I enjoy talking wine with anyone and everyone, and as a result, have some interesting and provoking questions posed by casual wine drinkers. Beyond the varietals, regions, styles, labels and terminology is a very fundamental question asked over and over again. Why is some good wine cheap while the small lot stuff is so damn expensive? Isn't it all just fermented grapes? Is there really a perceivable qualitative difference tied to the price tag?

Before getting into the crux of it all, I’ll address a common motivation for the question. There seems to be a misconception that the higher the price, the more a winery is “gouging” the customer and pocketing the additional profits. The fact is, whether we talk about a $150 Cab blend, a $50 Pinot or a high volume $8 Chard, the margins may be surprisingly similar.

Large volume wineries are all about economy of scale. Approximately 3/4 of all wine consumed in the U.S. has a retail price of <$8. Meanwhile, large wineries are regularly brought into the fold of even larger beverage monoliths like Foster, Axio and Constellation. There is remarkable savings realized on all aspects of these operations; marketing expenses, materials, shared facilities, personnel and real estate. A conglomerate may buy standard 750 ml. bottles by the millions while a small winery is buying a tiny fraction of that.

Small lot wineries also have to allocate overhead expenses over a smaller range of products, and often have to pay premiums on materials because they cannot support minimum order requirements. Its difficult for example to buy just 20 high quality new French barrels (enough to produce around 1000 cases of wine) at a decent price, and depending on the source, gray market or co-op buying may be the only way.

Economy of scale certainly pushes a wine up a few bucks. But there is still a lot of ground to cover to get an $8 wines to $50, if as I suggested earlier the margin is often in the same ballpark. It’s all about four things: location, location, location, and demand. Not winery location, but vineyard location. And not customer demand, but grape source demand.

Let’s start with labeling and blending techniques used by high volume wineries to keep costs down. Cheap wine grapes can be sourced from multiple counties or even states. This allows producers to mix grapes from more reputable/high rent districts with slumming grapes at reasonable prices, then blend them together to get a decent wine.

  • To call a wine “California” table wine only 75% of the grapes have to be grown in California.
  • To call a wine “Napa County” wine, only 75% of the grapes have to be grown in Napa County.
  • To call a wine “Napa Valley” wine, 85% of the grapes have to be grown in Napa Valley. What’s the difference? Napa Valley is considered an actual “AVA” or Viticultural Area. 

The same rules apply to expensive wines, so in theory a high end winery could and occasionally do put out a County or California blend, but you will more often see that the labels indicate either a single vineyard or at least a single AVA source. In fact, some expensive wines are even Clone or Block specific, meaning they were harvested from a specific section of one vineyard or just one group of grapes of a specific clonal variety within the vineyard.

Why does any of this matter? If the grapes come from one vineyard or five, how is that any more or less expensive?

It’s the way they get the grapes. Large wineries making cheap wines do some combination of the following:

  • Grow their own grapes on land they own
  • Long-term contracts with vineyards to buy their excess/unallocated grapes
  • Buy grapes from vineyards offering overstock at bulk prices during harvest
  • Buy juice post-harvest that over-stocked vineyards have pressed because the grapes went unsold
  • Buy/use bulk wine that is already aging in barrel or even bottled that was originally earmarked for another label and for quality reasons has been “de-classified” into cheaper blends

As an aside, I find it amusing when someone tells me they live by “x” wine that costs about $7/bottle. Not because it’s cheap, and not because they “like it” but because in all likelihood from one year to the next consists of entirely different grapes. Different sources, regions, even varietals. There are exceptions, but frequently this is where the real inexpensive bottles reap their savings, in the year to year bulk sell-off of unsold grapes.

In stark contrast, the “garagiste” wine-maker with the $50 Pinot is not only buying his grapes from single-appellation or single-vineyard sources, but is competing with other eager buyers for the same grapes. While bulk grapes can be had in the $800-$2000/ton range, reputable single-vineyard growers evaluate bids from a number of suitors, frequently getting $5000-$10,000+/ton for their grapes. The highest cost grapes are single-vineyard Cabs and Cabernet Franc which is scarce and needed for high-end Bordeaux Style blends.

It is easy to understand how an $8 bottle can grow to $50+ when the grapes themselves can run into multiples of 500-1000% the cost of bulk grapes of the same varietal. As for the quality, obviously there is a lot of pressure on the vineyard owners pulling in high prices for their product to invest in top-notch management and equipment to keep the quality high, or their grapes will go the way of the bulk sources.

There is also an element of “microclimate management” in that small lot wineries can cherry pick grapes from the most reputable regions for each varietal they wish to produce. Larger wineries are often either tied to their physical vineyard locations which may be better for some varietals than others, or buying from scattered bulk source locations that again may not be the best climate location for the varietal in question.

In the end, there is no question that a large winery can make a good $8 wine. I would only contend that the small winery with the $50 price tag is much more likely to make a focused, quality wine that expresses the characteristics of the varietal and the region, and will more likely be able to repeat the quality level consistently over multiple vintages.