How much does a bottle of wine really cost?
There's a story – by no means as apocryphal as most people think – about two proprietors of trophy wine estates who take a bet, the terms of which are that the loser has to buy a case of the winner's wine “at its cost price.”
Image courtesy stock.xchnge
When it comes to settling the debt, the winner announces that he must be paid R4 000 per bottle. “You said cost price,” protested his victim. “R4 000 per bottle is what it cost me to produce,” says the winner.
Very few wine estate owners acknowledge the real costs of membership to the (relatively) exclusive club of wine estate proprietors – though several former proprietors would repeat the adage of yacht owners that they were only happy twice since joining the club: the day they bought the farm, and the day they sold it.
The purchase price is the least of the pain. After all, except for cyclical dips, quality wine farm values keep on rising. It’s easy to rationalise deferring a return on opportunity cost with a fat capital gain around the corner.
In the early 1980s, Marino Chiavelli offered the late Nico Myburgh over R25m for Meerlust. Myburgh turned him down, but said something along the lines of “sooner or later he might offer me R40m or R50m and then I would be tempted.” In those days that seemed an unbelievable amount to spend on any wine property. To put this in context, in 1976 Andre Mentzelopoulos bought Chateau Margaux for $16m – the equivalent at the time of R11m! Today this would be nothing: Laurence Graff is rumoured to have spent over R400m at Delaire-Graff.
The real expenses aren’t even those of running the vineyards, though it’s widely recognised that it is cheaper to buy someone else’s fruit than to carry the cost of farming it yourself. The problems really start once the grapes arrive in the cellar. If you want to be in the premium wine business, you have to be committed to the idea of a small and exclusive production.
Unfortunately you still need pretty much the same production and marketing team for 5 000 cases as you do for 50 000. For ever R5m of annual overhead, add over R80 to the cost of a bottle of wine. It’s pretty easy to have the average cost of every bottle you produce hovering around the R200 mark. By the time this has passed through a distributor and a retailer, it’s R400 on the shelf.
This may not sound like a lot, but there’s no producer in South Africa achieving these volumes at these prices. A few – like Meerlust – get some of the way there, but they’ve been in the game for generations, they have an international reputation and they know more about managing farming and production efficiencies than any parvenu fresh out of the world of investment banking. That’s why they say if you want to make a small fortune out of wine farming, start with a large one.
