The right of Peter Yeung and Liz Thach to be identified as the authors of this book has been asserted in accordance with the Copyright, Designs and Patents Act 1988.
First published in 2019 by Infinite Ideas Limited
This edition published 2024 by Académie du Vin Library Ltd academieduvinlibrary.com
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Lafite and Los Vascos bottles page 63, Ace of Spades and Krug bottles page 140 all courtesy of Wine.com. Perrier-Jouët bottle page 140 courtesy of Pernod-Ricard. Cristal packaging page 145 courtesy of Champagne Louis Roederer; permission from Xavier Barlier, CMO, Maison Marquis & Domaines, USA. Penfolds collaborations photos, page 243 courtesy of Treasury Wine Estates. Peter Yeung photo page 269 courtesy of Jennifer Lamba.
ThE SIX ATTRIbUTES Of LUXURY WINE
The above definition can be further explained by delving more deeply into the six attributes of quality, place, scarcity, price, privilege, and pleasure.
1. Highest level of quality – globally recognized for producing a wine of the highest quality that can age and is suitable for cellaring. Must have achieved this for a long period of time with consistency – at least twenty years – proving the unique heritage of the brand.
2. Coming from a special place – recognized as coming from a special wine-grape-growing region with cultural significance. High-quality grape vines can only be grown in unique places in the world that have a special climate and soil. Many of these locations have long been recognized as supreme wine-grape-growing areas and have a strong sense of heritage.
3. Sense of scarcity – part of the branding component of luxury wine is that it is difficult to obtain, which can be developed through actual scarcity (hard to find), perceived scarcity (barriers to purchase), or price (so expensive it feels scarce). Often luxury wine has the ability to achieve higher prices on the secondary market.
4. Elevated price point – a foundational element of luxury wine, high price creates a barrier to purchase, higher perceived quality, and, if sustainable, higher willingness to pay by consumers. Generally speaking, luxury wines should be $100/bottle or greater in US retail.
5. Provides a sense of privilege – part of the exclusivity of luxury, be it from price, scarcity, or the symbolic nature of the brand and product is the status it confers on the owner, or in this case, drinker. This provides a sense of privilege to be able to partake in a wine that few others may have the opportunity to enjoy. The bottles in the cellar are the envy of other wine geeks globally. Luxury, by its definition, is a privilege, and wine is no exception.
6. Provokes pleasure – provides an aesthetically pleasing experience by viewing the bottle/collection and showing it to others. Also provides a hedonistic experience through consumption.
ThE GROWING IMpORTANCE Of SUSTAINAbILITY
Having both the highest level of quality and coming from a special place, luxury wines exhibit a character common amongst many luxury products, which Kapferer and Bastien describe in Luxury Strategy as “time-
less” – the ability to be relevant decades from when the product was produced. When this is applied to wine, several elements come into play. The ability to improve with age and be of consistently high quality are both fundamental elements of luxury wine. Being relevant over a sustained period of time, to produce the highest quality, creates the special places where luxury wine is grown. For all those attributes to flow into luxury wine, both the viticultural and winemaking practices must be increasingly sustainable, often incorporating elements of organics, biodynamics, and environmentally sustainable practices. If they are not, the land and the vines will no longer have the energy or the nutrients to consistently, continually, produce the quality necessary for a luxury wine. Interestingly, most luxury wines do not aggressively market themselves as organic or biodynamic, though most utilize those practices, in order to focus on their brand and the quality of their product as opposed to the farming methods.
A similar case can be made for economic sustainability as well. Without generating strong enough returns to survive, the winegrower will no longer be able to continue producing top-quality wine. For luxury wine, this is embedded in the elevated price, as crafting luxury wine with meticulous care often requires a great deal of investment in facilities, tools, and labor.
WhAT LUXURY WINE IS NOT
Just as important to understand what luxury wine is, is to understand what it is not. The world of wine is privy to trends like the fashion industry, technological revolutions on par with the digital revolution for an agricultural industry, and instantaneous hits similar to food fads – yet luxury wine separates itself as being classic and timeless. It may be easy to consider wines marketed with a luxury lifestyle component – advertisements set on yachts or in high-end clubs – as luxury wines, but more often than not they fail to live up to the definition of luxury wine.
ThE LUXURY LIfESTYLE
Often, the term luxury and luxury wine are directly associated with a luxurious lifestyle. Many aspiring luxury wine brands believe they must appear to fit in with a lifestyle of private jets, yachts, and twenty-thousanddollar watches to be a successful luxury wine. However, the two are not always related. Many top Burgundian producers will often profess that their
From this process two lists emerged: the first entitled “Top Luxury Wine Players,” and the second entitled “Emerging Luxury Wine Players.” These are described in the following paragraphs.
