by Elliott R. Morss, Ph.D.

Introduction

What is the state of the US wine market? Is it better for buyers or sellers? And what is popular? These questions are the focus of this article. I start with some aggregate numbers on the global wine industry. I then present the results of a survey done of a large retail liquor store in the Boston area. I conclude with some analysis and opinion.

Global and US Market Aggregates

Table 1 provides the total wine production by country for 2008. Note that Argentina now produces more wine than Australia. New Zealand does well in export markets for how much it produces. China’s production is surprisingly large, but so far, most of it is for domestic consumption. Many of the “new” wine countries are being assisted by European vintners who have no more land in their home countries to develop.

Table 1. – Wine Production by Country, 2008

	Wine Production
	2008	2004-08	2008
Country	(milhectltrs.)	% Change	per hectare
Italy	46,900	-6%	56
France	42,950	-25%	50
Spain	34,850	-19%	30
USA	20,550	2%	50
Argentina	14,680	-5%	65
China	13,005	17%	26
Australia	11,700	-20%	68
Germany	10,400	4%	102
South Africa	9,890	7%	75
Chile	7,860	25%	40
Romania	6,300	2%	31
Portugal	5,400	-28%	22
Greece	3,750	-12%	32
Brazil	3,500	-11%	35
Hungary	3,400	-22%	47
Austria	2,400	-12%	47
Bulgaria	1,800	-8%	19
New Zealand	1,700	43%	49

Source: http://www.morssglobalfinance.com/the-global-economics-of-wine-past-present-and-future/

The Wine Institute estimates that American consumed 28.5 million gallons of wine in 2008, or 9.4 liters per resident. Table 2 presents data on US wine imports by country of origin.

Table 2. – US Wine Imports, 2008

Country	Mil. US$	Percent
Europe	4,074	72.6%
France	2,150	38.3%
Italy	1,383	24.7%
Spain	312	5.6%
Germany	156	2.8%
Portugal	73	1.3%
Other	1,374	24.5%
Australia	738	13.2%
Chile	240	4.3%
Argentina	197	3.5%
New Zealand	151	2.7%
South Africa	48	0.9%
Misc.	161	2.9%
World	5,609	100.0%

Source: http://censtats.census.gov/cgi-bin/naic3_6/naicMonth.pl

The high imports of France and Italy include a significant portion of bulk shipments for house labeled products and other non-bottled uses.

The US wine market continues to grow. The Census Bureau reports that between 2002 and 2007, U.S. wine imports grew 74% in value and 53% in quantity. Although the Europe is the largest regional supplier of imports to the United States, its share has declined in recent years: the share of the European Union dropped from 77% in 2000 to 71% in 2008. Imports from the rest of the world increased from 29% in 2008, up from 22 percent in 2000.

To get a better picture of the retail situation, I undertook a survey of the holdings of a Boston store described below.

The Survey

I collected data from Martignetti’s retail liquor store in Brighton, just outside of Boston. The Martignetti family has been in the liquor business since the repeal of prohibition. In addition to retail, the company is the 7^th largest distributor in the US. The store has more than 2,500 different wine offerings.

A Brief Aside on Varietals and Regional Descriptors

Before proceeding, a brief statement on the tradition of categorizing wines by grape or varietal is in order. The French and some other European countries describe their wines by the region in which they are grown. Other countries use the dominant varietal/grape to describe their wines. Table 3 provides equivalencies for some varietals and regions.

Table 3. – Varietals and Regions

Color	Grape	Country	Name
White	Sauvignon Blanc	US	Fumé Blanc
		France	Sancerre, Pouilly Fumé
	Chenin Blanc	France	Vouvray
	Riesling	Germany	Mosel, Saar, Rheingau
	Chardonnay	France	Chablis, White Burgundy,
			Champagne, Blanc-de-Blanc, Pouilly Fuissé
Red	Pinot Noir	France	Red Burgundy
	Gamay	France	Beaujolais
	Cabernet Sauvignon	France	Bordeaux
	Merlot	France	Pomerol, St. Emilion
	Syrah or Shiraz	France	Hermitage, Côte-Rôtie
	Nebbiolo	Italy	Barbaresco, Barolo
	Sangiovese	Italy	Chianti, Brunello
	Tempranillo	Spain	Rioja

Back to the Survey. I first did a count by country and price range on wines dominated by the following leading varietals: 

• Light White – Sauvignon Blanc;
• Heavy White – Chardonnay (including French White Burgundy);
• Light Red – Pinot Noir (including French Red Burgundy);
• Heavy Reds – Cabernet Sauvignon (including French Bordeaux), Shiraz, and Malbec.

