The Cellar Forum: Ultra Premium California Wines

It is often hard to explain and justify to friends and customers why wines from regions such as Burgundy, Bordeaux and more recently Napa, reach such high prices when compared to the many other wine producing regions that also produce serious quality at a much more competitive price. To answer the question, explaining why prices are so astronomical, it is easiest to break it down to the Supply side; the cost of production, both in terms of viticulture and vinification, and the Demand side; in particular the luxury good status associated with such wines.

One of the most significant components of the cost of producing wine in these esteemed regions is the limited availability and hence price of land. When a region's demand for wine increases while the amount of land (area under vines) stays roughly constant the price of the grapes and consequently the bottle price increase. As the graph (below) illustrates, when grape prices increase the value of vineyards also increases, this feeds back into the cost of producing and also severely limits the ability for startup wineries to enter the market. In countries such as Argentina and Chile where ideal grape growing land is available for far less of a premium, it is possible to produce very high quality wine a much lower cost, even when the amount of labor and capitol involved (the man hours spent pruning and harvesting the vines, the high tech cellar equipment and French and American barrels) are the same.

On the demand side, when these wines attain such high prices, they adopt a luxury good status and exhibit Veblen good (named after economist Thorsteun Veblen) characteristics, where the conventional law of demand goes out the window. The greater the price, the greater perception of exclusivity and quality and hence the greater the preference the consumer has for buying them. Many wineries in Burgundy and Napa in particular are boutique operations producing exceptionally low quantities, by maintaining this they hold on to their status. In vintages where the harvest is larger than estimated, instead of lowering the price and flooding the market, potentially harming the wineries exclusivity, they are best off practically letting go of the excess wine.

This is where we got involved. By taking advantage of this anomaly, we buy the excess from a couple of renown wineries for pennies on the dollar. We bottle it under our own label Barrique Cellars and offer it on our shelves for such a steal you can enjoy it for as much as four or five times less than the wineries bottled version.

Our two latest 2009 Barrique Cellars bottlings are of exceptional quality. The grapes, a Cabernet Sauvignon and Zinfandel are synonymous with their regions they come from; Napa Valley and Amador County respectively. The Cabernet is showing sumptuous ripe fruit and forest floor characteristics with great promise for cellaring potential, while the Zinfandel delivers terrific hedonistic pleasure reaching a fine balance at sensible alcohol levels.