Are B.C. wine prices getting too high?
By John Schreiner
September 8, 2007
During a recent radio phone-in show where I fielded wine questions, three callers within a 20-minute period complained about the rising price of British Columbia wines.
This is a higher than usual number of complaints on pricing. It might be warning signal to British Columbia wine producers. There is a rising perception, even among winery owners, that our wines are getting expensive. One such owner recently told me: “Quality and price are not related in this valley at the moment … If a winemaker has a big ego, the customer has a big problem.”
Perhaps the industry should address this perception before it starts to lose customers to (for example) Chile, Argentina and resurgent Spain.
What is driving the perception is a relatively small handful of B.C. table wines being offered at anywhere from $45 to $100 a bottle. These are usually small lots, seldom more than 500 cases of handcrafted wines aimed at the collectors – who are not the ones complaining about the prices.
In any luxury goods field – and wine in North America is seen as a luxury good – there are rare and expensive products aimed at the social set that hangs around with the Sultan of Brunei. Volkswagen makes a $1.5 million car, the Veyron, with a 1,000 horsepower engine, and a production run of 300. That does not make all Volkswagens ridiculously impractical.
It is the same with wine. According to the latest annual report from the British Columbia Wine Institute, VQA wine averaged $16.72 for a 750 ml bottle in the 12 month period ended March 31, 2007. And that is up only 34 cents from the previous year.
To be sure, the price of B.C. wine is rising. Eight years ago, the average price of a bottle of VQA wine was $14.41. Even so, a rise of less than $2.50 a bottle in eight years hardly qualifies as gouging.
There are several reasons why prices are edging upwards.
First: the rising price of grapes. Wineries own or operate 70% of British Columbia’s vineyards. There has been mad scramble among new and growing wineries without enough of their own fruit and this is driving up grape prices at the 30% of vineyards that are independent.
The average price of Merlot last year, as reported by the BCWI, was $2,032 a ton. The report does not show the range of prices paid for Merlot, however. Figures from another source show that in 2004, superlative Merlot fetched as much as $4,571 a ton. The rule of thumb is that the winemaker buying those grapes would need to charge at least $45 for his bottle of that Merlot.
The expensive bottles of wine that we see are being made with expensive grapes. The prices are high not just because there is competitive bidding for top grapes. Those producing such superior fruit necessarily keep tonnages low. To maintain a decent return per acre, they need to get more for their limited tonnages.
Second: vineyard land has become extremely expensive in the Okanagan. One vineyard owner on the Naramata Bench argues that a viable winery needs to be based on a vineyard costing no more than $50,000 an acre (unless the winery is adding to vineyard acreage bought several years ago at a sensible price). Okanagan vineyards are selling for $100,000 an acre, if not more. Good California vineyard land is cheaper.
This means that anyone starting a winery now in the Okanagan needs to price the wines aggressively if there is to be any hope of getting a return on the investment. Of course, some winery owners – by no means all - are in it for the lifestyle after having made fortunes in other businesses.
Third: to quote one winery owner, prices are being increased “because we can.” In the last few years, the majority of wineries have sold everything they made and have had restaurants banging the doors down for more wine. Wineries are responding to basic laws of supply and demand by rationing demand with higher prices.
It is not prudent, in any case, to under-price wines. One Okanagan winery that has been notorious for changing less than its wines are worth caved in to its agent this year with $1 a bottle increases across the board. The agent pointed out that consumers and restaurants would conclude that, since the wines were cheap, they are not very good.
As well, restaurants usually don’t list $12 wines when there are $20 wines available. The reason is obvious. Most restaurants mark up wines 100%. The gross profit on a $12 wine is $12; on a $20 wine, it is $20 – and the server gets a bigger tip.
Wineries don’t need a big marketing department or a high-powered agent to keep wine prices current. Hillside Estate Winery owner Bill Carpenter often gets his staff together on Thursdays for peer tastings to see how Hillside wines stack up for price and quality against other wines.
“We also do comparative tastings,” says Pam Luckhurst of Golden Mile Cellars. “We look at how ours stand up to these other wines as well and where the price points are.”
As far as I can tell, there is not much industry-wide effort to reinforce the view that some of us have: many British Columbia wines deliver as much value as comparatively priced imports. On the other hand, a marketing program like this from the big commercial wineries would be a two-edged sword. They all have brands blended with imported wine and priced to capture consumers who think VQA wines are getting expensive.
One classic example is the Jackson Triggs White Label Merlot, which retails for $7.99. According to the B.C. Liquor Distribution web site, there are 3,000 cases of this wine spread across 173 stores. Don’t expect price complaints from consumers who think this is a British Columbia wine.
John Schreiner is author of British Columbia Wine Country
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