In addition, because of the global importance of Italian and Spanish wines, I did a total red and white wine count by price range for each of them. 

I am sure my wine counts for the store are not completely accurate. I also make no claim that the sample is “representative”. But as I have indicated in an earlier article, Massachusetts’s residents drink more wine per capita than any other state in the US, suggesting they are knowledgeable buyers. Also, because of the size of the Martignetti store and the amount of time in business, their retail offerings should be a good indication of what US buyers want.

The Results

Table 4 provides totals and average prices by country for my survey data. The total number of wines from each country is not surprising. One would expect the US to be the leader inasmuch as the store is in the US. Note that my sample constitutes 45% of the wines displayed in the store.

Table 4. – Martignetti Wine Totals, by Country and Price

	Price Range (US$)							Total	Average
Country	8 – 10	11-13	14-16	17-19	20-23	24-30	30+	Wines	Price[1]
US	54	54	73	62	18	38	66	365	20.3
France	0	2	10	13	14	22	156	217	34.8
Italy	26	43	33	34	15	7	13	171	16.9
Spain	28	23	23	15	3	8	15	115	17.6
Australia	27	20	9	13	4	6	13	92	17.6
New Zealand	14	16	18	10	2	4	0	64	14.4
Argentina	10	13	9	15	2	6	3	58	16.8
Chile	9	17	0	1	1	0	0	28	11.6
South Africa	3	0	2	0	0	0	0	5	11.4
Total	171	188	177	163	59	91	266	1,115	21.3

Source: Morss Survey of Martignetti Retail Liquor Store, June 30, 2010.

Neither the total number of wines nor the prices are surprising. Most of the leading country producers are well represented at Martignetti’s. The French were in the market “first” and they have done a great job in distinguishing their wines by region rather than varietal. US average prices are 40% lower than the French.

Light Whites – Sauvignon Blanc

Table 5 provides data on Martignetti’s Sauvignon Blanc offerings. Given that New Zealand ranks only 18^th in global wine production, it has done a wonderful job in marketing its Sauvignon Blancs. The fact that its average price is less than a dollar below the average US price is a testament to it having established a strong market position in the US. It also appears that Chilean companies are breaking into the market with lower priced offerings.

Table 5. – Martignetti’s Sauvignon Blanc Offerings, by Country and Price

	Price Range (US$)							Total	Average
Sauvignon Blanc	8 – 10	11-13	14-16	17-19	20-23	24-30	30+	Wines	Price
Chile	4	6						10	10.8
Argentina		1						1	12.0
New Zealand	7	8	9	5	1	2		32	14.4
US	7	16	11	10	2		2	48	15.1
Total	18	31	20	15	3	2	2	91	14.3

Source: Morss Survey, op. cit.

Heavy Whites – Chardonnay

Table 6 provides data on Martignetti’s Chardonnay offerings. Chardonnay is the leading heavy white grape. It serves as the basis for wines using its name as well as being the dominant grape in French White Burgundies and Champagne. The French tradition of “branding” their wines by region gives their wines unique market niches. And as can be seen in Table 6, it works with their White Burgundies where their average price is almost twice that of the US Chardonnay price. But how long will it last. The US and other “New World” competitors are now marketing good Chardonnays at much lower prices. Martignetti offers more Chardonnays than any other varietal in my survey.

Table 6. – Martignetti’s Chardonnay Offerings, by Country and Price

	Price Range (US$)							Total	Average
Chardonnay	8-10	11-13	14-16	17-19	20-23	24-30	30+	Wines	Price
Argentina	1	2		1				4	12.8
Australia	7							7	9.0
Chile	3	2		1				6	11.5
France (White Burgundy)			2	6	4	8	66	86	35.8
US	19	19	23	20	7	10	12	110	18.2
Total	30	23	25	28	11	18	78	213	24.7

Source: Morss Survey, op. cit. 

Light Reds – Pinot Noir

Table 7 provides data on Martignetti’s Pinot Noir offerings. Pinot Noir is the dominant light red varietal in its own name and in France’s Red Burgundies. France has again established itself in price way above its competitors. But the US is number 2 and it has good offerings at all prices. 

Table 7. – Martignetti’s Pinot Noir Offerings, by Country and Price

	Price Range (US$)							Total	Average
Pinot Noir	8 – 10	11-13	14-16	17-19	20-23	24-30	30+	Wines	Price
Italy	2	1						3	10.0
Chile	1	2						3	11.0
Australia		1						1	12.0
US	5	4	12	17	4	12	15	69	23.0
France (Red Burgundy)							72	72	40.0
Total	8	8	12	17	4	12	87	148	30.7

Source: Morss Survey, op. cit. 

