Why are People Spending Large Sums of Money on Expensive Wines When there are so Many High Ranking Superior Wines for less than Fifteen Dollars on the Market.

By James Underwood[i]

11/06/03

In this paper I intend to explore the reasons why people are spending the way they are on wine in the United States. In particular why the spending on expensive high-end

wines and the spending on low grade, poor quality wines.

With in the past decade or so there has been a noticeable increase in wine consumption with in the United States. Some theories suggest this increase started when studies came out to support the fact that a glass or two of red wines a day may lower cardiovascular disease and decrease your chances of a heart attack.[ii] The “French Paradox” which is the people of France with high fat diets having low obesity and cardiovascular disease, paired with their high rates of wine consumption at the heart of the research. Another suggested reason for our newfound interests in wine might be due to the success and marketing of wines form California.[iii]California is the biggest producer of wine in the United States and with in the past thirty years has made their wine market comparable to that of France, Germany and Italy the well-known superpowers of the wine industry. However it happened American’s on a whole are consuming larger and larger quantities of wine at a steady growing rate as our wine culture expands.[iv]

Wine consumption and rating relies heavily on tastes and preferences. Color, fragrance, body, and finish will be deferent to almost virtually every one who consumes wine, so judging and rating wines will always be subject to debate. There are a few authorities with in the United States that have set up rating systems and attempt to safe guard these systems in several ways. The Wine Spectator and Wine Enthusiast for example always due blind tasting and repeated tasting of the same wines with a panel of judges instead of just one or two. They also use a variety of tasters not just the leading experts but also some average novice wine consumers. It is fairly common to see that the majority of beginning wine drinkers has a tendency towards sweet white wines then move gradually toward dryer whites and than to red wines. With exception of Germany and Austria that have the Sweetest wines as the highest ranking most of the rest of the wine community view dry wines as the superior wines.

As the French continues to export only the top ten percent of the wines they produce and American, German, and Italian wine markets pushing high prices for what they consider there finest wines there is a whole other side of the wine market emerging that is producing extremely high quality wine with exceptional rating with very low and affordable price tags that appeal to average and majority of wine consumers. This other side is happening mostly where wine has not been produced before. There are new producers entering the wine market that are specializing and producing top wines quit efficiently. Australia, New Zeeland, South Africa[v], Chili, Argentina, and parts of the United States such as Oregon and Washington are taking the lead in producing high quality wines that compare to the finest the French have to offer. They are releasing wines with ratings that range from 80-95 out of 100 many of which have a price tag of fifteen dollars or less. A favorable exchange rate for the United States may have some impact of keeping these prices down but over all these wines are superior and inexpensive. So why are people still shelling out large sums of money for comparable quality wines?

Why are people spending so much on high-end wine consumption? The first suspected reason would have to be what is called “snob appeal”. People who have money to throw away want the best and most expensive wines to elevate and compensate their status in society. They look to traditional views of the wine community to seek out what they view to be the best to justify their fifty-dollar bottle of wine that carries a ranking of 75 in comparison to the fifteen-dollar bottle of wine that carries a rating of 95. The other reason one might spend large sums of money may be under-education of what is going on in the wine community today. The old theory of you get what you pay for is not necessarily true any more with regards to wine. If more people knew of the high ranking inexpensive wines they would probably opt to consume them on a more frequent basis. Now there is some argument that these newer wines do not carry the same developed complex character that gets achieved through the ageing process of some of these traditional wines. However the majority of the wine consumers will never be able to really tell any deference, even the top rated experts on wine. Also I emphasize that these wine producers emerging are fairly new and it takes time to establish aged wines so in another ten years that argument may lose all validity altogether.

Why are people spending large sums of money on extremely low-end wines? For a lot of people it is an issue of budget they just do not have the money to spend on expensive wines. The truth of the matter is that they are spending the same amount of money on cheep wines that they could spend on quality high-ranking wines. It is more of a matter of under-education in the wine fields. If people knew what they could get for the amount they are willing to spend there would be changes in sales in the wine market.

The big issue is how to educate people on how to select a quality wines that are in the majority of peoples budgets. One possible way is to include such ranking and the source that they were ranked by attached to or on the label of the wine it self. Other means such as advertising would be affective but the majority of these wineries really cannot afford expensive advertising campaigns and those who can most likely do not want you to know about alternative wine selections comparable to traditional high-ranking wines. Publications such as The Wine Spectator and Wine Enthusiast keep no such secrets and promote these wines as a best buy or a best value, but these publications are not in most homes. Promotion by wine and grocery stores is another method of informing the public and occasionally you will see such a promotion in those types of stores.

Why people are spending money on expensive or low-grade wines over all has to be an issue of under-education on wine. With education people could easily switch over to high-ranking wines for less or the same amount of money they are currently spending. This in turn would decrease demand for traditional high caliber wines and in effect lower their prices. Attached is a wine list of high-ranking wines all for fifteen dollars or less.

The Wine institute the voice for Californian Wine Industry,11/07/03

The Wine Spectator,11/07/03

The Wine Lover Page, Robin Garr. 11/07/03

Seale, James L, Jr; Marchant, Mary A; Basso, Alberto Imports versus Domestic Production: A Demand System Analysis of the U.S. Red Wine Market Review of Agricultural Economics, vol. 25, no. 1, Spring-Summer 2003, pp. 187-202

Scott Morton, Fiona M; Podolny, Joel M Love or Money? The Effects of Owner Motivation in the CaliforniaWine Industry Journal of Industrial Economics, vol. 50, no. 4, December 2002, pp. 431-56

Hamman, Johann; Ewert, Joachim A Historical Irony in the Making? State, Private Sector and Land Reform in the South African Wine Industry Development Southern Africa, vol. 16, no. 3, Spring 1999, pp. 447-54

[i] James Underwood is an Economic Student at the University of Akron

[ii] Referenced in Imports verses Domestic production, Seale,James L

[iii] Referenced in Love or Money, Morton, Scott

[iv] Referenced in The Wine institute the voice for the Californian Wine Industry

[v] Referenced in A Historical Irony in the Making?