tag:theconversation.com,2011:/us/topics/wine-economics-14216/articlesWine economics – The Conversation2024-01-22T13:28:26Ztag:theconversation.com,2011:article/2175092024-01-22T13:28:26Z2024-01-22T13:28:26ZThink wine is a virtue, not a vice? Nutrition label information surprised many US consumers<figure><img src="https://images.theconversation.com/files/569115/original/file-20240112-21-1bz0bp.jpg?ixlib=rb-1.1.0&rect=56%2C85%2C9247%2C5164&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Decisions, decisions.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/rear-view-of-young-asian-woman-grocery-shopping-for-royalty-free-image/1366189228?phrase=wine+store&adppopup=true">d3sign/Getty Images</a></span></figcaption></figure><p>When you reach for that bottle of wine this Valentine’s Day, do you know how healthy it is? Many people have a too-rosy view of the beverage and are surprised when confronted with the facts about it on a nutrition label, according to a study my co-author <a href="https://www.depts.ttu.edu/hs/hrm/velikova.php">Natalia Velikova</a> <a href="https://www.depts.ttu.edu/rawlsbusiness/people/faculty/marketing/deidre-popovich/index.php">and I</a> recently published in the <a href="https://doi.org/10.1108/JCM-09-2020-4101">Journal of Consumer Marketing</a>. </p>
<p>Our findings could have big implications for the wine industry, particularly as <a href="https://www.fooddive.com/news/alcohol-labeling-lawsuit/633347/">some groups in the U.S. are pushing</a> for wine to have mandatory nutrition labels.</p>
<p>Right now, people usually think of wine as <a href="https://doi.org/10.1287/mksc.17.4.317">a “virtue” rather than a “vice,”</a> thanks to popular beliefs about its <a href="https://www.health.harvard.edu/blog/is-red-wine-good-actually-for-your-heart-2018021913285#">health benefits</a> and news coverage of its antioxidant effects. But requiring nutrition labels, which are currently voluntary, could change those views. </p>
<p>In our experimental research, which included nearly 800 participants, we found that American consumers aren’t used to seeing nutrition information on wine labels, and most are surprised by what they read since they don’t associate wine with calories, carbohydrates and sugar. People who were prompted to read labels viewed wine as less healthy than they did beforehand, and they were less likely to buy it. </p>
<p>We also found that people are more surprised by the sugar content of sweeter wines, such as Moscato, than by the number of calories. Sweet wines, in particular, may contain more sugar than consumers realize.</p>
<h2>Why it matters</h2>
<p>The European Union recently <a href="https://www.wineenthusiast.com/culture/industry-news/new-eu-wine-label-regulations/">mandated nutrition labeling on wine</a>, sometimes in the form of <a href="https://www.decanter.com/learn/eu-wine-labelling-the-changes-explained-507553/">QR codes</a>, and industry analysts expect <a href="https://wineindustryadvisor.com/2023/02/24/ingredient-labels-are-coming-you-need-to-know">the U.S. will eventually follow suit</a>. The Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau, which regulates wine production, has already <a href="https://www.cspinet.org/press-release/consumer-groups-obtain-ttb-commitment-issue-rulemakings-mandatory-alcohol-labeling">agreed to issue some preliminary rules</a> for mandatory ingredient labeling.</p>
<p>Nutrition labels don’t need to be bad news for the wine industry. Wine sales have <a href="https://www.svb.com/globalassets/trendsandinsights/reports/wine/svb-state-of-the-wine-industry-report-2023.pdf">recently declined</a> among those 60 and younger, and greater transparency in labeling could help rekindle young consumers’ interest. </p>
<p><a href="https://doi.org/10.1016/j.wep.2018.11.001">Millennial and Gen Z consumers</a> may especially appreciate clearer labels, since it could help them view wine as less mysterious and more accessible. It may also allow them to fit an occasional glass of wine into their personal health goals. Younger consumers might also be more interested in <a href="https://doi.org/10.1016/j.wep.2019.02.001">eliminating as many highly processed ingredients as possible</a> from their diets. </p>
<p>What’s more, there’s been a recent trend toward wine packaging including labels like “organic,” “biodynamic” and “sustainable,” which may appeal to consumers’ preferences for sustainability. These labels have less to do with nutrition than with manufacturers trying to appear eco-friendly — but makers of natural wine would likely benefit most from offering nutrition information to support their front-of-label claims.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/568090/original/file-20240106-28-sl6le5.jpg?ixlib=rb-1.1.0&rect=98%2C12%2C8120%2C5438&q=45&auto=format&w=1000&fit=clip"><img alt="In an over-the-shoulder photograph, a woman chooses between two bottles of wine at a liquor store." src="https://images.theconversation.com/files/568090/original/file-20240106-28-sl6le5.jpg?ixlib=rb-1.1.0&rect=98%2C12%2C8120%2C5438&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/568090/original/file-20240106-28-sl6le5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/568090/original/file-20240106-28-sl6le5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/568090/original/file-20240106-28-sl6le5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/568090/original/file-20240106-28-sl6le5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/568090/original/file-20240106-28-sl6le5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/568090/original/file-20240106-28-sl6le5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Americans generally view red wines as healthier than whites, research shows.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/over-the-shoulder-view-of-woman-walking-through-royalty-free-image/1308615779">D3sign/Getty Images</a></span>
