The murky world of wine pricing

By , 23 February 2021



Kanonkop Paul Sauer 2017. R700 a bottle in South Africa. £45 and up in the UK.

What is the maximum price you will pay per bottle for everyday drinking wine? According to a recent poll that conducted on Twitter, 27.3% of the 695 respondents replied “Up to R70” and 34.8% “Up to R100”.

Just under 20 years ago, in the September 2001 edition of Wine magazine, the 1998 vintage of Kanonkop Paul Sauer was rated Five Stars and sold for precisely R100 a bottle. The current-release 2017, which rated 95 on the 100-point quality scale last year, costs R700!

How wine prices come about is a perennial question and the first observation to make is that it hasn’t got that much do with grapes. One tonne of grapes produces approximately 80 twelve-bottle cases. Or 960 bottles.

For the sake of argument, let’s assume our boutique producer is paying R10 000/tonne, well above average. The input cost of grapes therefore equates to R10.42 per bottle.

Of course, if a wine retails for R100, it does not mean that the producer gets that. There are various links in the supply chain, with the wholesaler and retailer each taking their cut, while excise duties and VAT are also part of the equation.

Secondly, some sort of figure must be attached to capital investment and labour. The farm must be bought, planted, cultivated and if the cost of labour is relatively cheap, it cannot remain so. Many of the inputs are internationally sourced (barrels, corks, capsules and sometimes bottles) and producers are consequently exposed to the vagaries of the exchange rate. Maintenance costs of buildings and equipment as well as fuel are two other significant factors that have relevance in the final price of a bottle of wine. And then, of course, there is marketing, which as we all know is part science, part black magic…


Even so, viewed purely in terms of production costs, it’s difficult to see how a bottle of premium wine could possibly sell for more than R100. So how else to explain price tags of R500 a bottle and over?

There is undoubtedly an element of prestige pricing and producers that deny this are being disingenuous. Product categories exist where the ultimate selling price is greatly in excess of production costs. Think luxury cars, think designer fashion, think fine art. Essentially, the producer is charging the most the market will bear.

It is each producer’s call to price as he wishes, as he knows what has gone into the bottle but there does seem to be a growing disassociation between what the local wine enthusiast is able and willing to pay and what are best wines are increasingly selling for.

In a sense, local consumers have had it too good for too long. Many of South Africa’s best wines are available at around half to three-quarters of what they go for internationally (the 2016 vintage of Kanonkop Paul Sauer is currently available at Hanford Wines in London for £65, the equivalent of R1340 at the current exchange rate) and the difference is not freight alone. The price differential cannot continue forever – the market will not allow players, whether public or private, to buy up stock here for greatly less than it sells for overseas as this means margins are unnecessarily forfeited. The practice is already in evidence of producers eking out tiny quantities of their best wines across several international markets to nudge prices ever higher. As long as the rand remains weak against the currencies of those destination countries, domestic wine prices will continue to rise.

Clearly, there are many factors that go towards determining what a wine sells for but you hope that it is quality that will ultimately be definitive. Only by consistently delivering a certain level of quality will the the price of a particular wine be sustained. And how do you recognise that quality? That, at least in part, is where third-party endorsement comes in and hence the wine media, in all its various manifestations…



18 comment(s)

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    Jeremy Sampson | 8 March 2021

    Hi Christian
    If I offered you a plain red cap or a red cap with the Ferrari logo , which would your prefer?
    Put another way, what premium would you be willing to pay for the latter? After its the same cap, just a bit of writing added.
    There are some to who price is irrelevant if they can buy bragging rights.
    But to achieve that status you need a brand that consistently delivers so commanding a premium. The stronger the brand the higher the premium.
    Look no further than the Johnnie Walker family. The whisky marketers at Diageo understand.
    Locally the Mullineux are a EMBA case study. It doesn’t happen by accident.

      Tim James | 8 March 2021

      I wonder why would anyone want to wear a cap advertising Ferrari? Jeremy and I must live in a different world – or, at least, differently in the same sad world….

        Jeremy Sampson | 9 March 2021

        Wondering if you wear any item of clothing that has a logo on it, without wanting to get too personal of course?
        But most do, especially younger people, the reason merchandising and increasingly dedicated retail outlets are an important channel to market for brands. I once ran through Eindhoven (home of Phillips) wearing an Olivetti T shirt, which created some ‘looks’.
        I’ve even seen Eben Sadie sporting a Stella Artois shirt. What next?

    Ramzy | 25 February 2021

    Hi Christian,

    When pricing products one needs to do market research and segmentation.

    On my opinion, every winery needs to produce and expand their consumer experience that provide wines to all the available consumer cognitive appeal.

    Please refer to the consumer cycle.

