A recipe for expensive wine

The biggest factors influencing icon Australian wine prices is the strength of the US $ and wealthy American consumer. But as Tim Shaw says, “wait, there’s more,” but we will get into that in a minute.

As a generalisation, in the US people are judged as being successful by the amount of money they make. There is a large number of Americans that most people in OZ would regard as wealthy; nothing wrong with that. Also in America, “consumption” is seen as a measure of success and the more you consume, the more successful many people will regard you.

On the other hand, in the UK, once again as a generalisation, “background” is highly regarded and more important from a social perspective than wealth. Wine consumption in the UK has been a normal part of life for the middle and upper classes for ages but it’s only a fairly new phenomenon in the US. These are not criticisms, just facts. Wine consumption per head in Australia is 19 litres per head, in the UK it 14 and in the US its 7.4. As you can see the acceptance of wine by consumers in the US is extremely limited and a new facit of society.

Its also important to understand that most Australian wines that sell for say $25 here will sell for $25 in the US, the only change is the fact that the US$ is worth almost twice as much as an Australian dollar. It is also worth noting that US wine tax is much lower than Australian wine tax. The UK wine market is well established with a long history, a huge selection from all over the world, some knowledgeable and mature palates resulting in very competitive wine prices and a reasonably educated wine market. It isn’t a “new trend” in the UK but its acceptance is much newer in the US.

So what’s this all mean? In short wine prices are higher in the US and the opportunity for profit is enormous. If a wine receives a high Parker rating and is in limited supply, the demand goes crazy and the price rockets faster than an Apollo launch. Cashing in on this phenomenon is a dream that is shared by some producers. For years there has been a shift to richer bigger high alcohol wines that will appeal to the newer American palate and many “cult” wines have been born.

Most of the icon wines are the entire crop of the producers’ best Shiraz grapes that results in one batch of wine using all their best grapes. One producer is being very entrepreneurial in trying to profit from this phenomena but playing the game a different way. Instead of blending their top grapes into one wine, this producer is keeping the batches separate and producing a number of much smaller batches and producing a number of different labels. Hence each label produced is even more limited in terms of volume so the wines are even scarcer. This “scarcity” helps to justify a high price as only “x” number of bottles has been produced. There is also a potential added bonus if any of these wines are rated highly, then the opportunity to profit is even greater. Smart marketing when you are going after the US market with a high disposable income and consumers who are attracted by high points and scarcity rather than the value of what’s in the bottle. These producers are chasing a fickle market and not many win. The bigger the potential return when trying to earn a quick buck, the bigger risk. Chances are we will see more of these wines, but will these operations last in the longer term? Most wont.

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This weeks link is a bit of a speciality but a must for anyone thinking about touring the wine regions of South Australia.

Touring South Australia is a great source of information covering everything from wineries to car rentals.

Cheers

Ric