After last week's class I've been fascinated with pricing in wine. Far Niente is able to price at up to $180 per bottle for its cab sav. Furthermore, it's able to price its associated branded wines at a premium price point purely because of the legacy and powerful brand of Far Niente. The Chardonnay at $60 per bottle was excellent but I wonder whether the taste and quality is really >3x Charles Krug's Chardonnay priced at ~$20 per bottle. Peter Modavi mentioned that Charles Krug was a essentially a price taker in the mid market $20-40 segment.
This reminds of two publicly listed wine companies in Australia. One is called Treasury Wine Estates (TWE), owner of Australian's best known premium wine brand "Penfolds" and many others. The other is called Australian Vintage (AVG). For some context, TWE is ~ 10x larger than AVG with AUD2.7 bn in revenue vs AUD 275 million for AVG but trading at almost twice the valuation based on LTM TEV/EBITDA and P/ LTM earnings. A material amount of the difference is likely due to economies of scale e.g., fixed costs spread over greater sales units, and TWE has greater negotiating power over grape suppliers, distributors, and other customers. Another explanation for the value premium is that TWE's gross margins are around 43% vs AVG's of 26%. Some of TWE's brands such as Penfolds play in the ultra premium segment and they have been able to scale this. A lot of TWE's brands will be found at prominent business dinners in China. I doubt you would find many or any of AVG's there.
Thursday, February 28, 2019
What's in a Bottle?
Last week someone asked a question about the wine bottle shape to one of our guests, who revealed that they created their own mold for it, but the specific shape chosen was fairly traditional other otherwise fairly unremarkable.
I’d always wondered about bottle shapes, and did some digging. It turns out that for the most part, the shapes are the result of tradition more than anything else - most wines would taste the same bottled in other bottle shapes, and regional styles have calcified, with wine types that originate from certain places but produced in other ones sometimes adhering to old tradition to send signals about their inherited legacy.
Originally, wine bottles were made to be stored standing up, and were rounder. Later shapes were more cylindrical, allowing them to be stored on their sides, and this change, which coincided with the adoption of the cork closure, led to the development of the regional styles that persist today. Glassblowing techniques were different in various parts of the world, which had significant influence on the styles that emerged. The variety in shapes may have also helped illiterate people better distinguish the wines in the bottles before they opened them.
The most common bottle type, the Bordeaux is commonly used for red wines, and has high shoulders. It is thought, but by no means confirmed, that perhaps those high shoulders also catch sediment from the wine as it ages. Fortified wines like port and madeira are stored in a similar shaped bottle, but port bottles are shorter and squatter, and often have a slight bulge in the neck to trap sediment while pouring.
The Burgundy bottle has sloped shoulders, a wider base, and is often “used worldwide for Burgundian grapes (pinot noir and chardonnay), as well as syrah, grenache, chenin blanc and others.” The Alsace bottle is taller and thinner than most other wine bottles, also with gently sloping shoulders. It’s generally used for Riesling; there’s lots of variety in the bottle’s color, including blue.
If you’ve ever felt that sparkling wine bottles were heavier than the rest, it’s not just in your head. The Champagne bottle style (which is typically quite similar to the Burgundy) must be heavier to handle the pressure inside, which can be as much as 3 times the pressure in the average car tire. They often have a dent in the bottom called a punt. While the punt might make the bottle stronger and may help sediment settle out of the wine, it’s not clear that this is the case. It’s likely just a remnant of the techniques used to produce the bottles when they were still handmade. Notably, the Cristal bottle has a flat bottom.
There are many more specialty bottle shapes that I haven’t gone into here, and some houses get very creative, especially in the premium wine category.
Sources:
“Decode Wine Just By Looking at the Bottle” - Wine Folly
“A Brief Guide to Wine Bottle Design” - PUNCH
“Wine Bottle Shapes: Just The Facts” - NewAir
Wine bottle shapes: why are they so different?” - Winery Lovers
"Cristal Champagne: The Wine of Tsars and Stars" - Wine Folly
I’d always wondered about bottle shapes, and did some digging. It turns out that for the most part, the shapes are the result of tradition more than anything else - most wines would taste the same bottled in other bottle shapes, and regional styles have calcified, with wine types that originate from certain places but produced in other ones sometimes adhering to old tradition to send signals about their inherited legacy.
Originally, wine bottles were made to be stored standing up, and were rounder. Later shapes were more cylindrical, allowing them to be stored on their sides, and this change, which coincided with the adoption of the cork closure, led to the development of the regional styles that persist today. Glassblowing techniques were different in various parts of the world, which had significant influence on the styles that emerged. The variety in shapes may have also helped illiterate people better distinguish the wines in the bottles before they opened them.
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| Source: Wine Folly |
The Burgundy bottle has sloped shoulders, a wider base, and is often “used worldwide for Burgundian grapes (pinot noir and chardonnay), as well as syrah, grenache, chenin blanc and others.” The Alsace bottle is taller and thinner than most other wine bottles, also with gently sloping shoulders. It’s generally used for Riesling; there’s lots of variety in the bottle’s color, including blue.
If you’ve ever felt that sparkling wine bottles were heavier than the rest, it’s not just in your head. The Champagne bottle style (which is typically quite similar to the Burgundy) must be heavier to handle the pressure inside, which can be as much as 3 times the pressure in the average car tire. They often have a dent in the bottom called a punt. While the punt might make the bottle stronger and may help sediment settle out of the wine, it’s not clear that this is the case. It’s likely just a remnant of the techniques used to produce the bottles when they were still handmade. Notably, the Cristal bottle has a flat bottom.
There are many more specialty bottle shapes that I haven’t gone into here, and some houses get very creative, especially in the premium wine category.
Sources:
“Decode Wine Just By Looking at the Bottle” - Wine Folly
“A Brief Guide to Wine Bottle Design” - PUNCH
“Wine Bottle Shapes: Just The Facts” - NewAir
Wine bottle shapes: why are they so different?” - Winery Lovers
"Cristal Champagne: The Wine of Tsars and Stars" - Wine Folly
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