Heavy Reds

There are many heavy reds not covered in this survey – most notably, the Barolo and Amarones of Italy and the Rioja’s of Spain. But the most important dominant heavy red has historically been the Bordeaux (Claret) from France. The dominant grape in Bordeaux is the Cabernet Sauvignon. Other heavy reds that have become popular in the US are Shiraz and Malbec.

 a.      Cabernet Sauvignon

 Table 8 provides data on Martignetti’s Cabernet Sauvignon offerings. While the French put Cabs on the map with their Bordeaux’s, other countries make very good ones as well. As can be seen in Table 8, the Bordeaux’s higher prices are not nearly as pronounced as in the case of French Burgundies. The US has numerous Cab offerings at all prices, and the other countries listed in Table 8 are trying to establish themselves in the US market with much lower prices. Martignetti carries almost as many Cabs as it does Chardonnays.

 Table 8. – Martignetti’s Cabernet Sauvignon Offerings, by Country and Price

	Price Range (US$)							Total	Average
Cabernet Sauvignon	8-10	11-13	14-16	17-19	20-23	24-30	30+	Wines	Price
Argentina	2	1	3	3	1			10	15.1
Australia	6	4	1	5				16	12.9
Chile	1	7			1			9	12.7
France (Bordeaux)		2	8	7	10	14	18	59	26.8
South Africa			2					2	15.0
US	17	8	24	13	5	15	31	113	23.0
Total	26	22	38	28	17	29	49	209	22.4

Source: Morss Survey, op. cit. 

b.      Shiraz (Syrah)

Table 9 provides data on Martignetti’s Shiraz offerings. The French have used the Syrah grape for many decades in blends, e.g., the Côte Rôtie. But the Australians were the first to heavily promote wines using Shiraz on the front label. And as can be seen in Table 9, they have become dominant in the US with prices slightly higher than the US producers. The South Africans, who originally tried to break into the US market with high prices after the US embargo was lifted, have now reversed course and are trying to enter with much lower prices. 

Table 9. – Martignetti’s Shiraz Offerings, by Country and Price

	Price Range (US$)							Total	Average
Shiraz	8 – 10	11-13	14-16	17-19	20-23	24-30	30+	Wines	Price
South Africa	3							3	9.0
US	6	7	3	2		1	6	25	19.4
Australia	14	15	8	8	4	6	13	68	19.7
Argentina						1		1	27.0
Total	23	22	11	10	4	8	19	97	19.4

Source: Morss Survey, op. cit.

c.       Malbec

While the Malbec grape had once been used by the French to make Bordeaux wines, it is now primarily associated with wines coming from Argentina. As Table 10 indicates, Martignetti carries 42 Malbecs across the price range. While a few Malbecs are produced in Chile, Argentina dominates the market.

Table 10. – Martignetti’s Malbec Offerings, by Country and Price

	Price Range (US$)							Total	Average
Malbec	8 – 10	11-13	14-16	17-19	20-23	24-30	30+	Wines	Price
Argentina	7	9	6	11	1	5	3	42	17.5

Source: Morss Survey, op. cit.

Italian Wines

As Table 11 indicates, Italy ranks behind only the US and France in terms of wines carried in the store. It has reds selling at all prices (Amarones, Barolos, and Brunellos at the high end), while most of its whites sell for less.

Table 11. – Martignetti’s Italian Offerings

Price Range	8 – 10	11-13	14-16	17-19	20-23	24-30	30+	Total	Average
Red	12	16	13	20	4	6	12	83	19.1
White	14	27	20	14	11	1	1	88	14.8
Total	26	43	33	34	15	7	13	171	16.9

Source: Morss Survey, op. cit.

Spain ranks 4^th in the store. It is notable that very few white Spanish wines are carried. Riojas dominate their expensive wines.

Table 12. – Martignetti’s Spanish Offerings

Price Range	8 – 10	11-13	14-16	17-19	20-22	23 – 30	30+	Total	Average
Red	23	22	20	11	3	7	15	101	18.0
White	5	1	3	4	0	1	0	14	14.4
Total	28	23	23	15	3	8	15	115	17.6

Source: Morss Survey, op. cit.

 Conclusions 

1. Liquor stores do not have counter space for more wine. That means a new wine must replace an existing wine. A tough order. Going forward, the US market will be hard to break into. It will take an extremely low price or a varietal that catches on, like Pinot Noir, Malbec and Shiraz did.