    Adam Cowell | 24 February 2021

    I am still amazed that consumers will pay anything from R250 for an ordinary bottle of wine at a restaurant yet balk at having to pay R150 for a better bottle in a shop. I had hoped restauranteers would have realised that they cannot survive if they are not allowed to sell alcohol and therefore adjust their model by increasing food prices. Then we might see an improvement in the quality of food. I also think we, as consumers, should not tip on the wine as it is already inflated. It might force owners to give some of that margin back to its staff who are underpaid.
    I digress. My experience is that certain labels have priced on reputation and are not delivering while some lesser knowns are undercharging for excellent wine.

    Greg Sherwood MW | 24 February 2021

    Just to clarify, the Paul Sauer 2016 would have been mostly sold for £40+ per bottle retail but at 96/100 (Neal Martin) and almost sold out everywhere, we tend to increase the prices a little in line with the open market. The 2017 Kanonkop Paul Sauer (98/100 Tim Atkin) is not listed on our website (so that it doesn’t sell out immediately) but is still available in-store for below £50 per bottle. Managing high demand stock is a necessary evil these days and supports the producer’s brand integrity.

    Peter F May | 23 February 2021

    I don’t think it is a fair comparison to contrast the cellar door price of Paul Sauer with what a shop located in London is charging for it.

    The London retailer has to cover the cost of running and staffing a London shop. I’d think that staff wages, not only what the assistant receives, but also statutory insurance and etc the employer must pay, are higher than in RSA, as is the cost of having a physical location in London.

    Plus there’s a flat rate wine tax as well as 20% VAT which is levied on the tax as well. (I think duty is currently not payable on RSA wines.)

    Also, Paul Sauer is an Estate wine, thus production is by definition finite and there’s more demand than supply, which will push up the price. And London buyers are willing to pay the price

    But the producer by selling direct to consumers, makes more money than by selling at wholesale prices to international buyers because I doubt the London retailer is buying Paul Sauer at the cellar door price.

    Alan Duggan | 23 February 2021

    A few years ago, I read a research paper stating that when a bottle (or chocolate, or other commodities) costs more, the brain’s reward centre plays a trick on us. Granted, the wine tasting in the study did not involve expert tasters working in optimum conditions, but it did suggest that human frailties (placebo effects and other influences) could significantly affect outcomes.

    Clive Varejes | 23 February 2021

    Leaving aside the above comments which are of course correct, lets be honest about the pricing situation in restaurants.
    Most of the really high priced wines sold in restaurants, are sold specifically because they are highly priced, and the host feels it important to make a “statement.”
    Whether or not the wine is great or bad, is not the point, it is the “name and price that counts.”
    Of course I am generalising.
    I do recall a specific individual at the Cape Winemakers Guild auctions, who would, if they wanted a specific name/cultivar, keep their hand raised to purchase the wine, price was not an object.
    Luckily his establishments were located in locations where prices are seen as a mark of ‘importance.’ especially if it carried the CWG moniker.
    Also don’t overlook the fact that there are great international wines, I think the Chilean red wines are wonderful and reasonably priced.
    I do recall an article in a extremely old issue of “Wynboer” where it stated words to the effect:
    “More sh*te has been spoken about wine than probably any other foodstuff.”
    It makes sense.

    jason mellet | 23 February 2021

    Hi Christian

    Thx for pumping out the articles…

    I’ve seen recently grapes from places like To Kalon in Napa costs around $100 USD per bottle of wine… let that sink in.

    As an international buyer of South African wine I can certainly attest to its quality. I hope it always remains attainable even to my budget.

    With 1/3 ( 90+ ) bottles of SA wine in my cellar it’s generally my number 1 choice of what to drink / buy! The pricing is generally amazing and I would be happy it even going up another 15% or so…

    My thought is buy a 99 pt Pontet Canet for $175 or a 97pt Mullineux Syrah for $80. Or a 95pt Opus One for $400 or a 2009 Anthonij Rupert Cab Franc for $60… SA wines need as much help as possible to get the recognition they deserve and prices will follow as they do…

    Keep up the good work.

    P.s. no mention of the. Cabernet Franc? I’d be interested in your full review of it… I have a bottle of the ‘14

    Billabong | 23 February 2021

    You make a good point Christian. The top end of the SA wine market will continue to be exported. That leaves a lot of room for the next tier, to dominate the R100-R300 bracket. And with the additional profits they make, they can invest more in their vineyards and cellars, driving up quality until they too can export above the R500 mark. It’s a good cycle and the local consumers are all going to be able to participate.

    Ross Sleet | 23 February 2021

    Hi Christian
    A good article highlighting the ongoing issues there with regards to pricing vs. cost in whichever markets one sells your products. Key issues in export pricing are Duty and Excise (and tariffs) which vary all over the world from 0% to >100%, agent/importer margin demands, retailer margin demands, and VAT. There are various rules of thumb that are applied which means that a wine on sale in retail in South Africa can be on sale in the USA at a factor of SA retail prices or the FOB /EW price depending on your view and desired market position. Transport costs are relatively inelastic and are always volume / weight dependant. So that takes care of the differential between SA retail prices and prices in global markets. However when it comes to cost vs value then the picture as you point out is less clear. Most wines on sale in South Africa above R200 a bottle (and probably far less than this) are price makers – they don’t reflect the market demands, but the market perception of what their value is over time. There are many examples of this where a brands’ reputation grows over time and therefore their retail prices do so as well. The rest of the market, below this threshold are price takers. They influence the market via their distribution penetration as % of total market share, and via the usual 4 P’s of marketing to be simplistic. Cost of production is only a factor when economy of scale is involved and the market interrupters at these prices do so at their peril unless they can build market presence ahead of the current occupiers of consumers and buyers thoughts. This is the short version of what is involved in setting pricing. If you can consistently sell at a healthy factor over and above your costs of production without a large market presence, then well done, you have done what many brands desire to do!