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<h2>What other research is being done</h2>
<p>German researchers have found that most consumers often overestimate calories in wine before viewing nutritional labels, and they <a href="https://doi.org/10.1016/j.wep.2019.02.001">don’t think the information is useful</a>. The researchers found that consumers often feel insecure and confused after reading wine ingredient information. Reviewing ingredient lists also made consumers less likely to view wine as a natural product. </p>
<p>On the manufacturer side, research shows that mandatory nutrition labeling would affect the wine industry in several ways — notably by <a href="https://doi.org/10.1016/j.wep.2019.05.002">increasing overhead costs</a> related to compliance, laboratory analyses and more challenging labeling processes. This could disproportionately hurt smaller wineries with fewer resources. </p>
<h2>What still isn’t known</h2>
<p>We still don’t know who is most likely to read and use nutrition labels on wine, but younger customers <a href="https://doi.org/10.1017/S1368980010003290">seem to be more interested</a> in food labels generally. Millennials report they are <a href="https://doi.org/10.1017/S1368980016002871">eating healthier</a> and <a href="https://www.physicalactivitycouncil.org/_files/ugd/286de6_292481f0e76443d4b0921fbb879f8cfc.pdf">exercising more</a> than previous generations.</p>
<p>And there’s still more to learn about how nutrition labels affect behavior. Studies have shown mixed results, but on the whole, labeling appears to make people <a href="https://doi.org/10.1016/j.amepre.2018.09.024">cut their calorie consumption</a> somewhat. Still, the U.S. put nutrition labels on foods in the 1990s, and that hasn’t stopped the <a href="https://www.cdc.gov/obesity/data/adult.html">obesity rate from rising</a>.</p><img src="https://counter.theconversation.com/content/217509/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Deidre Popovich does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>People may be surprised when they read a nutrition label on a bottle of wine. The industry should take note.Deidre Popovich, Associate Professor of Marketing, Texas Tech UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1627932021-06-17T16:45:23Z2021-06-17T16:45:23ZHow Bordeaux winemakers are setting their prices after the pandemic<p>After a nightmare year for French vineyards, in which the pandemic saw revenues plunge and winemakers forced to send their unsold wine to distilleries, <a href="https://www.nytimes.com/2020/07/27/world/europe/france-alsace-wine-coronavirus.html">sometimes to be turned into hand sanitiser</a>, the sector is trying to bounce back.</p>
<p>In Bordeaux, the epicentre of the global fine wine market, the wine harvested during that difficult time has just been through its <em>en primeur</em> campaign, often known as “wine futures” in English.</p>
<p>The <em>en-primeur</em> system dates back to the 18th century, and was modernised in the 1970s to resemble what we know today. Similarly to futures on financial markets, it allows producers to sell their wine while it is still in the barrel. The wine is then finished, bottled and delivered to customers around two years later.</p>
<p>This campaign is run as a finely organised system. Every year, over a week in spring, wine experts will come to Bordeaux to taste the wines and publish their notes and scores. This is followed by a two-month period during which each chateau sells its wine to consumers via an intricate system of brokers, traders and merchants.</p>
<p>This well-oiled machine is nevertheless subject to much uncertainty, which goes beyond the current pandemic. That’s because <em>en-primeur</em> sale involves an unfinished vintage of uncertain quality released into an unknown future economy.</p>
<p>How do wine sellers put a value on this unfinished wine? And what is a fair price for a vintage like 2020? We built an economic model to simulate reasonable release prices for the current campaign.</p>
<h2>Previous campaigns</h2>
<p>In Bordeaux, demand and, therefore, prices depend mainly on quality and less on quantity. Following a price decline between 2011 and 2016, the Bordeaux market rebounded in 2016 due to a great 2015 vintage. This was followed by an even better 2016, for which prices increased substantially but not excessively.</p>
<p>In 2017, vineyards were hit by a <a href="https://www.decanter.com/wine-news/opinion/news-blogs-anson/bordeaux-wine-frost-2017-vintage-383633/">severe frost</a> which caused a 40% drop in the wine harvest. Lower quantities encouraged châteaux to maintain prices close to 2016 despite the quality. Poor sales thus unsurprisingly characterised the 2017 <em>en-primeur</em> campaign.</p>