 2. European wine producers will continue to lose market share. Land and labor costs are higher in Europe. In addition, as the US buyer becomes more knowledgeable, the price edge French producers enjoy by using the region rather than the dominant varietal to market their wines will decline.

Quality

 To this point, there has been no mention of wine quality, ratings, or tastings. A complex topic. It will be the focus of Part 2 of this wine survey to be published shortly. But one conclusion is worth mentioning here. 10 years ago, it was difficult to find a reasonably good wine for $10. This is not true anymore. Good $10 wines are available for every varietal.

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[1] The average price in this and following tables is calculated on the basis of the mid-pint of each range, e.g. for the 8 – 10 range, I used 9. For 30+, I used 40.

September, 8, 2010, by Elliott Morss, www.morssglobalfinance.com

Introduction

The article starts by summarizing economic findings on people’s wine selections. It then examines the US wine market. It finishes with suggestions on selecting wines.

How People Select Wines

Considerable economic analysis has been done on how people choose wine[1]. Summarized in an earlier article, the primary finding is that wine choices are rarely connected to taste. And further, price does not accurately predict taste. What do I mean by that? In carefully conducted large blind tastings, more expensive wines were not preferred. It appears that people buy wine based on its color, brand name, label, and ratings (experts frequently disagree on their ratings).

One other point: some people buy wine because it is expensive. There are two reasons for this:

• If you are buying wine as a gift and you don’t know anything about wine, it is reassuring to buy an expensive wine;
• Some people want to be known as wine connoisseurs, and they believe that buying expensive wines will make others think they are wine connoisseurs.

The US Wine Market

The overriding point about the US market, made in an earlier article, is that wines from Argentina, Australia, Chile, New Zealand, South Africa, are gradually replacing European wines in the US market. Why? Because they are good and cost less to produce than their European competitors. And as the US buyer becomes more knowledgeable, the price edge European (especially French) producers enjoy by using the region, e.g,. Burgundy rather than the dominant varietal e.g., Pinot Noir, to market their wines will decline.

In another article, I reported on a survey of a large liquor store. The conclusion? Liquor stores do not have counter space for more wine. That means a new wine must replace an existing one. A tall order. Going forward, the US market will be hard to break into. It will take an extremely low price or a varietal that catches on, like Pinot Noir (US), Malbec (Argentina), Sauvignon Blanc (New Zealand) and Shiraz (Australia).

Quality

There are a large number of relatively inexpensive wines available from Argentina, Australia, Chile, New Zealand, and South Africa in stores. But my survey article did not include anything on quality. This time I focused on ratings, so we could see the relationship between price and quality. Wine Spectator (WS) is one of several rating sources. WS describes an 85-89 rating as “Very Good”. I personally found most WS wines rated 88-89 to be even better than “Very Good”. WS rates anything over 90 as “Outstanding”. I normally don’t buy a wine WS rates less than 88 and I agree that wines rated 90 or above are normally outstanding. WS rates anything over 90 as “Outstanding” and I agree.

So I searched the WS database by varietal (see below) for wines (2004-2009) costing $10-$15 with ratings of 88 or higher. The findings suggest that high quality, inexpensive wines are available.

Heavy Reds

Under “Heavy Reds”, I looked at Cabernet Sauvignons, Shirazes, and Malbecs.

1. Cabernet Sauvignon

I included French Bordeaux in this category because its primary grape is Cabernet Sauvignon. The second column in the table lists Cabs priced at $10 or less with ratings of 88 or more. 15 fall under this category, led by Australia and Argentina. If we increase the search price to $15, 97 wines appear. For exceptional wines (rated 90 or more), 8 wines appear, 2 from Argentina and Australia, and 4 from the US. In my previous large liquor store survey, I found a total of 86 Cabs in the $8-$16 range, with no reference to quality; more than half were from the US.

The conclusion is there are plenty of high quality, low-priced Cabs available. They are not hard to find inasmuch as well-known brand names are included, e.g., Columbia Crest, Hogue, and Peter Lehmann.

Table 1. – Cabernet Sauvignon

	Rating ≥ 88		Rating ≥ 90
Cabernet Sauvignon	$10 or less	$15 or less	$15 or less
Total	15	97	8
Argentina	5	22	2
Australia	6	24	2
Chile	1	20
France (Bordeaux)		7
Israel		1
South Africa		4
US	3	19	4

Source: Wine Spectator Ratings

Of course, if you are a wine buyer that likes to purchase expensive wines, Cabs are the wines for you. Zachys, a wine auctioneer, is estimating that 6 bottles of Romanee Conti (1990) will be sold in Hong Kong in the HK$460,000-700,000 (US$59,100-90,070) price range, or $9,850-$15,012 a bottle.

