Tuesday, 3 October 2017

How You Should Buy Wine

An advert from a company called Naked Wines came onto my newsfeed this evening, stating that:

"The average £5 bottle of wine sold in the UK only contains about 40p worth of wine. The rest goes on marketing, duty, shipping and packaging. Spend £10 and you get £2.76 worth of wine - SEVEN TIMES more. That’s because every single extra penny is now going towards the juice."

True or false? Well, while one can acknowledge that this is a marketing ploy from a company that appears to be doing very well, there is some truth in it. Given that a proportion of wine's retail price goes towards marketing, duty, shipping and packaging, you will get qualitatively better wine if you spend a few pounds more.

But only up to a point - you'll get to a stage, probably in prices that exceed around £25, whereby you are trading off additional quality for enhanced brand reputation, and it's not always worth it. As we know from past testing, it’s unclear whether anyone can actually tell the difference between a £2,000 Lafite Bordeaux and a £10 bottle of Merlot, as blind tastings and academic studies demonstrably show that neither nascent consumers nor so-called expert judges can consistently differentiate between fine wines and cheap wines, nor identify the flavours within them. So choose your wine carefully - not too cheap but not too expensive either.

To finish, I want to tell you something in economics that may interest some of you. It's to do with how the ancillary charges attached to wine actually create a surprising truth about who drinks the best wine. Consider Burgundy wine, which is shipped from France to the UK. Now ask yourself this question: where do people, on average, drink better Burgundy wine, France or the UK? The obvious answer is France, since that's where the wine is produced. But like many obvious answers, it is likely to be wrong. In actual fact, there is a good reason why people, on average, may drink better Burgundy in the UK. Here's why.

Let us suppose, for ease, that there are only two types of Burgundy wine - wine A and wine B. Wine A is very nice and wine B is quite nice. In France, wine A is £8 per bottle and wine B is £4 per bottle. The relative price of a very nice wine in France is two bottles of quite nice wine. The opportunity cost of a Brit drinking wine A is not drinking 2 x wine B.

However, in the UK the price of wine involves the price of shipping large quantities of wine. Suppose it costs £4 per bottle to ship wine from France to the UK; A Brit must pay £12 for a bottle of wine A and £8 for a bottle of wine B. The relative price of wine A in the UK is only 1.5 x wine B

In other words, a French person who chooses a bottle of wine A passes up 2 bottles of wine B, whereas a Brit who chooses a bottle of wine A passes up just 1.5 bottles of wine B, making wine B more attractive to a Brit than a French person. Because of this, the average quality of Burgundy wine in the UK will likely be higher than it is in France.

Now on that note, drink and be merry, and enjoy your not too cheap but not too expensive wine!! :-)