Highes t level of quality
Coming from a special place
Sense of scarcity
Elevated price point
Provides sense of privilege
Provokes pleasure
TOp LUXURY WINE pLAYERS
Following is the list of top luxury wine players that emerged from analyzing global luxury wine brands based on the six criteria: 1) Highest level of quality – globally recognized for producing a wine of the highest quality that can age and is suitable for cellaring; must have achieved this for a long period of time with consistency – at least twenty years – proving the unique heritage of the brand. 2) Coming from a special place – recognized as coming from a special wine-grape-growing region with cultural significance, high quality, and a strong sense of heritage. 3) Sense of scarcity – difficult to obtain due to small quantities produced or the perception of scarcity. 4) Elevated price point – at least $100/bottle or greater in US retail, and having the ability to sell well on the secondary market as a collector’s item. 5) Provides a sense of privilege – the symbolic nature of the brand makes it a privilege to own in the eyes of the owner and others. 6) Provokes pleasure – provides an aesthetically pleasing experience by viewing the wine, showing it to others, and/or a hedonistic experience through consumption.
Luxur y Wine
Figure 2.1: The luxury wine funnel
Based on this analysis, there are currently ninety-five global top luxury wine players, as organized alphabetically in the list overleaf:
1. Angélus – France
2. Antinori – Italy
3. Armand Rousseau – France
4. Ausone – France
5. Bartolo Mascarello – Italy
6. Biondi Santi – Italy
7. Bollinger – France
8. Bonneau Martray – France
9. Ca’ del Bosco – Italy
10. Chapoutier (Ermitage) – France
11. Château d’Yquem – France
12. Château de Beaucastel – France
13. Château-Grillet – France
14. Cheval Blanc – France
15. Climens – France
16. Clos de Tart – France
17. Clos des Lambrays – France
18. Clos Rougeard – France
19. Coche-Dury – France
20. Cos d’Estournel – France
21. Diamond Creek – US
22. Dom Pérignon – France
23. Domaine de la Romanée-Conti – France
24. Dominus – US
25. Dujac – France
26. E. Guigal – France
27. Egon Müller – Germany
28. Emmerich Knoll – Austria
29. Faiveley – France
30. François Raveneau – France
31. F. X. Pichler – Austria
32. Gaja – Italy
33. Georges Roumier – France
34. Giacomo Conterno – Italy
35. Giuseppe Quintarelli – Italy
36. Graham’s – Portugal
37. Guy Roulot – France
ing is described later in this chapter in the “luxury wine market sizing methodology” section.
The global luxury wine market, for market sizing purposes defined as wines over $100/bottle in US retail – including still, sparkling, and fortified wine – is approximately 2.1 million 9-liter cases produced, used as a proxy for sales, with a retail value, cases produced multiplied by the US retail price, of $5.5 billion annually, circa 2015. Leveraging a methodology used by Jancis Robinson, MW for valuing Bordeaux châteaux, this implies a market valuation of luxury wineries around $82 billion.
Table 3.1: Luxury wine market, circa 2015
Luxury wine market category Market size
Cases 2.1 million 9-l cases
Retail value
$5.5 billion annually
Market capitalization of luxury wineries $82 billion
Though the luxury market is a relatively small part of the 3.2 billion 9-liter case and $302 billion global wine market, according to Zion Research, the impact of luxury wine is much broader. The brands represented in the luxury market are the icons of fine wine and wine in general. They build demand for other sections of the wine market and draw the interest of consumers worldwide.
How does the authors’ research match with other estimates of the market? The luxury wine sector is an understudied market, partially due to its relatively small size, but also due to a lack of transparent information, part of the rationale for conducting the research. One comparative is Jancis Robinson’s work in 2011 where she estimated that the top Bordeaux châteaux had a market value of €15 billion, approximately $18 to $20 billion. Her analysis includes wines and châteaux that do not meet the $100/bottle qualifying mark for the Luxury Wine Database. If the same methodology is used on the luxury wine market, applying a fifteen-times multiple to “production value” or retail value based on recent Bordeaux châteaux transactions, the luxury wine market would have a market valuation of roughly $82 billion. Given Bordeaux makes up 21 percent of the luxury wine market by volume and 35 percent by value,
the luxury wine market sizing analysis would value the entire luxury wine market of Bordeaux between $16 and $28 billion, very close to the Jancis Robinson valuation of $18 to $20 billion, particularly in light of châteaux values continuing to increase since 2011.