2. Shiraz

Australia made Shiraz a popular varietal, and their wines dominate the inexpensive, high quality Shiraz listings. I came upon 56 in my store survey.

Table 2. – Shiraz

	Rating ≥ 88		Rating ≥ 90
Shiraz	$10 or less	$15 or less	$15 or less
Total	6	108	15
Argentina		2
Australia	4	80	10
Chile		9	3
South Africa		11	1
US	2	8	1

Source: Wine Spectator Ratings

There are plenty of good, inexpensive Shirazes available, with 15 rated 90 or more costing $15 or less. Again, well-known brands show up, e.g., Lindemans, Jacob’s Creek, Penfolds, and Greg Norman.

3. Malbec

Argentina has popularized Malbecs, and their wines dominate the wine rating table. Again, good, inexpensive Malbecs are available with 11 rated 88 or more costing $10 or less.

Table 3. – Malbecs

	Rating ≥ 88		Rating ≥ 90
Malbec	$10 or less	$15 or less	$15 or less
Total	11	58	4
Argentina	11	57	4
Chile		1

Source: Wine Spectator Ratings

The $10 or less group includes brand names readily available: Alamos, Doña Paula, and Terrazas de Los Andes.

Light Whites – Sauvignon Blanc

Sauvignon Blanc is the dominant light white varietal. It is also the dominant grape in the French Sancerres and Pouilly Fumés. They are plentiful  in the US – I found 69 of them in my store survey. Table 4 indicates high quality, inexpensive Sauvignon Blancs are widely available, with New Zealand the leading provider.

Table 4. – Sauvignon Blanc

	Rating ≥ 88		Rating ≥ 90
Sauvignon Blanc	$10 or less	$15 or less	$15 or less
Total	16	235	41
Argentina	3	8
Australia	1	8	1
Chile		13
France (Sancerre)		2
France (Pouilly Fumé)		1	1
New Zealand	3	99	23
South Africa		44	2
US	9	60	14

Source: Wine Spectator Ratings

Many widely-known and readily available brand names are represented in the table, including: Babich, Santa Rita, Neil Ellis, and Chateau Ste. Michelle.

Heavy Whites – Chardonnay

Chardonnay is the dominant heavy white grape. There are plenty in stores – I found 78 in my survey. And again, as Table 5 indicates, there is no problem in finding inexpensive, high-quality Chards.

Table 5. – Chardonnays

	Rating ≥ 88		Rating ≥ 90
Chardonnay	$10 or less	$15 or less	$15 or less
Total	19	127	15
Argentina	2	8
Australia	5	38	2
Chile	3	17	2
France (White Burgundy)		7
Israel		1
New Zealand		5	2
South Africa	2	7	1
US	7	44	8

Source: Wine Spectator Ratings

The US has 8 Chards rated 90 or higher, along with 2 each for Australia, Chile, and New Zealand. These 90+ rated wines are widely available. Well-known brand names include: Columbia Crest, Thorne-Clark, and Babich.

Country Competition

Argentina, Australia, and New Zealand became large wine exporters because of one grape: Argentina (Malbec), Australia (Shiraz) and New Zealand (Sauvignon Blanc). There is a marketing problem here: becoming associated with only one varietal. Chile and South Africa do not have such a reputation. This should help them in future years.

Concluding Thoughts

There are people in the world who can actually tell the difference between a Romanee Conti vintage 1990 and vintage 1991. Amazing! For the wine expert, a good part of the enjoyment in drinking wine is the ability to make such fine distinctions.

But the vast majority of people who drink wine (myself included) have difficulty distinguishing between a wine rated 88 and 95 by WS. My suggestion: choose a varietal you like, pay for a month’s subscription for wine ratings -  Parker, Wine Spectator, or some other, to see if you can tell the difference between wines rated very good and outstanding.

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[1] A good source on economic analysis of wine is the American Association of Wine Economists -  http://www.wine-economics.org/journal/.

George E. Johnson (1940-2010)

George Johnson, who spent many years as Professor of Economics at the University of Michigan, died in the spring of 2010.  A man of big appetites, and a fine cook, he was known mainly for his scholarly work in the economics of labor markets.  But he was also one of the pioneers in the economic analysis of restaurants and food.

