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03.04.09

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Wine $$ 101

By James Knight

What's in wine? Bottled sunlight, poetry, the song of the soil? Naturally. Apart from those fine things, we sometimes stop to wonder, how much cold cash doth a bottle contain?

The vast disparity in wine prices is delightful mystique for collectors, frustrating opacity for everyone else. Between mass-produced and artisanal products, we allow some variance. Take cheese. The manufacture of cheese demands no small commitment of labor, machinery and animal husbandry. A brick of Jack costs $4; artisanal Andalusian goat Gorgonzola, say, eightfold at $34 by the pound. And yet, the hills of dairy country are not studded with Tuscan dairy villas.

With wine, prices vary something stupid. If it's all just rotted grapes sealed with tree skin, what makes the difference? Short answer: Not all grapes are equal. Longer answer: Unequal grapes get unequal treatment. To find out what this means, let's build our own hypothetical bottle of wine.

The Juice We can squeeze about 750 bottles from one ton of grapes. The 2008 California Crush and Harvest Report tells us that the average ton of Napa Cab sells for $4,450—$6 worth of juice in the bottle (with prices above $10,000 not uncommon). Let's buy some Sonoma County Pinot Noir at $3,000. Our per bottle cost is $4.

The CaskNew oak barrels cost from $600 to $1,200; used barrels, about $100 to $300. Let's go 50-50 on some old and new, high-end lumber: $2 per bottle.

The Flask The pricier the wine, the more costly the corks, foil, label and glass. Bottling costs, even without using the most expensive materials, could be $3.25 per bottle.

We're already up to $9, and haven't even rented a warehouse to make the stuff in—let alone built our Tuscan villa. We also need a crusher, press, stainless steel tanks, hoses, clamps, duct tape and beer, a crush crew and tasting room staff.

Let's turn to John Kelly, detail-driven wine wonk and owner of Westwood Winery, to fill in the gaps. "The burn rate for a small winery—say, 2,500-case annual production—is likely to be at least $500,000 and probably $1 million or more a year," Kelly says. "Break-even requires revenue of at least $17 to $34 per bottle." Let's take the low figure. After the distributor and retailer add their take—voilą: a $40 bottle. Are we rich yet? We got maybe $1.

So does it follow that $100 bottles contain corresponding value? Well, no. A wine-consulting insider who declined to be named explains, "Other than historical or purely exceptional bottles, the reasoning behind $100 bottles is twofold: exorbitant real estate costs and modern business models—and a bad habit of trying to become a 'cult' wine right out of the gate." The only way to make that $5 million dream pencil out to investors is to charge exorbitant prices without first building a reputation, often by hiring a celebrity winemaker to infuse it with instant cachet. Some more established producers price their wine so that they can get on that wagon. "I would say [it's] probably 50-50 between these two categories," estimates our insider.

Leaving aside Almaden and company, most quality wine from North Bay appellations retails from $12 to $60. Within that spread, it appears that consumers are getting what they paid for. Much beyond that, they just might be investing in shares of scarcity, prestige, vanity and hope.


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