Another interesting point of reference is to compare this to Constellation Brands, owner of a significant wine portfolio including Robert Mondavi, Schrader, and the Prisoner as well as major beer holdings, with over $7.5 billion in fiscal year 2018 sales, over eighty consumer brands, and sales of over fifty million cases of wine in 2017. It had a market capitalization as of February 2019 of $33 billion, nearly a third of the entire luxury sector, but sells nearly twenty-five times the volume of wine. This confirms the extraordinary value and influence the luxury wine sector holds.
LUXURY WINE pROfITAbILITY IN CONTEXT
Figure 3.1: Comparison of profitability across the wine value chain. EBITDA margin (EBITDA / revenue) – TWE uses EBITS (S = SGARA, an Australian accounting treatment similar to depreciation). Source: Shanken News Daily (11/27/2017); TWE 2017 Annual Report; National Wine & Spirits 2003 10-K; author analysis
Part of the outsize impact is due to the greater profitability of luxury wine compared to other wineries and areas of the wine value chain. As a business, when managed and run efficiently, as opposed to luxury win-
is a substantial increase in production costs, but much smaller than the twenty-five-times higher average price for luxury wines, and seven times higher than VinePair’s retail price of $30 per bottle for their $8.50 cost per bottle wine.
Figure 3.8: Luxury vs boutique wine estimated cost comparison: (a) Boutique wine production cost (VinePair), $/bottle; (b) Luxury wine production cost estimate, $/bottle, moderate estimate. Source: VinePair and author analysis
bENEfITS ANd ChALLENGES Of ThE LUXURY WINE bUSINESS
There is a strong attraction to the luxury business model in the wine industry. It is consistent with the desire to be the best, which is often what those who are passionate about wine want to enter the industry to be. It plays well for smaller wine estates, which can be side projects for wealthy owners, limiting upfront capital investment and operating expenses. The smaller volumes make for easier sales to a smaller customer base and the
Later researchers focusing on luxury wine identified the first two segments of Connoisseurs and Aspirers as being the primary consumers of luxury priced wines. However, this may be too simplistic for the modernday luxury wine consumer, so the authors have modified this foundation to create a more detailed segmentation of the luxury wine buyers, as illustrated in Figure 4.1, and described below. This new four-part segmentation is based on in-depth conversations with luxury wine buyers.
True Luxury Buyer
Price points: $75–125 everyday; ~$300 for special wines
Brand loyalty: fewer brands –knows the brand stories
1. True Luxury Buyer – These consumers love wine and drink it frequently, but are generally not educated about it. Luxury buyers buy a broad array of luxury goods, not just wine, and have a high income allowing
Figure
Four major types of luxury wine buyer
them to drink wines priced at $75 to $125 per bottle every day, and over $300 per bottle for special occasions. They are often top executives, celebrities, and/or athletes. They buy fewer brands, but know the story of the brands very well. They rely on their peer group to make recommendations on which wines to buy, and will also ask the sommelier at high-end restaurants. They like to buy very exclusive brands with limited access. An example of this type of consumer, as described by a wealth advisor: “My clients, mostly professional athletes, generally buy $100 bottles for everyday wine and $300 for special occasion wines.” They generally do not follow wine critics, though top critical reviews help support their perception of the wine brand.
2. Aspirational Buyer – These consumers dream of becoming True Luxury Buyers and derive pleasure from association with luxury brands and the people who drink them. They want the luxury lifestyle and feel that buying a luxury wine gives them an association with it, but may not have the income or wealth to do so at this point in life. They like to follow luxury buyers and feel an association with them. They often decide which wines to buy based on lifestyle magazines and what they see celebrities, athletes, and other True Luxury Buyers drinking. With enough income and wealth, aspirational buyers may become True Luxury Buyers over time.