Johnson earned his Ph.D. degree in economics at the University of California at Berkeley in the mid 1960s.  A native of Massachusetts, perhaps better known for its baked beans than its country pâté, the Berkeley food scene was just becoming home to a passionate interest in food quality when George Johnson passed through it.  The effect stuck.  Like many fine cooks, Johnson thought wine was only a useful addendum to a meal; that is, Cahors was a complement , not a substitute, for cassoulet.

Perhaps Johnson’s best known and most lasting contribution to the world of food economics was his paper, “Petit Déjeuner Compris” – Is It Really Free? Evidence from French and Italian Hotels. The paper established with a remarkably complete empirical analysis that there really is no such thing as a free breakfast, despite the wishful thinking of some consumers.  As Johnson summarized his findings,

“Despite the old claim in economics that ‘there is no such thing as a free lunch,’ some of the recent work in behavioral economics implies the contrary. In this paper I study whether French and Italian hotels actually provide a ‘free’ breakfast when, as is done by many hotels around the world, its provision is included in the room price. The data indicate, using both cross-sectional comparisons and hotel-specific changes in breakfast provision, that there is no such thing as a free breakfast. In France and Italy hotels that offer, respectively, ‘petit dejeuner compris’and ‘compresa la prima colazione’ appear to raise their room prices by 10 to 15 percent.”

Johnson’s paper was published in the Journal of Wine Economics in the spring of 2007 and it was awarded the coveted “Rabelais Prize” when it was presented at the joint meetings of the American Association of Wine Economists, the Association of Food Economists, and the Vineyard Data Quantification Society in Trier in May of 2007.  Johnson served on the Editorial Advisory Board of the Journal of Wine Economics until his death.  His good humor and rigorous research will be missed.

Orley Ashenfelter

August 2010

So maybe wine and liquor monopolies are not all bad!
At least that is the conclusion that Katja Seim and Joel Waldfogel arrive at in their recent
AAWE working paper.

AAWE Working Paper No. 69 Economics
Public Monopoly and Economic  Efficiency: Evidence from the Pennsylvania
 Liquor Control Board’s Entry Decisions
Katja Seim and Joel Waldfogel

They study the liquor control board in Pennsylvania, which is a monopoly provider of wine and
spirits in that state. They conclude that a profit maximizing monopolist would have far fewer
state stores than does the Pennsylvania authority--so maybe wine lovers don't have as far to go
as they might have otherwise had. At the same time, instead of locating adjacent to each other,
as would occur in the usual world of unregulated free entry, state stores offer convenience to
some far-flung locations that would not otherwise be served.

Still, the paper touches only on the aspects of monopoly that affect store locations--and I am
betting that most Pennsylvania wine lovers have far bigger concerns than how far they have to
drive to buy a bottle of chardonnay. What a lot of them would like to know is why do they have
to drive at all? Wine lovers could shop online and have UPS do the driving, in which case store
locations would be irrelevant! Shipping wine into Pennsylvania is, of course, illegal.  

Moreover, since the Supreme Court compelled states to treat wineries in and out of state similarly,
the Pennsylvania monopoly has gone a step farther--it now prohibits intra-state shipping from local,
Pennsylvania producers too! Talk about shooting yourself in the foot.
OC Ashenfelter

The Taste of Wine – Does It Matter? A Global Economist’s Perspective (Part 2)

 by Elliott R. Morss, Ph.D. – www.morssglobalfinance.com

Introduction

 In Part 1 of this 2-part series, I focused on wines being sold in the US with no mention of quality. Here, the focus will be on quality – more specifically, what do we know about what wines people like and why? And what role do prices, ratings, marketing and tastings play in consumers’ choices? There has been considerable research on this question, with much of it reported on in the Journal of Wine Economics. In the following paragraphs, I will summarize the findings and trace out their implications for wine buyers and sellers.

 Price – Taste Relationships

Goldstein et al analyzed data from 6,000 blind tastings – a lot of blind tastings! I quote from their findings:

 Individuals who are unaware of the price do not derive more enjoyment from more expensive wine. …we find that the correlation between price and overall rating is small and negative, suggesting that individuals on average enjoy more expensive wines slightly less….

Lecocq and Visser analyzed data from three data sets totaling 1387 observations on French Bordeaux’s and Burgundies. They report similar findings:

When non-experts blind-taste cheap and expensive wines they typically tend to prefer the cheaper ones.

 They cite the following anecdote:

Ernest Gallo, the patriarch of the family-owned E&J Gallo Winery in California (the largest winemaker in the world), recalls how, in the early stages of his career, he once sold wine in New York. He offered a buyer two glasses of the same red wine, the buyer drank the two glasses and asked for the prices of the “two” wines. Upon hearing that the first wine cost 5 cents per bottle, and the second 10 cents, the buyer declared he wanted the 10 cents bottle. The message behind this anecdote is confirmed by many wine auctioneers who have noticed that in the auction room higher wine prices act as a stimulant rather than as a deterrent, thereby reflecting that for bidders, part of the pleasure is apparently to know that a wine is famous and very expensive.

