Someone recently told me that my saying “a bottle of wine is worth whatever the consumer is willing to pay for it” was a lazy, throwaway comment.

But it’s the reality! I protest.

In fact:

Supply is the total quantity of wine available in the market; demand is the total quantity that consumers are willing and able to purchase at various prices; price is the point at which supply and demand intersect, in a precarious and ever-changing equilibrium; utility is the satisfaction a consumer derives from drinking the wine; willingness to pay is the maximum amount a consumer is prepared to spend for that satisfaction.

And a bottle of wine’s worth — its value — is the story we tell about that equilibrium.

But at this moment in time, we’re well into the third consecutive year of falling wine prices or, the longest sustained down market since the 1970s. If price reflects the point where supply meets demand, then where is that equilibrium now?

It’s a frightening thing, to invest time, labour, and capital into a product, only to be told it’s worth less than the sum of its parts. It’s scary because value is not intrinsic; it’s determined by what someone else is willing to pay for it.

Some might rightly argue that the real value of a bottle must be based on fundamentals, on production costs. What are those costs? Land, labour, electricity, tax, and so on. Equipment, fuel, fertiliser, packaging, water, bottles, corks, labels, marketing, insurance, logistics, certification, compliance, warehousing, sales and distribution, …

On top of these costs, a premium is added for margin and prestige. And we tend to think that this premium (for wine) is always large.

But if I’m to believe what a Champagne grower once told me — that if you buy a bottle of Champagne in a UK supermarket for under £15 (at the time of writing, Sainsbury’s has two and Waitrose one), it likely means the grower behind it has lost money — then it’s clear there are some market dynamics pushing prices below that fundamental floor.

That’s not sustainable, on either end.

Over time, selling wine below cost of production isn’t viable. If the alleged benefits of supermarket partnerships don’t eventually outweigh the losses, those businesses won’t survive.

On the other hand — and perhaps this is where we are now? — excessively high prestige premiums added on top of that fundamental floor can damage the market in a different way. They tend to erode consumer trust, and buyers become sceptical and then they stop buying altogether.

But in such market conditions, when prices decline for this long, what is wine’s fair value?

Marie Antoinette’s “qu’ils mangent de la brioche” is often cited to mock an out-of-touch luxury thinking. In this analogy, wine is the brioche. Brioche is to bread what wine is to water. That’s to say: wine isn’t essential to life. Tim Atkin readers might disagree — but generally speaking, it’s not medicine. For a diabetic, there’s no price too high to pay for insulin. Thankfully, in Europe, we rarely test this economic theory known as inelastic demand. But in other parts of the world, where healthcare isn’t public, people know exactly what it means.

In my original comment: a bottle of wine is worth what someone is willing to pay for it and that’s because it’s not priced on need, but on desire.

And desire changes. It shifts with taste, personal circumstances — typically, as people age and expect to earn more, their willingness to spend increases. Also, in debt-driven economies, we experience credit booms and busts that expand and contract consumer appetite, depending on whether interest rates are falling or rising. Other factors — extraordinary events like lockdowns or tariffs — can also drive demand up or down.

This matters because if we price wine beyond what consumers are prepared to spend for the satisfaction it offers, at a specific point in time, we risk exceeding their willingness to pay for it. We’re at one such point now. It’s no use saying, “but my wine was flying off the shelf at twice today’s price only three years ago!”

The fact that this is the third consecutive year of declining prices shows just how difficult it has become to be in the business of selling wine. In many cases, there doesn’t even seem to be a price point low enough to satisfy consumers.

So, are we nearing a true floor? Are producers at risk because prices have fallen below the cost of production — or is that threshold still some way off, with more pain currently borne elsewhere in the chain?

Which brings us to the age-old dilemma: can producers lower prices without tarnishing their luxury image?

You’ll find a million and one papers advising luxury brands against lowering prices in a downturn, as it erodes status. Instead, they recommend launching lower-priced lines, telling better stories, cutting volumes, going green. And to be fair, the wine world has tried all of that.

But wine sits in a category of luxury that follows its own rules. It is produced every year. Its quality and quantity are often dictated not by business decisions, but by the weather. And your neighbours are producing it too.

A counterintuitive pricing strategy known as scarcity pricing was the focus of a recent study by researchers at Washington State University, examining wineries in Washington, Oregon, and California. Scarcity pricing doesn’t aim to maximise short-term profits. Instead, it deliberately sets prices below the market value in order to create excess demand and stimulate desire. In simple terms: more people wanted to buy the wines because they were perceived as bargains. This imbalance — demand outweighing supply — created a sense of scarcity in the eyes of consumers. Over time, the study found, this strategy increased demand for those wines.

There are caveats, of course: the wine has to be good. And producers must face proportionate capacity constraints. But the point is this: when consumers fall into a dormant state of non-spending, it might take a jolt — a perceptual bargain, a rare find — to wake them up.

Of course, this won’t apply to every wine or producer. But one thing is clear — recycling economic clichés won’t work now. So, if the question “What is a bottle of wine worth?” feels too charged, maybe the better one is: “What will it take to make people buy wine again?”

Photo by Loic Leray on Unsplash