Why are Some Wines So Expensive but Others Aren’t?

Considered a luxurious good until not long ago, wine was especially considered to be a “drink of the wealthy” hundreds and even thousands of years ago. It represented the higher class and distinguished people. Relationships between empires were developed and maintained through sending wine as a gift, kings would show their power through serving the most expensive and most rare wines to their visitors, and even the population morale was kept up by using wine during celebrations and events.

In today’s world, wine is still playing a major part in the lives of many people. Most of the people tend to go with wine as a gift when invited to visit, as a show of respect – just like in the case of two of the world’s best football managers, when Jose Mourinho gifted Alex Ferguson during a match between their teams in 2009.

You might be thinking about the plenty of extremely cheap wines available in every shop, and you would be right. There are wines as low as $2 a bottle in many countries throughout the world, but the difference –as you probably already know- is not even comparable. In both tasting and health terms, wines can be so different you wouldn’t be blamed to wonder if some of them can even be considered to be wines.

Due to the high demand and consequently, high supply, the wine industry has moved towards FMCG (fast moving consumer goods) industry – so much so, that the cost of producing the wine is now a minor part of the overall cost of wine for producers. Taking an example on the world’s most well-known brand, the cost of producing a can of Coca Cola is merely 30% of the total cost price, whereas 70% goes towards distribution and marketing, and we don’t want even want to think how low the cost percentage is when compared to the actual price of most popular goods.

In a classic case of business expansion, brands are facing an ever-growing amount of pressure to grow internationally and grab larger market share in other geographic regions. Recently, China has been considered as the primary growth market for high-end wines, and most popular wine brands have been focusing their marketing and development efforts towards the China market – Take Chateau Lafite’s strong expansion plan to China as a perfect indicator of how aggressively brands are targeting expansion in China. It is nothing too surprising though, as China’s large population and high buying power has been attracting most of the international business, and will continue to do so for years to come. On the negative side, such occurrences only serve to increase the pressure on boutique wineries struggling to survive. They are pushed into having to use invoice financing to sell uncollected debt from distributors in unfamiliar geographic areas, so they can finance their next harvest.

On the other hand, we have the likes of “Domaine de la Romanee”, “Egon Muller”, and “Domaine Leroy Musigny Grand Cru” and especially the reported $195,000 “Chateau Margaus” bottle in the Dubai Airport among many other wines costing thousands of dollars per bottle. Sure enough, their actual production cost is maybe 1% of the price, but the marketing and branding efforts have ensured the psychological thought of being worth it among the buyers.

On the other side, the champagne industry is not affected by the trend of switching into a FMCG at all. Champagne remains a luxury drink and its price remains high as well. Just like the “diamond is a girl’s best friend” image in people’s heads, Champagne has similarly managed to develop a rock-solid luxurious image of its wine among the buyers. Despite Prosecco’s and Cava’s fair success amongst the younger wine drinkers recently, it is still unable to fetch the premium of what Champagne is able to do. Take Dom Perignon for example, despite the claims that he created the Champagne, it is far from the truth. However, his initial story of “drinking the stars” and claims to have invented it made a beautiful story, and it had unbelievable success – globally as well.

Basically, it is all about marketing – how you create your brand and how you relate to your potential buyers. The way you develop the product into the head of people is the most essential tool for success. Trends do not come out of nature, they are built from professionals and world-beaters.



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