 Goldstein et al report a similar finding from earlier research that both trained and untrained tasters favored wine they knew in advance was higher priced.

 Overall, Lecocq and Visser conclude taste has very little to do with wine prices:

 Our results indicate that characteristics that are directly revealed to the consumer upon

inspection of the bottle and its label (ranking, vintage and appellation) explain the major part of price differences. Sensory variables do not appear to play an important role.

 Ratings and the Raters

Goldstein et al raise questions about whether wine drinkers should put much stock in ratings and raters:

 Our results indicate another reason for why the average wine drinker may not benefit from expert wine ratings: he or she simply doesn’t like the same types of wines as experts. This is consistent with Weil (2001, 2005), who finds that even among the subset of tasters who can distinguish between good and bad vintages, or reserve or regular bottlings, they are as likely to prefer the “better” one as the “worse” one.

The Raters: Who To Believe?

Dom Cicchetti analyzed how three “experts” rated Bordeaux wines in 2004. The experts were Robert Parker (RP), Wine Spectator (WS), and Jancis Robinson (JR). Using “agreement” statistics Cicchetti developed with other academics, he concluded that RP and WS were in fair to average agreement on their ratings, while RP and JS got a very poor agreement rating. I quote from the study. Aside from the overall agreement ratings, here are a couple of examples on specific wines: RP rated 2 wines above average that JR rated as unacceptable and RP rated 19 wines excellent that JR rated as only average.

Richard Quandt had an interesting observation on raters and disagreements by comparing them to the Liquid Assets Wine Group:

…the Liquid Assets Wine Group: a stable group of eight persons who have been doing regular, blind wine tastings for about ten years. They are all experienced wine drinkers and yet in many cases (not in the majority of cases but in a sizeable minority) the disagreements are substantial. The relatively ideal conditions of this group do not hold for wine writers who, with rare exceptions, do not taste the wines that they write about blind, nor do they taste the same set of wines together on the same occasion, and hence their views are, at best, compromised.

 Findings

 So what does this research tell us so far?

• Price is not a good proxy for wine drinkers’ tastes. If anything, it appears that most wine drinkers prefer less expensive wines.
• Experts frequently disagree on their ratings. One expert rates a wine above average while another finds it unacceptable.
• How a wine tastes has little to do with how a wine is priced. The primary determinants of price appear to be ratings and what is written on the front label.

 Should we believe these findings? The sample sizes and research methodologies appear to be acceptable, but there is an important problem: the make-up of the sample.  Most of the data were drawn from high-end Californian and French Burgundy and Bordeaux wines. Virtually no research has been done to date on what I will call the “new” New World wines (NNWW), defined as the New World excluding the US: Argentina, Australia, Brazil, Chile, China, New Zealand, and South Africa (what ever happened to Eastern European wines? They entered the US market before NNWW).

 The sampling problem in the research findings is of fundamental importance. For most people, the challenge is not to be able to distinguish between a  2005 A. Rousseau Gevrey Chambertin Clos St. Jacques and the lesser 2005 Alain Hudelot Noellat Nuits Saint Georges. Rather, the question is which among the excellent and less expensive wines arriving from the new wine countries tastes better. Note that “being able to distinguish between” is a form of expertise. It is different than asking “what tastes better”.

 The transition from European and US wines to NNWW wines is underway. Gokcekus and Fargnoli examined the Wine Spectator’s annual Top 100 lists, published since 1988. During that period, the average real price of the Top 100 decreased from $43 to $26, with quality unchanged at about 93 points. The number of countries included in increased from 6 to 12 countries. Their quantitative analysis found that when a NNWW replaced a European or US wine, the average real price of the Top 100 list falls by 2.5%.

I concluded Part 1 of this series with the following quote:

10 years ago, it was difficult to find a reasonably good wine for $10. This is not true anymore. Good $10 wines are available for every varietal.

In the following paragraphs, I explore the implications of this observation for wine consumers, restaurants, and liquor stores.

Consumers – Finding Out What You Like

Let me start by saying the evidence presented above suggests many consumers like brand names, expensive wines, wines with 90+ ratings, etc., and they subjugate taste to these factors. OK. Who is to challenge a consumer’s criteria for selecting a wine?

But for taste, I suggest the following process.

