Superblends at Super Prices

Penfolds is launching two new wines at prices that rival the highest commanded for any Australian wine. Robert Joseph considers the rights and wrongs of this kind of strategy.

Robert Joseph thinks about the pricing of Penfolds' new premium wines
Robert Joseph thinks about the pricing of Penfolds' new premium wines

In a world where newspaper headlines are full of news from Afghanistan, dire prognoses about climate change and terrifying fires in Greece, parts of the wine world have been focused on the far more important question of the AU$900 ($660) Treasury Wine Estates price tag is to put on its new Penfolds ‘superblend’ Bin 802.A Cabernet-Shiraz wine and the similar – but yet to be announced – price for its 802.B sibling when they go on sale in Australia.

Ambitions for the UK are even higher, with buyers there expected to hand over £600 ($830) in stores like Harrods. “Will people pay these prices?” quite reasonably wondered UK wine writer, Tim Atkin. Does TWE have the right to ask them? asked the chorus, with rather less justification.

“All TWE cares about is its shareholder value”, sniffed one online commentator, while another more brutally described the move as ‘corporate greed’.

The increase in the prices of top wines in general unsurprisingly exercises a lot of discussion, especially among those old enough to remember being able to afford Bordeaux, Burgundies and Brunellos that are now stratospherically beyond their reach. There is some uncertainty over whom to blame for this trend:  avaricious producers, unscrupulous speculators, or simply the hideously rich who are able to afford to pay for them. But whoever is responsible, they shouldn’t have done it.

 

Standing start

The new Penfolds wines bring a fresh angle to the argument, however, because, unlike wines from those European regions whose cost has grown over time, they have started at the top. How dare they? Why didn’t they follow the example of le Pin which was so inexpensive when it was launched in the early 1980s that Michael Saunders of the UK merchants Bibendum, recalls serving the first vintage at a barbecue?

But brave release-pricing is far from new. I remember the prices of both Leeuwin Estate Art Series Chardonnay and Jim Barry’s Armagh raising eyebrows in Australia when they were launched. In Bordeaux, Jonathan Maltus shocked many when he exclusively sold his maiden 1996 vintage of le Dome – a St Emilion from a well-sited vineyard with no previous history of producing its own wine – through the London merchants, Justerini & Brooks for more than many Médoc Crus Classés. Even more shockingly, Maltus, who had come into wine after making his fortune in another sector, deliberately kept the wine away from the all-powerful US critics who found themselves rating the wine after it had all been sold – largely on the J&B recommendation.

More recently, Sacha Lichine unashamedly introduced Garrus as the most expensive rosé on earth, before leveraging its successful reception to bring a torrent of Whispering Angel to grateful customers at what was still a high price for a pink wine. And then of course, there was Gérard Bertrand with his Clos d’Ora and Clos du Temple in Languedoc, a region hardly known for super-premium wines.

In none of these cases was a simple ‘cost-plus’ margin applied, any more than it was by the Napa wineries that unashamedly based their post-Judgement of Paris pricing in the 1980s on the amounts being paid for the Bordeaux chateaux with which they sought to be compared.

 

Penfolds' wine collection

 

Production cost

The true production cost of any wine can vary widely, depending on the meticulousness of the viticulture, yields per hectare, whether the grapes have to be bought from growers, the proportion of new oak and so on. Some producers also have to factor in the repayments of loans taken out to fund their business, while others benefit from land and buildings erected and paid for by their ancestors. Whatever the model, however, it is hard to spend more than $20-50 at the very most on producing a 75cl bottle of wine. Often, even for a super-premium wine, $10 will be more than sufficient.

Similar calculations could be applied to fashion and a wide range of other products. How much does it really cost Gap to produce a t-shirt? Or for Fever Tree to make a can of tonic water? In every case, brand owners look at the market and calculate what potential buyers are most likely to be prepared to spend.

The men and women making these calculations for the new Penfolds wines almost certainly excluded from them most of the people who have commented online. None of these would-be opinion-formers, I’d guess, would ever dream of paying $300 for a bottle, let alone $600 or $800. Most would usually balk at $100. 

As, to be honest, would I.

But this might not apply to the 500 men and women who became billionaires last year or the far, far larger number with a few hundred million dollars to their names. Or, indeed, the less well-heeled who still have no problem paying £600 for a bottle of Penfolds Grange alongside which the two superblends will sit in Harrods.

If £600 is the ‘right’ price for Grange at Harrods in London, why not for the other pair if they are of a comparable quality which, given Penfolds’ track record with its ‘special bins’, is likely to be the case.

Starting them at this level seems to me to be no different to an ambitious new restaurant opening with menus priced at the level they will be if/when it gets its Michelin stars. Or the musician-turned jewellery-designer Frank Ocean recently telling the Financial Times that he “didn’t want [his first collection] to be any less expensive than Cartier”. It makes sense to stand alongside what you consider to be your peers and competitors.

Just as importantly, having some astronomically-expensive products in your range can do wonders for the – even if only relatively – more affordable ones. Ocean’s prices range from $1.9m to $395. There are some very drinkable Penfolds wines at under $50.

 

About more than the wine

However, for some, treating wine like this - as a luxury good lies at the heart of the problem. As another commentator said, “at least the high prices commanded by DRC are about the wine”.

But they’re not. You can choose a threshold for yourself, but as far as I’m concerned at some point between $100-200, it stops being ‘about the wine’. Just as – at other price points - it stops being ‘about’ the watch, the shoes, the suit or the car. These are all luxuries and everything about them is related to emotions rather than rational consideration.

The specific emotions involved may vary from one individual to another, of course, but there’s no point in looking for rationality. (Unless the product in question is being bought as an investment, which is another matter entirely, but may still rely on the cupidity of others).

The $660 Bin 802.A is not on my shopping list – any more than Leroy’s $36,000 Musigny, Gucci’s $890 Rhyton sneakers or the $380,000 Ferrari 812, sales of which contributed to that brand’s annual EBITDA 2019 earnings (‘Before Interest, Taxes, Depreciation, and Amortization’) of $1.4bn.

And the world might, indeed, be a better place if the people purchasing those products donated the money to a good cause, or gave more thought to world peace and fighting climate change. But that’s a subject for a very different column. 

This one is about whether Penfolds was right, and had the right, to price its wines in the way it did. And, for as long as there are people ready, willing and able to buy them, I can’t see why they shouldn’t.

 

Robert Joseph
 

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