To know if wine is too expensive, clarifying a few issues is a starting point: for who is wine too expensive? And which wines are too expensive? The wine industry is broad and includes many different players (producers, importers, distributors, retailers and end consumers among others). Looking at statistics, it seems that average export prices per country are very reasonable. However, many elements contribute to make wine very expensive (brand name importance, importer/on-trade margins, taxes and customs duties, political changes). But the industry at many levels is making efforts to keep wine affordable for both clients and consumers alike.
When looking at export, average prices seem very affordable and contribute to the idea that wine is not too expensive.
Spain is selling its wine at an average price of 1,15 € / liter. South Africa at 1,4 €, Chile at 1,83 €/l. Only France and New Zealand are selling their wines for a superior average price (5,83 and 4,84 €/l respectively). Even when comparing price evolutions between 2015 and 2016, some countries have even registered a drop in their overall export prices: -1,69% for France, -2,24% for Chile, -6,36% for South Africa and -0,95% for Portugal among others). Source of all these data: OIV/GTA. This might translate into low average wine price consumption, like what happens in the UK. According to a recent study (Source: Wine & Spirits Trade Association / Nielsen) made in 2016, comparing 2014 and 2015 data, 80 to 85% of all wine sold at retail level in the UK was sold under 6 GPB, with the majority being sold in the 4 – 5 GBP range. At that price level, one cannot say that wine is too expensive since it allows the majority of wine drinkers to have access to a decent bottle of wine at an affordable price.
However, on top of average export prices, many elements contribute to increase that seemingly affordable price of the wine for most people.
First, duties and taxes in many countries render the price of the wine very expensive. In China, when custom duties, excise duties and Value Added taxes are added, all these together account for over 48% of the price of the import price of the wine (Source: China Business Magazine). The same kind of increase happens in Brazil, where this figure rises to between 44 and 65% on the import price (Source: tariff.wto.org). The variation in percentage depends on the transport duties applied by each Brazilian state to wine. Japan is another case in point. A wine bought at 11,50 € in Lavinia in France can be sold at 21,60 € in Japan, due to importer margins (between 10 and 30%), retailer margins (20 – 40%) and the high domestic logistics costs.
Second, unexpected political events can rise the final price of wine. And Brexit is one of these unexpected political events. Due to the fact that the UK will have to pay the debt the country has with the EU, that it will have to new civil servants to replace those that were directly working for the UK in Brussels - among other costs derived from Brexit – all experts point to the fact that taxes on alcoholic beverages will increase in the UK, making wine a more and more expensive item to purchase.
Third, brand name makes that wines can reach sky high prices, like it is the case for Domaine de la Romanée Conti (DRC), with a mixed case reaching above 18.000 GBP or Petrus reaching 17.000 GBP for a single vintage wine case (Source: LivEx 2016). These are prices that even many wealthy people could not afford any more after the 2008 financial crisis.
Fourth, auctions have also an impact on the price of the wine and play a role in making some wines reach prices well beyond the means of current working people. As recently as a few weeks ago, a 1951 Penfolds Grange wine reached a stratospheric price of 50.000 US dollars for a single bottle in a wine auction in Australia.
Finally, in many countries, the margins that the on-trade channel apply to wine (between 250% and 500 % price increase on the buying price) make the price of wine unaffordable for most in a restaurant. Just because in many cases, the restaurant owners might consider wine as a mean to compensate for low margins on other elements (food supplies) or high personnel costs, wine has an incomprehensibly high price.
In spite of all the above-mentioned elements contributing to making wine too expensive, some industry representatives are reacting in a very proactive and positive way.
At political level, negotiations between countries can keep the price of wines at a reasonable level. For instance, Chile has become the second country to see import tariffs on its wines abolished in mainland China on 1 January 2014 in a move that importers and retailers expected to maintain strong sales momentum – which it did. Other trade agreements do exist in other parts of the world like between the EU and countries like Peru or Colombia where exported European wine is free of any tax since 2012. At more limited and local levels, the on-trade channel (the USA and Canada are cases in point here) has a culture of letting customers Bring Your Own Bottle of Wine, only charging a few dollars as corking fees, thus contributing to keeping the price of wine down. In European countries, where this culture of wine does not exist, the end consumer generally has to pay a very high price for wine. However, some exceptions do exist, like Lavinia wine shops in Europe, where the client having a meal at the boutique restaurant, can pick up any wine in the shop and pay the same price as in the shop with no extra fee charged.
Other general industry efforts worth mentioning to keep prices at affordable levels are the efforts made in terms of sustainability. Environmental, economic and social sustainability efforts can potentially make that a better use of energy and water resources – just to name these – result in lower exploitation costs – among other benefits.
As a conclusion, if generally speaking, most wine sold at retail level show reasonable prices that cannot be considered as too expensive, some external events (political, high industry margins, offer and demand phenomena at auctions) do make that some wines reach stratospheric prices. However, political efforts (in the form of trade agreements between countries), industry culture or customer understanding do contribute to compensate – at least in part – for other excesses making that wine might not be considered as too expensive by clients and customers alike.