3. Wine Collector – These types of consumers are very serious about wine and highly knowledgeable. They read wine books, magazines, and websites, and pay attention to wine critics’ scores. They also follow wine auction pricing. They have a high income, but it may be not as high as the True Luxury Buyer, and therefore focus on collectable wines that they can resell. On a daily basis, they drink wines priced around $40 to $80 a bottle, but for special occasions – or to analyze with friends – they will open $200 to $600+ bottles. They tend to buy wines from classic regions with good scores and are very brand conscious; however, they will purchase a wider selection of brands than the True Luxury Buyer to fill their large wine cellars. They are collectability driven, which is influenced by the specific score of the wine and its scarcity, and will pay high sums for the most collectible wines, which will be treasured elements of their cellars. They are active in their communities as influencers on which wine brands to purchase and follow. Often, they participate in charity auctions and host wine dinners with their friends and fellow collectors. In addition, they may lead their friends on wine expeditions, often creating long-lasting direct relationships with win-
The higher the price, the more prestige is associated with the product for Veblen goods, which includes luxury wines. This means that setting the price for luxury wine not only affects the demand for the wine, but also its status in the consumer’s mind and in the luxury wine marketplace. However, luxury wine pricing is a little more complicated than just having the highest price. Many factors must play a role in establishing the right price for the product, including a view of the overall market size, competition, product quality, brand strength, and consumers’ willingness to pay. At a dinner in Atlanta in 2015, the chairman of a Fortune 500 company and a luxury wine consumer remarked, “I have trouble with wines over $300 a bottle, that’s just too much for a bottle of wine.”
ThE LUXURY WINE pRICE CONTINUUM
$100–199
$50–99 a ordable “luxur y”
$200–499 special occasion luxur y
$1000+ dream wines
As described in Chapter 3 and shown in Figure 7.2 above, and contrary to the broader wine market definition of “luxury wine,” which Cholette and Castaldi in 2005 defined as $25 to $50 per bottle, Super Luxury as $50 to $100, and Icon as more than $100, the authors define luxury wine, in terms of price, as $100 per bottle and above. This definition is critical as wines in the $25 per bottle range follow more “normal good” behaviors. They behave more like standard consumer packaged goods with respect to their consumer base, generally different groups from luxury wine consumers, those purchasing $100 and above bottles of wine. A more apt term would be to describe wines in the $20 to $49 price points as “premium,” $50 to $99 as “affordable luxury,” and luxury wine, as differentiated by their customer base and marketing strategy, to be $100 and above. Luxury wine is much broader than just price; it fundamentally changes the marketing approach compared to commercial wines. In a blog post by Wine Business in 2018, Eric Jorgensen notes the experi-
Figure 7.2: Luxury wine price segments
ence of Magareth Henriquez, the CEO of Krug Champagne, with luxury wine: “With a background in marketing Consumer Packaged Goods (CPG), Ms. Henriquez tried to apply lessons she’d learned in marketing mass-market products. She quickly discovered, however, that she could not market Krug like a mass-market product and had to change her approach.”
The “dream wine” category represents the essence of luxury wine. They truly embody the definition of luxury wine as defined in Chapter 1: a bottle of the highest quality wine, coming from a special place on earth, that has a sense of scarcity, an elevated price, and provides a sense of privilege and pleasure to the owner. Most wine lovers can recite dream wine names from memory – Domaine de la Romanée-Conti, Lafite, Latour, Mouton, Pétrus, Screaming Eagle – many of which reside in Wine-Searcher’s list of the most expensive wines of the world.
Table 7.1: Wine-Searcher’s 25 most expensive wines – March 2019
de la RomanéeConti Romanée-Conti
Scharzhofberger
producers have different price tiers for their wine, and it is incredibly important not to introduce a less expensive line using similar packaging. In many cases it is much safer to create a new brand with its own brand story and packaging to match. Another issue is forgetting to consider the complete package. There have been instances of luxury wine brands designing beautiful labels, but not matching these with an equally upscale bottle and capsule – or forgetting to consider the outer packaging with expensive tissue paper, containers, and other support materials. Finally, as mentioned previously, if there’s a need to upgrade or enhance the packaging design, don’t forget to beta-test new designs with focus groups and/or trusted customers. This type of feedback can be extremely valuable, and can prevent costly mistakes.
vIGNETTE: CRYSTAL CLEAR CRISTAL
Probably one of the most famous luxury wine packaging stories is that of Cristal Champagne, because it was a very influential customer – the Tsar of Russia – who requested that the bottle be changed. A special product of the House of Louis Roederer, founded in 1776 in Reims, France, Cristal Champagne was developed in 1876 at the request of Tsar Alexander II of Russia.
A long-time fan of Roederer Champagne, the Tsar requested that a special cuvée be served at a magnificent sixteen-course dinner in Paris with the Kings of France and Prussia. Because he was worried about assassination attempts, the Tsar requested that Louis Roederer bottle the sparkling wine in a clear Baccarat crystal bottle with a flat bottom. He did this so that a bomb could not be hidden in the punt of the bottle, and to better admire the bubbles.
So Louis Roederer himself crafted the cuvée from the famous 1847 vintage, ordered the special crystal bottles for the dinner, and named the wine “Cristal.” The Champagne was a huge success, and the Tsar continued to order it for several years until he was killed – unfortunately by a bomb thrown by an assassin in the streets of St. Petersburg in 1881.