<p>The 2018 vintage, sold as exceptional, saw significant increases, even though price levels were already very high. While the quality should have generated solid demand, this was not the case – the fault of the châteaux for being too greedy.</p>
<p>Last year, the pandemic and associated lockdowns almost led to the cancellation of the <em>en-primeur</em> campaign for the 2019 vintage. In the end, a postponed, shortened version took place. Perhaps surprisingly, and thanks to exceptional quality and reasonable prices, it was a success.</p>
<p>The pandemic forced the châteaux to make an effort on prices. Here lies the difficulty of this market: sellers had to lower prices to ensure a successful campaign while also being careful not to send too strong a signal to the market at the risk of making the many wines of 2017 and 2018 that were still available unsellable.</p>
<h2>Back to normal?</h2>
<p>The 2020 vintage benefits from more favourable external conditions than 2019, but it is hard to speak of normality yet. This year, tastings took place remotely with samples sent to experts around the world. Tasters and producers met on video calls.</p>
<p>Meanwhile, restaurants in France were completely closed between October 2020 and June 2021, and are only just getting back into business. Uncertainty about the economic recovery remains high.</p>
<p>Still, the situation has improved since last year, fine wine prices have remained solid, and the quality of the 2020 vintage looks excellent. There will be a few great wines that will be the market’s main focus when they are released. But we do not know how the market will react to this unique succession of three excellent vintages in a row. This is unprecedented and raises the question of the market’s capacity to absorb such a considerable volume of high-quality wine so quickly.</p>
<h2>How to determine a fair price</h2>
<p>In a forthcoming study, we proposed a model to estimate the fair price of 69 prestigious Bordeaux wines at the time of their release. The approach considered is based on the principle that prices on the primary markets (<em>en-primeur</em>) and secondary markets (bottles from past vintages) cannot be substantially different.</p>
<p>The model includes variables measuring the economic situation, the quality of the vintage and of the wine concerned, and its volatility (some wines have stable prices whereas others fluctuate strongly).</p>
<p>Below we use this model to estimate the fair prices of these wines for the 2020 vintage and compare them to those already released in the <em>en-primeur</em> market before June 7. The model allows us to explain around 80% of the price variations of these wines.</p>
<p>The model suggests that a price stabilisation relative to the 2019 vintage would be reasonable. And considering the exceptional circumstances surrounding the release of the 2019 vintage, a slight increase (in the order of 5% to 10%) in prices over 2020 compared to 2019 would seem logical.</p>
<p>This table shows the fair release prices – according to our model – and contrasts them with the actual prices for wines, both in euros. All but one of the wines were released at prices above what the model predicts. But the differences are often reasonable.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/406520/original/file-20210615-19-1p5y7wh.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Table showing Bordeaux wine prices predicted by economic models, and those set by châteaux" src="https://images.theconversation.com/files/406520/original/file-20210615-19-1p5y7wh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/406520/original/file-20210615-19-1p5y7wh.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=318&fit=crop&dpr=1 600w, https://images.theconversation.com/files/406520/original/file-20210615-19-1p5y7wh.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=318&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/406520/original/file-20210615-19-1p5y7wh.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=318&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/406520/original/file-20210615-19-1p5y7wh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=399&fit=crop&dpr=1 754w, https://images.theconversation.com/files/406520/original/file-20210615-19-1p5y7wh.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=399&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/406520/original/file-20210615-19-1p5y7wh.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=399&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><span class="source">Jean-Philippe Weisskopf, Philippe Masset</span>, <span class="license">Fourni par l'auteur</span></span>
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<p>Yet some wines seem very expensive compared to our model’s prediction, including Château La Mondotte from the famous Saint-Emilion region and Léoville-Barton and Lagrange from Saint-Julien. Some wines that had drastically lowered their prices last year have not increased much this year. This is the case of Malartic-Lagravière in Pessac-Léognan, which, after a drop of more than 20% last year, is content with a 9% increase this year.</p>
