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Wednesday 1 July 2015

Pauillac more costly to produce than Sauternes

29th August, 2012 by Patrick Schmitt

Cru classé Pauillac costs more to make than sweet wine from Sauternes, according to Vinfolio chairman Jean-Michel Valette MW.

During a lecture at Vienna’s Fine and Rare Specialist wine course last month, Valette debunked the idea that a botrytised sweet wine from Sauternes was Bordeaux’s most costly product to make using “real numbers from real wineries”.

Looking at factors such as the cost of land, farming, average yields and winemaking as well as packaging costs, he showed that a top red from Pauillac costs €29 per bottle to produce, whereas a sweet white from Sauternes comes out at €17.

Nevertheless, Valette’s figures do show that “farming” costs in Sauternes are slightly more expensive per bottle, costing €7 per bottle compared to €5 in Pauillac (see table 2 below).

Speaking generally about the findings, he said, “So many fine wine costs are remarkably similar across both styles and geography, but the biggest difference in cost comes from the value of the land.”

In his example, he said that vineyard for a Pauillac cru classé property costs €1.8 million per hectare to buy, and €300,000/ha in Sauternes, with yields in the two areas at 35 hl/ha and 17 hl/ha respectively.

Interestingly, he added that winemaking costs were slightly higher to make a Pauillac red than a Sauternes sweet wine, while packaging costs, which were a small proportion of the total, were the same.

Hence he commented, “Investing in packaging is a cheap way to look more expensive.”

Jean Michel Valette MW

He also compared the cost of producing such wines to a top Napa Valley Cabernet Sauvignon blend, and showed that a US fine wine from Napa would be more expensive to make than a Sauternes, though less than a Pauillac (see table 2, below).

He then considered whether fine wine retail prices were “fair” with an analysis of selling versus production and marketing costs (see table 3, below).

His calculations showed that the return on investment is lowest for a property in Pauillac.

“Nobody is making a huge amount of money even though half the bottle price is profit – the ROI is not a big number.”

He also pointed out that after the cost of land, the major expenses for any fine wine maker is selectivity in the vineyard and winery – or green harvesting, grape sorting and the proportion of press juice used, among other variables.

Finally, he stressed that the calculations for ROI don’t take into account the appreciation in land values which result from an improved winery reputation.

“This doesn’t include the fact that if you are doing a good job, the land value will go up,” he said, citing the probable appreciation of a highly rated property such as Pontet Canet, which is outperforming its fifth growth status.

“This [the results in table 3] just says that people who buy in now get a small return – but you make the real money when you sell the property.”

Hence, he stressed the temptation for owners of valuable estates to sell up and earn interest from the proceeds.

Summing up, he said that consumers of fine wine were “primarily paying for a special piece of land,” and that “land prices rise and fall with bottle prices, and vice versa.”

As for investing in a fine wine producing property, he quoted advice from Bill Harlan, owner and founder of Napa’s cult winery Harlan Estate, who said the way to make money is to find places where the potential is not yet realised, or, estates that “look bad, but are good.”

1. Bordeaux costs:
Pauillac cru classé Sauternes cru classé
Land cost/ha €1,800,000 €300,000
Farming cost/ha €23,000 €15,000
Yield hl/ha 35 17
First wine/second wine 50%/50% 50%/50%
Winemaking cost/hl €350 €250
Packaging per bottle €1.80 €1.90
2. Cost per bottle:
Pauillac Sauternes Napa fine wine
Land €19/bottle €7/bottle €8/btt
Farming €5 €7 €4
Winery €3 €2 €5
Packaging €2 €2 €3
Total €29/bottle €17/bottle €20/bottle
3. Return on investment:
Pauillac Sauternes Napa fine wine
Winery revenue/bottle €70 €35 €35
Production cost/bottle €29 €17 €20
Selling & admin/bottle €7 €4 €7
Profit/bottle €34 €14 €8
Profit/ha €52,100 €14,750 €25,900
Land cost/ha €1.8m €300,000 €514,000
ROI (%) 4% 5% 5%

4 Responses to “Pauillac more costly to produce than Sauternes”

  1. John Smits says:

    Nice story with figures.
    I think that the difference in harvest makes that the Sauturnes are more expensive. This is especially through the picking of the mature grape by grape. I don’t know the calculation of the land but in my opionion it must be spreaded over decades. Neverthless a nice story.
    John Smits

  2. David Singer says:

    Great article. One small issue, Bill Harlan is the owner and founder of Harlan and Bond, not Screaming Eagle.

  3. Patrick Schmitt says:

    Of course, and apologies. Now corrected. Thank you.

  4. Francois says:

    Patrick please explain the math in your profit/ha. Worked backwards- profit/ha devided by profit / btl as stated, neither Pauillac or Sauternes numbers end with your stated yields/ ha. Also any idea over how many vintages the cost of the land was factored into bottle cost?

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