It’s that time of year again. Those few weeks of festivity when self-restraint can go out of the window, when one mince pie becomes two, the normal glass of wine, becomes two glasses which then rapidly becomes gallons. Although this may not be the case for yourself, I am sure the situation is familiar.

Each year I embark on a panic filled mission to buy everything before the shops close for two days of public holiday. This year I am feeling calmer, I have even stopped to consider the price that I am paying for my single glass of wine. It is estimated that 80% of still wine purchased in the UK costs less than £5.00 per bottle, although the recent Decanter World Wine Awards saw judges reach the conclusion that the minimum price consumers should pay for a bottle of wine (after accounting for cost of production and all taxes and duties) is £6.99.

From my experience the price of a bottle of wine gives no indication of its quality, the judges seem to agree. What they suggest is that the difference in quality between a bottle of wine priced at £5.99 and a bottle priced at £6.99 is substantial, whereas the difference in quality between a wine priced at £6.99 and one priced at £9.99 is less clear cut. So if the price of the wine is not determined by quality, then what is determining the price?

Although supply constraints such as climatic variability play a small role in affecting prices as would be expected, the key driver in price movements is demand. Within demand, there are a number of contributory factors. In this article, three types of demand variables are discussed, with an aim to finding whether a single factor influences prices more than any other.

Sensorial attributes

Sensorial attributes are what you’d hear wine connoisseurs discussing. The aroma, finish and harmony of components all contribute to the sensory aspect of wine pricing, and are intrinsically linked to the quality of wine. The problem, of course, is that wine is an experience product and therefore as a consumer one cannot realistically use sensorial attributes to decide whether an expensive bottle of wine is worth its premium. Instead we turn to objective variables.

Objective attributes

Objective variables are perhaps the most easily recognisable attributes, as they are usually displayed on the bottle label. The year of vintage, the denomination, the grape variety and the growth region are all objective attributes. They are not influenced by personal tastes; they cannot be disputed.

Do they tell the consumer exactly what to expect from their bottle of wine? No. What objective variables give is a slight indication. For example, if I know that my favourite grape variety is Merlot and that the year 1997 produced a particularly good vintage, then I can hope that by seeking out these key attributes then I will find a wine that I will enjoy. The drawback here, of course, is that a consumer needs to establish an understanding of their own tastes. Before these are established, consumers rely on the reputation of given wines.

Reputation

Reputation is the variable that in theory should have no bearing on the price of wine, for it gives no indication of the quality of a single bottle. It is surprising, therefore, that the reputation of a named wine is often considered to be the most important factor in driving wine prices.

It is also interesting to note that the collective reputation of a region or group of producers is as effective as the individual reputation of a wine or producer. To this end, branded wines drive the mainstream UK market. This reliance on brands and reputation has led to concerns that quality and choice within the UK market is in decline, with recognisable brands pushing out higher quality, lesser-known wine varieties and vineyards.

So where does this leave us?

With sensorial, objective and reputation attributes all affecting wine prices, how does one decide which wine to stock up on over the festive period? If we cannot be guaranteed that buying an expensive bottle will give us a good quality wine, what else can we base our purchasing choices on?

I would say stock up on a number of different wine varieties; be adventurous and move away from the safety of well-known brands. Spend the festive period sampling the different wines and discovering your new favourite, I know I will enjoy rating my wine experience against the price series contain within Datagain!

Have a very Merry Christmas

For detailed market information, you can pre-order our Tender Report on wine, due March 2012 - email sales@mintec.ltd.uk

Dominique Low