<p>At this stage, most of the price increases for the 2020 vintage remain moderate, which is consistent with the model. It suggests that the most significant price increases relative to the 2019 vintage should not exceed 10%, except for a few wines such as rare Pomerols and some of the first growths.</p>
<p>Of the wines that have already finished the <em>en-primeur</em> campaigns, some have increased their prices beyond the suggested threshold. Early market signs suggest that the increases are excessive and have reduced demand for these wines.</p>
<p>With the influx of great vintages in Bordeaux and elsewhere in Europe, it would be wise for those chateaux yet to release their prices not to be overly greedy and maintain attractive prices to ensure a successful campaign. This would be the best way to bring Bordeaux bouncing back after the pandemic.</p><img src="https://counter.theconversation.com/content/162793/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Les auteurs ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur organisme de recherche.</span></em></p>We built an economic model to predict the prices of the 2020 vintage in France’s most prestigious wine region – here’s what we found.Jean-Philippe Weisskopf, Associate Professor of Finance, École hôtelière de Lausanne, Haute école spécialisée de Suisse occidentale (HES-SO)Philippe Masset, Professeur associé, Haute école spécialisée de Suisse occidentale (HES-SO)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/946072018-04-11T10:50:12Z2018-04-11T10:50:12ZShould California winemakers be worried about China’s tariffs?<figure><img src="https://images.theconversation.com/files/214179/original/file-20180410-543-1eenfm9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some Napa and Sonoma Valley wineries are worried about the China tariffs. </span> <span class="attribution"><span class="source">AP Photo/Eric Risberg</span></span></figcaption></figure><p>California’s vintners and grape growers are among the latest potential victims in the escalating trade spat between the U.S. and China. </p>
<p>Responding to U.S. plans to impose import duties on goods from China, the Chinese Ministry of Commerce <a href="https://www.nytimes.com/2018/04/01/world/asia/china-tariffs-united-states.html">reciprocated</a> by introducing new tariffs on 128 U.S. products, including an additional 15 percent import tariff on wine. </p>
<p>Wine producers in California are concerned about the immediate and longer-term implications of this new tariff, on top of those already in place. <a href="http://www.lodinews.com/news/article_cb943f44-395d-11e8-9d3b-5b199814232a.html">Reports have already begun to circulate</a> about orders being canceled, redirected or renegotiated as a result. </p>
<p>How worried should U.S. winemakers be? </p>
<h2>The US wine industry</h2>
<p>The U.S. is a major player in the global wine industry both in terms of consumption and production. </p>
<p>Americans <a href="https://www.cambridge.org/core/books/wine-globalization/united-states/F91DB4F30BC37145AC9B92F37C2AA5D7">consumed 3.59 billion liters of wine</a> in 2016, or about 11.1 liters per person. About a third of that was imported. </p>
<p>In terms of production, the U.S. <a href="http://www.wineinstitute.org/files/World_Wine_Production_by_Country_2015.pdf">ranks fourth</a> after Italy, France and Spain – <a href="https://www.wineinstitute.org/resources/statistics/article83">making more than 3 billion liters</a> in 2016. California produced about 85 percent of that, <a href="https://doi.org/10.1017/jwe.2015.29">while the rest</a> comes from a variety of states, including Washington, Oregon and New York. </p>
<p>While the vast majority of U.S. wine is consumed domestically, about 10 percent is shipped overseas. In 2017, the U.S. <a href="https://www.cambridge.org/core/books/wine-globalization/united-states/F91DB4F30BC37145AC9B92F37C2AA5D7">exported 380 million liters</a> of wine worth US$1.46 billion. Canada was the top destination, importing 28 percent of the total, followed by the U.K. with 15 percent, Hong Kong at 8 percent and Japan with 6 percent. </p>
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<h2>China’s small share</h2>
<p>China, for its part, imports quite a bit of wine. Very little, however, comes from the U.S.</p>
<p>China imported some $2.37 billion worth of wine in 2016, most of which came from the European Union. Only <a href="https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/usa/show/2204/2016/">$76 million</a>, or 2.2 percent, was American.</p>
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<p>That puts China sixth among top destinations for U.S. wine exports, with a share of about 5 percent. </p>
<p>These <a href="https://www.adelaide.edu.au/wine-econ/pubs/working_papers/WP0517.pdf">figures underestimate</a> the true value somewhat because perhaps half of Hong Kong’s imports are then shipped or smuggled to China. Even allowing for these adjustments, Chinese consumption of U.S. wine makes up less than 1 percent of the total value of American production. </p>
