I was listening to an interview recently with Thomas Rivers Brown where he mentioned for his “regional cuvees” (his sonoma coast chard, his napa cab) he uses declassified barrels from his single vineyard bottlings. He doesn’t purchase any fruit specifically for these lower cost wines. I’ve heard other winemakers such as Russell Bevan for his Ontogeny red blend say similar things, that their “second wines” (e.g. regional cuvees vs. single vineyard bottlings) are just the barrels from the single vineyard bottlings that didn’t make the cut.
This got me thinking about the economics of these regional cuvees. Say a winery purchases fruit from a premium vineyard for $15K / ton. My understanding is that typical pricing might suggest you need to sell a wine made with that fruit for $150 / bottle to make it profitable (that’s based on the Beckstoffer pricing model of grapes prices at 175x the bottle price / ton, but I think it generally holds). But if you declassify a portion of that fruit and sell it in a $75 Napa cuvee instead of in the single vineyard bottling now you’ve got fruit that’s cost relative to the price of the bottle is twice as much.
How does a winery make money on that Napa cuvee if the fruit cost isn’t that much. Do they just offer it as a loss leader and raise the prices of their single vineyard wines to make up for it? Do they just know that their going to need to declassify a portion of their barrels and builds that into their business plan? Does this suggest that these regional cuvees / second wines tend to be much better value for the consumer than the pricier single vineyard bottlings?
I’d be curious if anyone here in the business or with knowledge of how wineries make these decisions to declassify and price their wine has a view on this.
I wonder if your pricing model already accounts for the fact that some of the barrels will need to be declassified? If it’s supposed to be a soup to nuts multiplier, maybe it does?
The Beckstoffer fruit price is probably not something you can extrapolate from. It’s an extreme outlier.
The declassified lots may not be of the same quality as the stuff in the main bottling. As Justin suggests, the very high bottle/ton ratio you’re assuming may just be for fruit that goes only/entirely into the premium bottling.
There are lots of stories of high-end cab producers who can’t sell everything the could bottle. There’s a lot of declassification. Which means that the supposed value of a lot of that fruit isn’t measured by the price on limited quantity bottlings; you’d have to know what their average bottle price was, including the declassified/second label bottlings.
Setting aside the Beckstoffer pricing mode, assuming a winery is purchasing grapes for a set amount from a given vineyard then putting those grapes into two different bottles, one of which may be priced significantly less than the other would seem to lead to dramatically different cost structures for a single vineyard bottling vs a cuvée.
The original question I was trying to get at is how a winemaker / winery supports such different cost structures. I guess one way to do it would be to blend in a lot of lower cost grapes into the cuvée so the average grape cost in a title decreases, but in the original example of Rivers Marie, if TRB says he all the grapes in his cuvees are declassified from SVD bottlings that cost more than the cuvée it would seem that may not be the answer (at least in that case).
(a) What they’re paying on average for all the fruit. I doubt that they’re losing money.
(b) Pricing to maximize revenue is an old business technique. American Airlines perfected it 25 years ago: Sell as many seats as you can at full list (business customers, particularly last-minute ones), a bunch cheaply with three-weeks advance booking to guarantee minimum revenue, and then a bunch at medium prices with various restrictions. A lot of effort goes into the formulas for those things.
Same principle applies to wine. You probably can’t sell 5,000 bottles of your cab at $175. If you put it all on the market, the price might crater. So you sell a portion at $50 or $70 under another label to limit the quantity and keep the price up on the premium bottling. That’s partly what’s driven Bordeaux prices – second and third labels to reduce the number of the classified growth.
A ton of grapes at $15K makes about 300 bottles of wine, equal to about $50 worth of juice. I guess you could add in just about whatever packaging you wanted and still come under $75 to make something on it.
I think more often than not, it’s the lower priced wines that drive business.
There is a better discussion of Napa cost somewhere on here (Roy maybe) but heaven help me I can’t find it. I did find this where Russell addresses some of his costs. 2012 Bevan Cellars Is Out - WINE TALK - WineBerserkers
Thanks Brian. The info Bevan provides in that thread is very interesting. It shows his costs at over $80 before even adding in other expenses beyond the direct production costs. I think he sells his SVD cabs for around $200, so he can still make a healthy profit in those if he sells direct.
But his Ontogeny blend sells for about $95 or thereabouts. I’m pretty sure I’ve heard Russell say the Ontogeny is made up of barrels from the SVDs that don’t make the cut. But he doesn’t know which barrels those are until he starts tasting through, so I was assuming he’s paying the same cost for all of his grapes.
So maybe the $30k / ton he mentioned he pays is a weighted cost to account for the fact some of what those grapes are going into a bottle that sells for half the price. I’m sure he’s making a profit on the ontogeny, but I’m curious how.
I don’t think wineries 2nd/entry/regional level cuvees use the same fruit as their higher-end or vineyard designate wines. I think they over use some of the same fruit, younger vines from the same vineyards, or different blocks from the same vineyards, but I don’t think Beven Otogeny, Myriad Napa Valley, etc. are just the single vineyard designate wines mixed together. I’d imagine (though, someone more knowledgable could correct me) that wineries purchase fruit from younger vines or certain blocks for less money than fruit from the best portions of the vineyard.
Quick thoughts… Even at $30K a ton for fruit and 600 bottles yield per ton (meaning you’re declassing the rest and not accounting for it there), you’re at $50 a bottle juice cost. That’s crazy expensive but it’s Napa. But thinking that way, the declassed wine is $0 juice cost to the regional wine. Or you might factor it in at a lower number there and shave a little off the $50 number for the top label, say $20 cost for the regional wine and maybe $45 (or however the math works out) for the top label. Then work in production costs and packaging, but they’ll pale in comparison to that juice cost. A top of the line barrel might add a couple or few bucks to the bottle cost. Even the fanciest glass might cost similarly per bottle. That’s a lot, but again nothing like the juice costs we’re talking about. The lower priced stuff likely goes in wider distribution, so you’re selling for a lot less. The sales costs for the first label are likely high, lots of hand work involved in all the customer engagement and ultimately fulfillment. Bottom line, no one in the examples above is losing money on anything. But I’m sure there are some bottlings that are way more profitable and others that, while they aren’t “loss leaders,” are slimmer but perhaps a key to continuing to drive the top label.
I was on a Zoom with a winemaker in the last week or two and they discussed this same issue. There are other factors with the higher end releases. New oak, imported oak, longer aging, free run juice vs second pressing. So even if the fruit is the same, other factors enter into play that add to or stretch a dollar of production cost.