Monday, 16 February 2009

Trading Up - The Benefits of Heading Towards £10 a Bottle

Today I'm going to try and persuade you to trade up when buying a bottle of plonk.  When spending a fiver, how much of that money actually goes into the wine do you suppose?  Well, let's work it out...

For any bottle imported into the UK (including from any EU Country), we have a fixed rate import duty of getting on for £2 a bottle (and more for fizz).  Depending on where the bottle has come from, there is also shipping which is going to cost at least 50p a bottle, even for a huge player like one of the big supermarkets.  We then have VAT on both of these (yes, tax on tax), which gives us about £2.90 fixed cost on each bottle, leaving us £2.10 for wine.  But hang on, that £2.10 includes the bottle itself, the closure, the label and the whole bottling process, not to mention marketing and other expenses.  For most producers that's going to account for another £2 per bottle, which leaves us a sum total of ten new pence for the wine.  Hmm, not great, but what to do?  The answer is clear; trade up!

As the amount you spend rises from a fiver the extra cash nearly all goes into wine and as you close in on a tenner there's a decent amount of money actually spent on the sauce.  This quality vs price curve rises most sharply between £5 and £15 and continues to rise at a decent rate up to about £20.  After that there are many other factors that come into play, like kudos and brand prestige.  The intrinsic rise in quality does continue up to about £100, but the returns start dropping rapidly after about £20.  After £100 any further cost is down purely to supply and demand; Chateau Petrus sells at £1,000 a bottle because there are enough people who are prepared to buy it for that price.  It doesn't mean, of course, that the wine is intrinsically worth that much.  I hope this piece of simple economics has shown why, as you get a bit more adventurous and spend eight or nine quid instead of five, you're making a sound decision.

Appendix: four great value wines between £6.50 and £10 in the UK supermarkets:

Macon Villages (good straight-ahead white Burgundy) - £6.50 from M&S
La Monacesca Verdicchio di Matellica (classy Italian white) - £8.54 from Waitrose
Ascheri Barbera d'Alba Fontanelle (very tasty Italian red) - £8.99 from Sainsburys
Chateau de Jau Cotes Du Roussillon Villages (Great example of a Southern French Red) - £10 from Tesco

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