<p>It’s clear that at the moment China is not all that important to most California wine producers. Why then are U.S. wine producers anxious about new tariffs disrupting trade to this relatively minor market? </p>
<p>It’s all about the future. Although per capita consumption of wine in China remains very low, China is the world’s fastest-growing wine market and is expected to soon become the second largest, after the U.S. </p>
<p>From 2000 to 2016, <a href="https://www.adelaide.edu.au/wine-econ/pubs/working_papers/WP0517.pdf">Chinese wine consumption soared</a> from 219 million liters in 2000 to 1.24 billion liters in 2016. <a href="https://www.adelaide.edu.au/wine-econ/pubs/working_papers/WP0517.pdf">Some observers estimate</a> growth was even higher. Much of that consumption was imported – especially in the premium wine segment. </p>
<p><a href="https://www.cambridge.org/core/books/wine-globalization/asia-and-other-emerging-regions/85F1403DA98F8B4BB57F837734D91589">Economists who have studied these markets</a> project further significant growth in China’s demand for wine, including premium wine imports. </p>
<p>This would make getting pushed out of China especially troubling at a time when global per-capita wine consumption has been declining, especially in Europe. </p>
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<h2>Already at a disadvantage</h2>
<p>Even without the new tax, U.S. exporters were facing a tilted playing field that would have constrained the potential for increasing California’s market share. </p>
<p>Without the new tariffs, China already collected a tariff of 14 percent on most U.S. wine – though it can reach as high as 20 percent in some categories. In contrast, <a href="https://www.adelaide.edu.au/wine-econ/pubs/working_papers/WP0517.pdf">wine from some countries</a>, such as Chile, Georgia, New Zealand and, starting next year, Australia, enter China duty-free. </p>
<p>With the new tariff in effect, most American wines will incur duties of 29 percent. </p>
<p>Hong Kong, however, does offer a back door to U.S. wine. The China-governed island phased out its own steep tariffs on wine imports a decade ago. This has created an incentive for smuggling. </p>
<h2>A market lost?</h2>
<p>So what does all this mean? </p>
<p>Given the small share of total U.S. wine currently going to China, the new tariff would not likely have a material effect on the American wine industry, whether in terms of domestic prices or producer bottom lines. Still, it will be disruptive for particular businesses especially in the near term. </p>
<p>The real concern for American wine producers is that high tariffs applied today may make U.S. wine too expensive and cause them to miss out as hundreds of millions of Chinese middle-income consumers increase their wine consumption over the next decade.</p>
<p>More broadly, if the trade spat escalates to a trade war, serious damage will be done to all of U.S. agriculture, including grape and wine producers. Even more troubling, if the loss of trade causes broader damage to the U.S. economy, it could even affect demand for California wine in its most important market: the United States.</p><img src="https://counter.theconversation.com/content/94607/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julian M. Alston receives grant funding from USDA, CDFA, and other government agencies, and occasionally from industry, to support his work on wine economics. </span></em></p><p class="fine-print"><em><span>Daniel A. Sumner receives grant funding through the University of California
from U.S. Department of Agriculture the California Department of Food and
Agriculture, other government agencies and occasionally from industry sources,
to support his work on economics of wine and other agricultural products.</span></em></p><p class="fine-print"><em><span>Olena Sambucci receives funding from USDA, CDFA, and other government agencies, and occasionally from industry, to support her work on wine economics.</span></em></p>While the proposed tariffs would have little effect on US wine sales in the short term, their long-term impact could be much more problematic.Julian M. Alston, Director of the Robert Mondavi Institute Center for Wine Economics, University of California, DavisDaniel Sumner, Frank H. Buck, Jr, Distinguished Professor of Agricultural and Resource Economics, University of California, DavisOlena Sambucci, Postdoctoral Scholar in Agricultural and Resource Economics, University of California, DavisLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/357132014-12-31T08:44:06Z2014-12-31T08:44:06ZJust drink it: why wine investing usually isn’t worth it<figure><img src="https://images.theconversation.com/files/68005/original/image-20141223-32204-1pfxa2m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Save or consume? Research suggests wine makes a poor financial investment. </span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Investing in fine wines has become increasingly popular over the past few decades as many in the viticulture industry have promoted fermented grapes as a way to boost returns and diversify a portfolio. The rapid rise in public interest has been accompanied by a growing body of <a href="http://www.wine-economics.org/journal">economic literature</a>. The <a href="http://www.wine-economics.org/aawe/wp-content/uploads/2012/10/Vol.7-No.1-2012-Wine-Economics.pdf">evidence</a> suggests it may not be wise to buy wine as investment instead of for drinking. Investing in common stocks yield higher returns in the long run – and is less risky. </p>
