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Appellation found to be major element: These factors determine wine price

The place where wine grapes are grown, known as the wine's “appellation,” has a significant impact on wine price — far greater than published tasting scores, according to a study conducted by economists at the University of California Agricultural Issues Center (AIC).

“When consumers purchase wine they cannot really know the quality of the product relative to all the alternatives,” said Daniel A. Sumner, AIC director. “The price of wine is strongly associated with its quality as perceived by consumers - and that perception is greatly influenced by the information printed on the label.”

Sumner said Helene Bombrun, a post-graduate researcher, studied the prices of wines from 126 grape appellations. To qualify for an appellation, 75 to 100 percent of the grapes used in the wine must be grown within the appellation's geographic boundaries. The economists found that more than half of the appellations have a significant impact on wine prices.

“For example, Sonoma and Napa County appellations have significant impacts, but didn't contribute as much to the value of certain varieties compared to some specific appellations, even though wines from Napa and Sonoma overall tend to have high tasting scores,” Sumner said. “For example, the appellation ‘Paso Robles’ is worth more than the designation of ‘Sonoma County’ for some wines. And countywide ‘San Luis Obispo County’ has the same value as ‘Sonoma County’ for some wines.”

Some specific appellations dramatically increase the value of wines. A bottle of “Napa Valley” wine, other characteristics constant, costs $19.80 more on average than a wine with a “California” appellation. Appellations with the highest premiums are mainly located within the Napa Valley. For example, “Oakville” and “Howell Mountain” appellations earn a premium of 91 percent over wines with the “California” appellation, other characteristics held constant.

Wines with the generic state appellation, “California,” are the lowest priced in the sample, averaging $9.80 per bottle. “Napa Valley” wines average $29.60 per bottle. “Oakville,” at $45 per bottle, and “Howell Mountain,” at $43.60 per bottle, are the appellations with the highest average prices.

Blending advantage

“These facts may well suggest to some winemakers that, if they can qualify for a more specific appellation by, for example, making blending changes, there may be a payoff,” Sumner said.

Appellation wasn't the only wine characteristic the economists studied. Wine tasting scores, age at release and varietal information were collected from the January 1995 to December 2001 issues of Wine Spectator magazine. Wine Spectator staff taste wine with labels covered. Wine tasters are told the general type of wine, variety, region and vintage. In the research sample, wine quality ranged from 68 to 99 on a scale of 1 to 100.

“A one-point score increase in the Wine Spectator is worth almost 5 percent of the price, or, on average, 83 cents per bottle, other things held constant,” Sumner said. “We found that tasting score matters the most for Cabernet wines and the least for Merlot wines.”

Aging adds value

The age of wine when it is released also impacts price. Overall, an additional year of storage is valued at $3.27 per bottle. Age at release matters most for Cabernet and Merlot, while age has a negative impact for Zinfandel wines.

Some wine grape varieties have direct impacts on wine prices, while others do not. With other variables held constant, grape varieties Chardonnay, Zinfandel and Cabernet do not have significant impacts on wine prices relative to Merlot wines. Pinot Noir has a price premium of 9.9 percent relative to Merlot. On average, Cabernet wines are the highest priced wines in the state ($21.90 per bottle) and Chardonnay wines are the lowest ($14.20).

Sumner and Bombrun's statistical analysis used data from 8,460 individual California wines from five premium varietals (Cabernet Sauvignon, Chardonnay, Merlot, Pinot Noir and Zinfandel), 12 vintages (1989 to 2000), and from all regions of California.

“We didn't go into detail about the psychology or the biochemistry,” Sumner said. “We focused on price behavior as affected by the label information on which quality perceptions are based.”

Additional data from the study are in the AIC Issues Brief titled “What Determines the Price of Wine? The Value of Grape Characteristics and Wine Quality Assessments,” which is available by calling the UC Agricultural Issues Center at (530) 752-2320, or online at (click “Issues Briefs”).

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