Monday, Sep. 01, 2003

What's the cost of doing business?

By Ken Robertson

Q. What makes the difference between a $50 wine and a $10 wine? Costs of grapes, barrels or what?

A. Probably every wine buff has wondered about that. The biggest piece of the answer is the cost of production. But without a doubt, a part of the answer will be the winery/winemaker/owner’s assessment of what the customer is willing to pay.

Both the grape variety planted and the growing methods chosen affect yields and costs. Chenin Blanc, for example, is prolific, easier to grow than many other varieties and generally requires no oak barrels and only about six months of aging after the crush.

Oak barrels recently were selling for $300 to $400 each for American oak and $500 to $750 for European oak, depending on the strength of U.S. currency. And after two or three years, a barrel becomes little more than a storage device, not something that adds to a wine’s complexity.

Without such costs, an excellent example of Chenin can sell for only $5 to $7 a bottle. The winery doesn’t make nearly as much per bottle as it might on a high-priced red, but can make it up by higher volume and lower expenses.

If a winery buys its grapes from a grower, Chenin traditionally has been much less expensive. Years ago, when the Northwest was growing an overabundance of Chenin, it dipped to $150 to $200 a ton when premium Chardonnay and Cabernet Sauvignon grapes sold for $1,100 to $1,200 a ton. More recently, since many of the Chenin vines were taken out, Chenin has bounced back to $500 to $550 a ton.

But that’s still cheap compared with a short-supply, glamorous red. A few years ago, when Syrah was in high demand, it peaked at about $1,600 a ton. Scott Williams, partner and winemaker at Kiona Vineyards Winery near Benton City, Wash., on the famous slopes of Red Mountain, says that where grapes are grown can add considerably to their price.

The best reds from the slopes adjacent to his winery now command $2,000 to $3,000 a ton — double or triple the statewide price. With lower yields per acre, a little more care in the vineyard, the oak barrels for aging and the bank financing for perhaps four to six times as long before a winery can begin to market a red, its price typically will reach the $25 to $30 range and sometimes twice that.

Christophe Baron, owner of Cayuse Vineyards in Walla Walla, Wash., for example, manages his Syrah plots to produce 2 to 2.5 tons per acre. Statewide, Washington’s vineyards averaged 3.4 tons per acre from the 2000 vintage, which makes it clear the premium wine producer will have to charge more to ensure an equivalent return.

And, of course, yields can vary substantially from year to year. In 1988, Washington’s roughly 10,000 acres of wine vineyards produced 45,000 tons of grapes. In 1991, after a year of harsh weather, yields fell to 26,000 tons on 10,900 acres. So in just a few vintages, yields fell from an average of 4.5 tons an acre to 2.4 tons. The vineyard costs of production certainly were higher in 1991, but yields dropped by 42 percent.

In a year like that, a winery will have to push its prices up or face mighty slim profits. The perverse side of the equation is that a year that stresses vines in the right way can result in a better wine. But stressed in the wrong way, the vines might yield an inferior product.

Let’s go back to our $5 to $7 Chenin Blanc for a good example of how supply and demand, coupled with extra costs in the vineyard and at the winery, can change the price equation. Kiona makes a Chenin Blanc ice wine from grapes grown on a special plot that’s prone to freeze each year, often just before Thanksgiving arrives. You can expect to pay about $20 for a 375-milliliter bottle, about a six- to eight-fold price increase over the 750 ml bottle of ordinary Chenin.

What justifies the price increase? Extra attention while the grapes hang another two or so months in the vineyard, scarcity of similar growing sites and the much smaller yields as the hang time and the freezing suck water from the grapes and leave the delicious, raisiny berries behind.

Williams says when he squeezes Chenin grapes in September, he expects about 180 gallons of juice from a ton of grapes. By the November harvest, that falls to 40 to 65 gallons a ton. By that measure, he should charge three or four times as much for the ice wine before adding in other costs.

Williams is frank. After a wine reaches a $25 to $30 price tag, there’s “absolutely no difference in the cost of production,” he said. The rest of the cost — no matter how high — is the winery’s calculated gamble of what the consumer will pay. Williams doesn’t believe the $50 or $60 wine is guaranteed to be better than the $25 or $30 wine.

His 2000 Washington Cabernet Sauvignon, priced at $25 incidentally, is evidence of that. It was rated one of the Northwest’s “outstanding” Cabs in the summer edition of Wine Press Northwest and has been a perennial gold medal winner over the years.

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