<p>As you might expect, the wine trade considers its product the ultimate asset. Industry insiders have argued that wine generates above-average returns, helps to diversify an investor’s portfolio (thus lowering its risk) and – if all fails – the owner can still drink it. </p>
<p>Zachy’s, a major New York wine retailer and wine auction house, for example, claims that auction prices of top Bordeaux wines have <a href="https://www.questia.com/library/journal/1G1-77084553/the-rate-of-return-on-investment-in-wine">increased 25% to 50% annually</a> in the past few years. And back in 1998, Peter Meltzer of the Wine Spectator, the world’s largest wine magazine, wrote that the wine market <a href="http://www.wine-economics.org/workingpapers/AAWE_WP85.pdf">outpaced the Dow Jones Industrial Average</a> throughout the 1990s. </p>
<p>A would-be investor should know that the majority of wines are not “investment-grade” – a financial term signifying relatively low risk – and will not benefit from being stored for more than two or three years. Experienced wine investors concentrate on only the finest growths from Bordeaux and Burgundy and selected wines from California. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/68006/original/image-20141223-32225-1906hhu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/68006/original/image-20141223-32225-1906hhu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/68006/original/image-20141223-32225-1906hhu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/68006/original/image-20141223-32225-1906hhu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/68006/original/image-20141223-32225-1906hhu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/68006/original/image-20141223-32225-1906hhu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/68006/original/image-20141223-32225-1906hhu.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/68006/original/image-20141223-32225-1906hhu.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">It may be worth letting a bottle get dusty to improve the taste, but not your ROI – return on investment.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>Wine: barely better than Treasurys</h2>
<p>Even among fine wines, the data on investing aren’t favorable. One of the <a href="http://www.jstor.org/stable/1832044">first economic analyses</a> that looked at the rate of return for storing wine over a period of time was <a href="http://www.jstor.org/stable/1833337">conducted in the late 1970s</a> by William Krasker. Drawing on 137 observations of red Bordeaux and California Cabernet Sauvignon from 1973 to 1977, he found that the return for holding such wine was not much better than that of risk-free US Treasury bills – which typically offer the lowest yields in the market. </p>
<p>To explain some of that difference it’s worth noting that stocks often yield dividends, while wine only offers capital appreciation. In addition, investing in wine incurs storage and other costs. </p>
<p>Elizabeth Jaeger of the University of Virginia, <a href="http://www.jstor.org/stable/1832044?seq=1#page_scan_tab_contents">appeared to counter</a> that poor performance with her own study, published in 1981. She reported that a wine portfolio similar to Krasker’s outperformed Treasury bills by 16.6%. This large difference, however, mainly comes down to sampling different periods of time (1969-1977 in Jaeger’s study) and her use of substantially lower annual storage costs than Krasker’s $16.60 a case. </p>
<h2>The ‘Bordeaux equation’</h2>
<p>In a seminal study that focused on a single year, Princeton economist Orley Ashenfelter developed the “Bordeaux equation,” which <a href="http://www.nytimes.com/1990/05/23/garden/wine-talk-847190.html">enabled him</a> to predict the quality of a wine vintage based on winter rainfall and growing-season temperatures in the famous French wine region of that name. </p>
<p><a href="http://www.wine-economics.org/workingpapers/AAWE_WP04.pdf">He found</a> that the real return on holding a range of Bordeaux wines in 1991 was 2.4%, a pittance compared with a 30% gain in the Dow Jones Industrial Average. A similar study by Gregory Jones and me in 2001 on Bordeaux wines for specific chateaux were <a href="http://digilander.libero.it/vergalli/pdf/53.pdf">significantly below</a> those for common stock. </p>
<p><a href="http://onlinelibrary.wiley.com/doi/10.1093/ei/39.3.337/abstract">Another study</a> from that year, this one by Benjamin Burton and Joyce Jacobsen, analyzed the semi-annual returns from storing Bordeaux wines from 1986 to 1996, focusing on repeat sales of the same wine and comparing them with various financial assets.</p>
<p>They discovered that a portfolio of first growths – a designation considered among the best – returned 6.8% over the period, barely better than the 5.8% gain on Treasury bills but about half that of the Dow Jones benchmark index. Even a portfolio of <a href="http://www.amazon.ca/The-Complete-Wine-Investor-Collecting/dp/076151676X">William Sokolin’s first investment-grade wine</a>s didn’t do much better, returning an average of 9.4% at auction. And that’s before including sales commissions, insurance and storage costs, which would make them even worse. </p>
