Monday, January 26, 2009

What is the real cost of Petrus? The Revue du Vin de France analyses the cost of wine production...and an Italian producer accepts the challenge.

In its January issue the "Revue du Vin de France" investigated on one of the best kept secrets on earth....the cost of wine production and the relation with prices, notably for famous wines.

The magazine has selected some of the most desired french bottles (Chateau Petrus, Dom Perignon and a Roumier cru) and a low-price bottle to investigate what is their cost and comparing this with the retail price.

The results are extremely interesting from several points of view: first of all it is clear that the costs of production and vinification are rather limited even for the most important wines and even (and including also other costs for the producers: administrative cost, machinery depreciation, marketing/publicity..).

For example let's take Chateau Petrus, one of the most expensive wines on the planet and a bottle that not many people can experience in life. The magazine has analysed the various elements of the cost of a bottle of Petrus and the final cost of a bottle of Petrus turns around 30 euros (of which 10 euros only for the bottle and the etiquette, a special anti-fraud etiquette). 30.000 bottles of Petrus are produced each year. The 2005 vintage was sold by Petrus at 450 euro and can be found now at 4500 euros at retailers. The wine represents then an enourmous source of profit for the Moueix family who owns Petrus, for its combination of moderate production costs, high price and a good number of bottles produced per year.

If we take Dom Perignon, the most famous cuvée of Moet Chandon, the total cost amounts at 17-22 euros (with a largest share for advertising, 5-10 euro, entirely different from Petrus, which does not spend on publicity and focus on the character of rarity and exclusivity). Due in particular of the enourmous number of bottles produced (5 millions per year) at non prohibitive final price (the bottle leaves the property at 75 euros and has a retail cost of 130 euros), Dom Perignon is a golden toy for Moet Chandon.

In both cases (but obviously in particular for Chateau Petrus and for other expensive wines), it is clear that the final retail price has no relation with the cost of the wine, and that we are in presence of a marketing operation that is simply making some wines less accessible and...much more profitable for a few producers.

But....we knew all this and this is not the key issue of the investigation of the Revue du Vin de France. What is really impportant is to have started the discussion about the cost of wine production and this will have an impact in particular for wines which are more accessible and are not managed by a speculative market but with prices decided by the producers.

What is the reaction of wine producers?

An Italian wine producer, who is running an interesting blog and is particularly involved in various aspects of wine policy, Giampaolo Paglia of Poggio Argentiera, has taken the challenge and has profited from this opportunity to ensure transparency about his costs of production and also his selling prices (a key issue in order to understand the final price of wines, where intermediaries foten take a large part). Here in his blog, Giampaolo Paglia unveils the cost of some of his wines (highly prized by most Italian wine guides), with great details for each cost item.

Giampaolo Paglia has done a great job and an immense work in favor of transparency, both for unveiling his production costs and his selling prices. In particular in a moment of crisis, where consumers do not want to pay excessive prices for wine bottles, it is important that other producers follow Giampaolo Paglia's example. There is the need to establish more trust between consumers and producers and also to put more responsibility on the shoulder of the rest of the chain, notably wholesalers, final retailers and restaurants.

With regard to the latter, Giampaolo Paglia proposed to print the selling prices on his bottle's etiquettes. This would allow even more transparency.

Provocation? Perhaps it is if we know how un-transparent is the price system and how much in particular restaurants charge wines. But it is a very good provocation indeed and would provide in particular Belgian consumers with a greater power not to accept the standard practice in belgian restaurants to multiply the price of the wine by 5-6 times (in Italy the situation is different: have a look at the wine list of Ristorante Bovio in Piedmont and you will see that you can afford a good bottle for 20-25 euros and a barolo for 50 euro, usually twice the basic price).


John said...

What do you think about Priante of Castel di Salve? It's a wine of South Italy, Salento. All wines are in a italian site

Vinonostrum said...

If you have taken any initiative to make public the cost of your wine and/or the cellar price of the bottle this would be welcomed.