1. First, choose one of the following four wine characteristics and varietal:

• Light White (Sauvignon Blanc);
• Heavy White (Chardonnay);
• Light Red (Pinot Noir);
• Heavy Red (Cabernet Sauvignon).

2. Subscribe to some wine rating service (just to give you a frame of reference).

3. Take your varietal choice to a large liquor store where prices seem reasonable (avoid small stores – there are real economies of scale in selling wine). Tell the sales person you want to try a few from your varietal choice costing no more than $14. The next time back try another sales person. In a reasonably short period, you will find someone who has a pretty good sense of what you like. You are on your way!

A Concrete Example – My Own Journey

Many years back, my favorite wines were White Burgundies and then Italian Barolos. But for 15 years, I have focused on heavy reds. Most French and American Cabernets were too expensive for me, so I bought French Rhone blends that to this day remain quite inexpensive. I had an inherent distrust of liquor store salesmen, so I purchased a subscription to the Wine Spectator (WS) online ratings. For three years, I did not enter a liquor store without a spreadsheet from WS for the varietal I was shopping for. In my WS database search I filtered on price ($25 or less) and quality (an 88 or higher rating).

The Australians were making their marketing push for Shirazes, another heavy red, at very low prices. I could get the Rosemont Shiraz for only $8 and a Rosemont Cabernet/Shiraz blend for the same price. Then WS rated Yellowtail “The Reserve” Shiraz at 90. I could get it for $10. So I did a blind tasting with friends. The Rosemont Blend won, followed by the Yellowtail. Great: two good heavy reds for $10 or less. I then said am I missing something by not drinking more expensive Shirazes? WS rated the Schild Shiraz at 96, a very high rating. Amazingly, I could get it for $25 a bottle! Another blind tasting with friends. Nobody singled out the Schild as exceptional against my $10 Shiraz selections.

I did the same thing with Malbecs. I started with the Rutini Trumpeter rated 89 by WS available for less than $8. For comparison, I chose a Cantena Zapata available at $25 and an Achával-Ferrer Finca Altamira at $112. In blind tastings, the Cantena was better than the Trumpeter, but the Altamira tasted no better than the Cantena.

Note my descriptive terms for wine: “won, “was better than”. I have problems with the professional tasters’ descriptive terms. For more on this, see Quandt’s excellent “On Wine Bullshit” article referenced above.

But for your taste determination, note my method, not my selections:

• choose a varietal;
• use a rater to keep you from wasting money on very bad wines;
• start with low-priced wines and work up; and
• always do blind tastings (not hard – just don’t look while someone positions the wines in front of you).

I repeat: in buying wines, you might not care about taste. I know someone who likes the proprietor of a wine shop, and he is happy with anything the proprietor recommends. A friend of mine wants to be known as someone with expensive wine “tastes”. He never buys a wine that costs less than $25. Ok, fine with me! I drink his wines whenever he asks me over without complaining.

But if you care about taste, I urge you to use the method outlined above.

Implications for Wine Sellers (Restaurants and Liquor Stores)

You have a tough task. You have to please all your clients, so you have to have expensive and inexpensive wines, wines with recognizable names and labels, and wines from all over.

I will only offer this:

1. The era of European/US dominance in wines is over. Prices are coming down as the new countries perfect their wines. You can be out in front on this by featuring lower-priced new New World wines;
2. Consumers are becoming more knowledgeable, and as they do, the demand for less expensive wines from the NNWW countries will grow.

Bibliography

 Cicchetti, Dom, “Documented Disagreement Among Wine Experts: A Rational Response for Consumers”, prepared for the 2010 Annual Meeting of the American Association of Wine Economists. 

 Gokcekus, Omer and Andrew Fargnoli, “Is Globalization Good for Wine Drinkers in the United States?” Journal of Wine Economics (JWE), v. 2, no. 2

Goldstein, Robin, Almenberg, Johan, Dreber, Anna, Emerson, John W., Herschkowitsch, Alexis, and Jacob Katz, “Do More Expensive Wines Taste Better? Evidence from a Large Sample of Blind Tastings”, JWE, v. 3, no. 1.

 Lecocq, Sébastien and Michael Visser, “What Determines Wine Prices: Objective vs. Sensory Characteristics”, JWE, v. 1, no. 1.

Quandt, Richard E., “On Wine Bullshit: Some New Software?”, JWE, v. 2, no. 2.

Welcome to the NEW Wine and Food Economics Blog site.  Posts from our former blogsite will be imported in a short period of time.  These historical posts contain some excellent and valuable information.  Enjoy and feel free to comment and/or send your own posts.