<p>Not only does wine generally perform worse than equities, it’s also riskier. The standard deviation – a measure of variation when analyzing a variety of data points – of a wine portfolio consisting of grand cru selections is more than twice as high as that of the Dow Jones Industrial Average. Portfolios focused on first growths or the 1961 vintage exhibit an even larger degree of variability between the highs and the lows. </p>
<h2>Wine as a hedge</h2>
<p>While wine may not be a great investment on its own, it can work as a sort of hedge, or way to diversify a portfolio of assets and provide some protection during market downturns. Researchers <a href="http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCAQFjAA&url=http%3A%2F%2Fwww.researchgate.net%2Fprofile%2FSherrill_Shaffer%2Fpublication%2F228574900_Bordeaux_wine_as_a_financial_investment%2Flinks%2F02e7e51d34cb73d6b0000000&ei=85iZVKTKFpSKsQT11oK4Dw&usg=AFQjCNEBsMcgh2zBKdpTtycwcTQGMJxSvg&sig2=aLnPjfRc-q-cm00TPlxLQg&bvm=bv.82001339,d.cWc">analyzed</a> Bordeaux auction prices before the financial crisis hit in 2008 and <a href="http://www.wineecoreports.com/upload/internet/MASSET_HENDERSON_WEISSKOPF_Wine-as-Alternative-Asset-Class.pdf">found</a> that the changes in the two assets, wine and equities, bore little or no correlation to one another and moved independently, suggesting wine would be a good way to hedge or offset stock market risks. </p>
<p>In fact, Philippe Masset and Jean-Philippe Weisskopf of the Ecole hôtelière de Lausanne <a href="http://www.wine-economics.org/aawe/wp-content/uploads/2012/10/AAWE_WP57.pdf">studied the profitability</a> of wine investments during the financial crisis, finding that adding them to a portfolio boosted returns – as well as risk. The study didn’t clarify whether this recent positive outlook on wine is a permanent phenomenon or was merely due to a bubble in prices, <a href="http://www.wine-economics.org/aawe/wp-content/uploads/2012/10/AAWE_WP32.pdf">as suggested</a> by NYU economist Boyan Jovanovic.</p>
<p>The latter explanation, though, has proven to be more accurate. Since June 2011, the Dow Jones Industrial Average has jumped more than 50%, while fine wine prices have slumped more than 40%, according to the <a href="https://www.liv-ex.com/home.do">London International Vintners Exchange Fine Wine 50 Index</a>. </p>
<p>So this New Year’s might be a good time to dust off that Bordeaux you’ve been holding onto and enjoy it with your loved ones. Don’t buy another one in order to make money on it.</p><img src="https://counter.theconversation.com/content/35713/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Karl Storchmann does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Investing in fine wines has become increasingly popular over the past few decades as many in the viticulture industry have promoted fermented grapes as a way to boost returns and diversify a portfolio…Karl Storchmann, Clinical Professor of Economics, New York UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/350842014-12-29T14:45:47Z2014-12-29T14:45:47ZLost in the wine aisle? Winemakers want to know which labels will catch your eye<figure><img src="https://images.theconversation.com/files/67719/original/image-20141218-31025-powvjh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Alsatian wines in a supermarket</span> <span class="attribution"><a class="source" href="http://commons.wikimedia.org/wiki/File:Alsatian_wines_in_a_supermarket.jpg">francois</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Most wine purchasers are dazed and confused as they wander the aisles of their local wine shop. There are thousands of wine brands and dozens of types of wines lining the shelves. </p>
<p>Obviously wineries want purchasers to pick their bottle. So they’ve done a lot of research into what makes a buyer choose a particular wine – and it turns out the labels have at least something to do with it, at least for <a href="https://www.academia.edu/6163338/The_Importance_of_the_Information_on_the_Back_Label_of_a_Wine_Bottle_on_the_Purchase_Decision">71% of US wine consumers</a>.</p>
<h2>What’s on the front</h2>
<p>Interestingly, wine drinkers claim they don’t find “has an animal on it” to be a very desirable advantage for a wine label. But five of the nine <a href="http://www.embassyconferences.co.za/media/Presentation%20Gender%20and%20Wine%20Labels.pdf">top-selling wines in 2005</a> in the US sported animals on their labels. And wine drinkers in <a href="http://purl.umn.edu/162281">our survey</a> rated as second-most attractive a label with an animal – Yellow Tail, with its vibrant picture of a wallaby. </p>
<p>The label that achieved the highest rating for attractiveness was Twin Fin, with its colorful picture of a classic convertible with a surfboard near the beach. The top two labels delivered on the characteristics wine drinkers say they like: eye-catching, unique, stylish, creative, clever and colorful. </p>
