I recently had lunch with a friend who had just returned
from a vacation with her boyfriend in Spain. When I asked her about her trip,
she responded, “why is wine so expensive in the US?” She complained about how
ludicrous it was that she routinely paid $15 or more for a glass of mediocre
wine, while a week ago she was enjoying an incredible 3 euro carafe of Rioja. My
curiosity was piqued.
The discussion on the three-tiered system shed light on this
issue. Economic theory dictates that increasing the number of players in the
value chain leads to double marginalization and drives up prices for the
consumer. Operations theory suggests that potential for inefficiency and waste
increases as the supply chain becomes more complicated - e.g., potential for inaccurate
demand forecasting and inventory purchasing at each stage of the supply chain
compounds. For these reasons alone, we would expect to see lower alcohol prices
in countries that do not mandate a three-tier system.
I left class wondering whether this fully explained the
delta, or whether there were other factors at play, e.g. –
Consumer expectation
(demand side) – because wine plays a larger role in culture, people at all
income levels expect to be able to purchase decent wine at a reasonable price
Subsidies (supply
side) – since wine is economically important for countries like Italy, France,
Spain, do government subsidies play a role in keeping wine prices low?
Vineyard economics
(supply side) – Many European vineyards have been in the same family for
generations, while owners of American vineyards have held the land for a
shorter time. (NB, this is based on completely anecdotal evidence). If this is
the case, are mortgages helping push up the price of American wine?
Others??
I have often noted that my English friends who have homes in the French/Italian/Spanish countryside are very happy quaffing the 3-5 Euro local wines from the local mini market. These are the same people who have extensive curated cellars in London that cost astronomically more.
ReplyDeleteI think there is a an element of enjoying "doing what the locals do" and revelling in the simple life, but there are surely economic factors, too. The local producers who sell there have no marketing or transport costs to speak of, and there is a very simple distribution chain. They may also not be profit maximisers. There is no no need for them to build a brand in an expensive way, as the locals know what the better wines are and the weekenders/visitors just drink what the locals do, secure in this knowledge.
I concur
DeleteAgree - when living in France, one of the largest perks I enjoyed was that wine was less expensive than bottled water.
ReplyDeleteIn addition to the topics you noted, I think alcohol regulatory issues create a tremendous burden on the final consumer. Because the US has complex distribution laws that vary by state, each wine maker has to navigate multiple layers of bureaucracy, which increases the overhead of operation.
True
Delete