More on Wine Prices

Two really good articles on the price of wine in the last week.

The first article is from Decanter talks about a report from Silicon Valley Bank, claiming that US wineries should adjust their pricing expectations for fine wines. From the article:

'For that segment of Baby Boomers who have seen their net worth drastically reduced and who have been the prime target of wine marketing for nearly 20 years, a US $50 bottle of wine is now permanently out of the question for a normal purchase,' said Rob McMillan, report author and founder of the bank's Wine Division.
and this:
Only modest sales growth is expected in 2010, leading the bank to forecast a 'price reset' with more sub-$50 wines on the market.

People have (in my opinion, unfairly) complained about overpriced Bordeaux for years, now the same is happening to wine in Napa and Sonoma.

Obviously, this isn't going to affect premiere wineries in any region. But I do think it is time for a lot of wineries to look at their pricing structure, and adjust their expectations accordingly. At the same time, it is important for consumer to appreciate the work that goes into a fine wine. Grapes that are harvested by hand, manually sorted, cold fermented and barrel aged produces a more expensive wine and will always cost more. In my opinion it is worth the extra cost, but it may not be an every day wine for most people.

On a related topic, I think what drives the market for fine wines is an educated population. According to this article in the Huffington Post, US consumers are drinking more cheap wine. From the article:

The International Organization of Vine and Wine predicts that world wine consumption should rise by 4 percent to 246.3 million hectoliters (6.5 billion gallons) in 2009 from an estimated 244.9 hectoliters last year.

"People who want to keep drinking are buying cheaper wines," said Castellucci, noting that holiday season purchasing has not been tallied, and consumption could yet fall.

He said that the United States, second only to France in terms of wine consumption, has "continued to import but with a strong attention to prices."

It is interesting that two reports, showing essentially the same data, came to two different conclusions. In the first report McMillion is encouraging wineries to lower their prices. In the second, Castellucci is encouraging wine producers to hold firm. I don't think Castellucci's advice is realistic. If there is room to cut pricing wineries should do, in the short term.

But, I think the bigger point is that wine consumption in the US is on the rise, which will eventually increase demand for fine wines. There are a lot of $10 wines that I like and drink regularly, but as much as I like my St. Francis Red, it doesn't compare to a Chateau Marojallia or Breaux's Meritage. The more someone knows about wine the more they can appreciate a good wine, so if US consumers continue to drink more cheap wine, eventually they will want to move to the next levels.