bottle level is “reasonable.” Over time our sanity and good judgement are overwhelmed by the so-called bandwagon effect: if everyone else appears to think this is acceptable, then we must be the only punters out of step. What makes this strategy so successful is the fact that, as a generation, we have more disposable income than our parents. Moreover, our basic needs haven’t increased in line with the available spending power: you can still only eat a few meals a day, and you can only drink so much wine. Having more money to spend means being able to spend more on the same commodity. Our parsimonious parents were more savvy because they had to be: they needed greater persuasion before blithely parting with their hard-earned loot.
There’s so much pressure around the sin of “under-pricing” that we’ve suspended all disbelief at the other end of the spectrum. We look at what the UK market regards as reasonable (once you’ve moved beyond supermarket price points) and wish ourselves there. On the way a little patriotism is added to the mix: a bottle of Screaming Eagle sells for R40k, a De Vogue Musigny sells for R10k – “why shouldn’t my berry-by-berry selection come in at that price point?”
It doesn’t work like that: there’s supply and demand, the latter a function of how your product is seen in the world-without-borders of the fine wine trade. The bottom half of the Cape wine business – the stuff which sells here for R50 per bottle – may be, for the time being at least, too cheap – given the drinking value it delivers at its price point in the UK. However, it doesn’t follow that we’re also grossly under-priced at the top end of the game.
Here it’s worth unpacking a little about how international high prices are achieved and maintained. For the long-standing icons of the Old World, centuries of being on top of the game has played a role. The First Growths of the 1855 Classification were accorded their status because they sold for significantly more than the next tier – even then. We also know that until the 1960s they were under-priced (because their proprietors weren’t making profits). Their massive upwards inflation has come from vastly increased international demand without a commensurate increase in supply.
The New World cult wines are supported by their domestic markets where the local currency is generally “harder” than the Rand. Grange sells in Australia for at least AUD500 (R5k) while Hill of Grace pretty much shares the same slot. Both are on allocation – which suggests that the locals are willing to pay this kind of money for them. Exports are not sold at a discount to support artificially high local prices – at least, not any more. The same is true of Screaming Eagle or Harlan.
Where production is limited – Leeu Passant for example – it’s possible that the combination of local and international demand will sustain the R1k price point. But what of De Toren’s Book XVII (R2750) THE Cabernet Franc (R5k) or 4G (over R5k)? The much vaunted Kanonkop Paul Sauer 2015, even with a long established and very credible track record, doesn’t fetch this kind of money in the real world. It’s normally priced at around R600. The 100-point score gave it a boost at the CWG auction – as did the ensuing shortage. However, in the UK at the end of last year, it was still selling for under ₤40 a bottle, duties and taxes (around 25%) included. It’s difficult to be more savvy than Kanonkop proprietor Johann Krige when it comes to these things, so you can bet that when volume runs to a couple of thousand cases or more, his price point is the realistic one.
There’s no accounting for taste and therefore no objective way of determining value. It’s also true that not all people with money to burn are smart: being well-connected and light on conscience seems to be the easiest way to get rich. Still, that’s not a reason for producers to rein back on their aspirational pricing models. When the bubble bursts they’ll have the satisfaction of knowing that at least some of their revenues came from people who didn’t work that hard for their money in the first place.
- Michael Fridjhon has over thirty-five years’ experience in the liquor industry. He is the founder of Winewizard.co.za and holds various positions including Visiting Professor of Wine Business at the University of Cape Town; founder and director of WineX – the largest consumer wine show in the Southern Hemisphere and chairman of The Old Mutual Trophy Wine Show.