<p>In an effort to attract the youngest wine drinkers – the millennials – wineries have upped the colorful, wacky and creative design elements on their labels. Interestingly, in a cross-generational <a href="http://purl.umn.edu/162281">survey</a> of the importance of attractiveness, millennials and baby boomers both rated a wine label’s appearance more important to them than generation Xers did. For the most part, wine drinkers of all ages agreed which labels were most attractive. So it’s not only the millennials who are attracted to colorful and creative labels.</p>
<p>Although generations may agree on what label features reel them in, there are some differences between male and female preferences. My research group <a href="http://www.embassyconferences.co.za/media/Presentation%20Gender%20and%20Wine%20Labels.pdf">asked</a> men and women to rate nine wine label logo features:</p>
<ul>
<li>has an animal on it</li>
<li>bold</li>
<li>eye-catching</li>
<li>simple</li>
<li>ornate</li>
<li>creative</li>
<li>classic</li>
<li>intriguing</li>
<li>colorful</li>
</ul>
<p>Women preferred more creative, eye-catching, colorful and ornate wine labels than men did. Similarly, women rated plain, less colorful logos lower in attractiveness than men did. Wineries have used this kind of data to create wines targeted specifically to female drinkers. Some of those include Middle Sister, Cupcake, Girls Night Out and Mommy Juice. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/67859/original/image-20141219-31539-2qp48i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/67859/original/image-20141219-31539-2qp48i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/67859/original/image-20141219-31539-2qp48i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/67859/original/image-20141219-31539-2qp48i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/67859/original/image-20141219-31539-2qp48i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/67859/original/image-20141219-31539-2qp48i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/67859/original/image-20141219-31539-2qp48i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/67859/original/image-20141219-31539-2qp48i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">What info on the back label would tempt you?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/jayeb333/4311274926">Jason Eberle</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<h2>What’s on the back</h2>
<p>How important is the information on the back label of wine bottles to consumers? Almost half of the wine drinkers <a href="https://www.academia.edu/6163338/The_Importance_of_the_Information_on_the_Back_Label_of_a_Wine_Bottle_on_the_Purchase_Decision">surveyed</a> – 49% – said the words on the back label are at least somewhat important to their purchase decision. Further, 55% said they read a wine bottle’s back label at least somewhat often. But what’s the most desirable kind of info to print back there? </p>
<p>Wineries asked consumers if they wanted:</p>
<ul>
<li>descriptions of flavors and aromas</li>
<li>interesting information about the winery</li>
<li>explanations of food pairings</li>
<li>history of the winery</li>
<li>a story about the wine</li>
<li>growing region features</li>
<li>climate of the vineyard</li>
<li>winery website</li>
<li>a story about the wine maker</li>
<li>the winery location</li>
<li>humorous information</li>
<li>wine-making practices</li>
<li>vineyard’s soil</li>
<li>romantic story</li>
</ul>
<p>Consumers indicated that a description of flavors and aromas of the wine on the back label is the most important information. They simply want to know what to expect from the wine. That’s more valuable to consumers than information about the winery, food pairings, history of the winery or history of the wine. </p>
<p>To go one step further, we had consumers evaluate four specific back label concepts for a new wine. They looked at four themes for the back label: flavors and aromas, award-winning wines, growing region climate and a romantic story about the winery. As before, it was the flavor and aroma description that consumers said would probably increase their likelihood to purchase the wine. Awards and climate information may increase purchase. The romantic story did not increase purchase interest.</p>
<p>Wine has evolved over the past decade from a drink that exclusively was paired with food, to one that is now a beverage for all occasions – dining, socializing, relaxing and celebrating. When wine was simply an accompaniment for food, labels could be dull and descriptive. But now their enhanced logos, images and romantic stories reflect these new uses.</p>
<p><em>This article is part of The Conversation’s holiday series on wine. <a href="https://theconversation.com/us/topics/wine-2014">Click here</a> to read more articles in the series.</em></p><img src="https://counter.theconversation.com/content/35084/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marianne McGarry Wolf does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If the label has an animal on it, chances are you’ll buy the wine.Marianne McGarry Wolf, Interim Department Head and Professor of Wine and Viticulture, California Polytechnic State UniversityLicensed as Creative Commons – attribution, no derivatives.