    Dana Buys | 23 February 2021

    Pricing is always a sensitive topic but I think there as major errors in the cost of quality wine production ignored above:

    1. The yield for quality wines is generally much lower when focus is on free run and light press with 2nd press sold as bulk. Maybe 600 bottles per ton
    2. Barrel maturation is expensive. A 225L new French oak barrel costs around R16,000 and loses 50% of its value in year 1. That alone translates to R27 / bottle
    3. The time cost of barrel and bottle maturation – if a quality red wine leaves the cellar door say 3 years after harvest, the cost of capital is high given local interest rates
    4. The cost of wine making / L (wine makers, cellar workers, production inputs etc) is high for the smaller, quality oriented wineries vs the large producers.
    5. Electricity is a major expense – winemaking, cooling etc. Ditto diesel for the tractors, generators and trucks
    6. Add the cost of quality bottles, closures, labels, bottling, labeling, boxes and storage in temperature controlled environments
    7. Plus the cost of management, marketing, sales and admin

    Given the margins expected by retailers and distributors and the cost of logistics, it’s pretty much impossible to retail a bottle of quality red or white wine that has been through barrel maturation, bottle maturation and distribution for anywhere close to R100…

    Super high prices are a marketing positioning play and there are obviously enough folks out there who judge the quality of a wine by its price…

    The reality is, that the greatest % of quality wines locally sell at cellar exit prices that make it hard for the producers to run a sustainable business.

    Marius Helm | 23 February 2021

    My question, I have seen some statistics that the bulk [70%+] of our grape producers are not profitable? So what would the price of a ton of grape need to be to ensure that our grape producers are profitable? In 2019 they made around R20k/ha profit, [R70k income less R50k costs] if the average tonnage per Ha is 5-25 Ton lets use a 10T/Ha as these lower tonnage may produce better wine?
    For a grape producer to be profitable they need to make min R34k/Ha profit thus they would need to get min R85k for their 10T of grapes or R8500/ton. Thus your R10k/ton would be profitable.
    You have used Paul Sauer as an example, but how about the cost of the Kadette range that make up 90%+ of their wine produced and sell for around the R100 a bottle locally and are mostly 4star wines, so maybe its ok if you charge a premium on the top 10% of your wine produced with ageing in mind…. Interesting is that if you buy a bottle of Paul Sauer today at R700 you should be able to get a good return on investment if you want to sell it after good cellaring in 5-10 years, just look at the prices paid for Paul Sauer over the last few years at auction, R2000+ per bottle and they were in the 5-10 year range. So in essence they should be able to get double that at the cellar door if they were greedy… Also why can’t you get a good of Cab under 200US in the Nappa valley?

    Tierseun | 23 February 2021

    Hi Christiaan. I’m not sure sure how a pricing differential in different markets can lead to arbitrage by private or public buyers? If you know of any examples where this is done at scale I’d be interested to know. But wine just isn’t a commodity like oil where one can trade in millions of litres to make something like this worth it or commercially viable. Sure, someone can buy a 2 cases of Paul Sauer here, ship it to the UK and perhaps save R100 to R200 per bottle, but the effort doesn’t justify the reward.
    As to your comments around the pricing of wine, you’re back onto Michael Fridjhon’s favourite topic of telling consumers exactly how much they are overpaying for wine! I guess it is useful to remind everyone regularly of this because with so many producers selling wine at R500+ a bottle you might start believing that level of pricing is justified, but if they can get away with it and create this perception of value then kudos to them. I think it provides more opportunity for the wine media and critics to find really good wines at R200 or less to inform us about.

      Christian Eedes | 23 February 2021

      Hi Tierseun, I’m not so much saying that the pricing differential is literally leading to arbitrage but rather that local consumers should get used to the idea that the likes of Kanonkop and Sadie are increasingly going to be sold outside the country as long as there is devaluation in the rand and declining economic activity…

        Hennie | 23 February 2021

        Hi Christian

        I don’t see it as a problem that Sadie, Kanonkop et al will end up mostly selling outside of SA. If it keeps their businesses profitable it surely doesn’t matter? If you’re enough of a fanboy, you’ll make a plan to get your hands on some locally anyway. If it becomes unavailable in South Africa, then so be it. Do you know how much Fourrier you can buy in Burgundy? Just about none. Trust me, I tried.

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