The Hidden Equation Behind Expensive Wine

Posted: Mar 24, 2018

Lettie Teague looks at the psychology of wine pricing, the fluid definition of pricey and what a wine-list mark-up actually pays for...

WHAT'S AN EXPENSIVE wine to you? I asked my husband a few weeks ago. "Anything over $35," he said-a figure $40 lower than my own threshold. According to Karl Storchman, a professor of economics at New York University and the managing editor of the Journal of Wine Economics, income is a key factor in determining what wine drinkers deem expensive. "Income drives perception," he said. My husband and I handle our finances jointly, so how could his perception and my own be so far apart?

Perhaps it's because income is only one part of the equation. While the overall budget of a wine drinker-or wine-drinking couple-might determine a wine budget, other factors, such as emotion and context, can exert a powerful influence. The same $75 bottle of wine that seems expensive in a bistro might seem like a deal in a Michelin-starred restaurant. People who rarely buy wine might also have a lower price threshold. What most affects whether wine drinkers deem a bottle expensive? I decided to take a casual poll.

The wine's intended recipient is the biggest factor for my friend Bruce. If he's purchasing the wine for himself, he'd consider any bottle over $30 expensive, but if the wine is a gift for a friend, then the expensive range starts "around $50."

'Annual income, context and emotion can all affect whether wine drinkers deem a certain bottle 'expensive.''

New York-based wine collector and attorney Jay Hack also rates any bottle of wine priced over $50 retail as expensive. (Mr. Hack and his wife, Rebecca Schenk, are more closely aligned than my husband and I are on this matter. Expensive for her is over $40 a bottle.) But Mr. Hack made it clear that he considers just about all wines on restaurant wine lists "expensive" because he knows how much they're marked up. "I get annoyed when a $35 bottle costs me $100," he wrote in an email, and added that he would rather spend that amount on a luxury food like foie gras or caviar. In restaurants, he prefers to keep his wine purchases at $75 per bottle or under, unless he finds a wine that's a particularly good deal-i.e., not excessively marked up.

Restaurant mark-up is a particularly thorny topic for wine lovers. I've seen New York wine lists where wines are priced at five times the wholesale cost. While some mark-up is necessary-three times wholesale is generally considered acceptable, to cover the cost of service-the wine list is too often treated as the restaurant's prime profit center. To my mind, marking up any wine five times is extortion pricing.

Wine directors and sommeliers know better than most just how much wines are marked up in restaurants. When dining out, what do they consider expensive? For Alexander LaPratt, wine director/managing partner of the restaurants Atrium DUMBO and Beasts & Bottles, both in Brooklyn, an expensive bottle is anything over "$110 or $120" on a wine list-a few dollars more than the $100 he said Atrium DUMBO diners typically deem the start of the pricey zone. But as Mr. LaPratt pointed out, the type of restaurant matters as well. When he was working in Michelin-starred Manhattan restaurants, his dollar figure-and that of the restaurant guests-was closer to $200-$250 for an "expensive" wine.

As Mr. LaPratt noted, the elevated price of the meal informs how "expensive" the wine might seem. When you're paying several hundred dollars a person for a Michelin two-star prix fixe menu, the price of an "expensive" bottle rises accordingly. And that's not merely perception. Wine prices tend to begin and end much higher at a Michelin-starred restaurant than they do at a neighborhood bistro. For $250 a bottle, Mr. LaPratt expects the wine to be one the diner could not readily find-a small-production bottling available in limited quantities-served in appropriate glassware by a knowledgeable professional.

There's also the matter of where the wine buyer lives. When my friend Jamie lived in Manhattan she considered any wine over $22 retail expensive. When she moved to North Carolina she lowered that by $5 because she found everything else to be cheaper in the South.

Daniel Bishop, general manager of Locanda restaurant, feels that in San Francisco the price of an "expensive" wine has been escalating recently. This didn't surprise me. After all, San Francisco has the highest median rental cost in the country, according to Abodo, the apartment listings website, and is one of the priciest cities in the U.S. in most other respects as well. Mr. Bishop's customers have a "$80-$100 threshold" before they consider a wine expensive, he said, but he's noted that the threshold rises with certain types of wine-most notably Pinot Noir, Cabernet and Nebbiolo, the grape of Barolo and Barbaresco.

This holds true for Charles Massoud, owner of Paumanok Vineyards on the North Fork of Long Island. While he generally considers a wine that costs more than $50 retail pricey, he will pay a lot more for a bottle of Burgundy and not necessarily deem it expensive, since he considers the wines of that region the greatest expression of the Pinot Noir grape. "A good Burgundy is certainly worth paying for," he said.

Superstar winemaker Philippe Melka has his own spending rationale, and a higher threshold. It's hardly surprising, as Mr. Melka makes some of the most acclaimed and expensive Cabernets in Napa Valley. Many of his wines cost hundreds of dollars a bottle retail. For Mr. Melka, any wine over $250 retail and $500 on a restaurant wine list is expensive. But he believes it's worth the expense in both cases, because a good bottle of wine is "about building memories."

According to marketing guru Rory Sutherland, vice-chairman for advertising agency Ogilvy & Mather in London, we all have our ways of rationalizing what we're willing to pay-a phenomenon those doing the selling do their best to exploit. "How you frame things really matters," said Mr. Sutherland in a TED x talk held in Athens, Greece, in 2011, titled "Perspective is Everything."

He offered an example of drivers paying a high or low toll for a road. An express lane could be set up for drivers willing to pay double to speed through the tolls. "Time means more to some people than others," Mr. Sutherland noted. People driving to a job interview consider their time more valuable, perhaps, than those on their way to their mother-in-law's house. (And yes, the old mother-in-law line got a laugh from his audience.)

To further ensure that the people who paid twice as much to bypass the tolls would not resent their higher payment, Mr. Sutherland suggested "reframing" the demand for extra money by specifying a charitable cause the surcharge would benefit. "Where economists make the fundamental mistake is they think that money is money," he said. But Mr. Sutherland believes consumers care about where and how the money is spent.

When some wine drinkers "reframe" the high(er) cost of a wine, they take into account other factors-whether it's purchased for a friend, consumed in a four-star restaurant in New York City, or a fancy Pinot Noir-beyond the mere dollar figure.

In my experience, the frequency with which one buys wine can shape perceptions as well. Shopping for bottles is part of my job as a wine columnist, so I'm well versed in current retail prices and can gauge the mark-up on a wine list accordingly. My husband doesn't go wine shopping very often, and he usually turns the wine list in a restaurant over to me. If he knew firsthand how much a good bottle of Burgundy costs, then maybe our respective figures for "expensive" would be in closer accord.

As it is, my husband is happy enough that his wine-columnist wife considers choosing wines her prerogative. It means he gets to drink pricier wine without feeling guilty over how much it costs.

By Lettie Teague
March 22, 2018
Source: WSJ

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