Roederer continued to produce Cristal for the Russian nobility and other heads of state, and it became known as a royal and aristocratic wine, although eventually it was packaged in a clear glass bottle instead of lead crystal. It was finally released commercially to the general public in 1945, and a cellophane wrapper was added to protect the clear bottles from UV damage. It comes in a distinctive gold box with the seal of the House of
Louis Roederer. The bottle also has a matching gold label and foil with “Cristal” emblazoned on both, along with the Roederer seal with the vintage in the center of the seal.
Today, Cristal is still sourced from 25- to 30-year-old vines on the estate, with some as old as 60. The vineyards are located in Montagne de Reims, the Vallée de la Marne, and the Côte des Blancs. The wine is only made in the very best vintages, and with a typical blend of 55 percent Pinot Noir and 45 percent Chardonnay. It does not go through malolactic fermentation, and 20 percent of the cuvée is aged in oak barrels. In general, it ages for six years in bottle and then another eight months after disgorgement. It is a brut in style with around 8 to 10 g/l sugar. The color is a golden yellow and the taste is fresh, with citrus, hazelnut, and a chalky minerality. Most distinctive is the creamy palate with thousands of tiny bubbles and very long finish.
Cristal gained substantial notoriety with a broader crowd in the late 1990s, with Jay-Z, a hip-hop artist, including Cristal in his songs and drinking it on stage while performing. This introduced thousands of fans to the wine and increased sales dramatically. However, when The Economist asked Frédéric Rouzaud, head of Louis Roederer about the connection of Cristal to the “bling” or hip-hop lifestyle, he said, “That’s a good question, but what can we do?” Jay-Z took offense and asked his fans to boycott the wine. This fanfare provided even more publicity for Cristal and cemented it in many luxury wine buyers’ minds as one of the most elite of Champagnes. Its sales have reached new highs and its heritage as one of the core luxury wine brands of the world continues on.
Figure 9.3 Cristal Champagne packaging
12 LUXURY WINE MANAGEMENT
In his lightly tattered, brown Blundstone boots, well-worn T-shirt, and Patagonia vest, the young bearded winemaker of an aspiring New World luxury wine brand walks into the CFO’s office and sits down on the couch. The winemaker has been contemplating how else they could improve wine quality. They have already overhauled the cellar with new tanks, revamped the barrel program, and bought an optical sorter. The only other thing he believes will improve quality is to buy their own bottling line. He tells the CFO how almost everybody in Italy has them and how they have to schedule the mobile bottling truck six months in advance, which makes it hard to know if the timing is right for bottling each wine. He tells the CFO the cost will be about a million dollars.
The CFO tells the winemaker that they should look into it. They will need to fully assess the costs, people, space, maintenance, and equipment, as well as assess how this will take them to the next level in terms of quality. After spending the next month getting quotes from vendors, assessing space at the winery, and gathering cost estimates, the CFO builds an ROI model to evaluate the investment. It shows that over a twenty-year period, assuming production grows to plan, the bottling line will be about break even on costs. It is more expensive today, but declines as production grows.
The CFO asks the winemaker if they should consider renting the line when they are not using it, since the winery will only be using it for six to eight weeks a year. The winemaker hesitates, knowing that would give them less flexibility to bottle on demand when he feels the wines are ready; this could impact on the quality improvement they are trying to
achieve with the line. The CFO agrees, noting that it would only be an extra twenty thousand dollars a year and that it is not significant or core to their business. They emphasize that their focus should be on making the highest quality wine to achieve their vision of being one of the iconic wines of the world.
Leveraging the analysis, the team builds consensus with the CEO and brings the proposal to the board of directors for approval. The board, having already been in agreement with the vision of the winery, approves the proposal. The winemaker places the order with the bottling line manufacturer, both of them excited and anxious about this new phase for the winery. There are now no excuses for not making the best wines in the world.
IT IS ALWAYS AbOUT ThE pEOpLE
A bit of an overused statement, but for good reason. It is always the people that make a company special. The nature and makeup of those people and how they work together as a team creates the ability to perform at a high level. Luxury businesses do have some different requirements for the type of people that succeed in them. As Kapferer and Bastien describe in The Luxury Strategy, luxury is both left-brained – a sharp eye on the business aspects – as well as right-brained – a strong artistic edge. They categorize three types of people necessary for the luxury team: artists, who can be creative for both the product and communication elements; artisans, those specialized in the production area of the product with significant experience; and managers, who need to have both leftbrain and right-brain skills, are proven in business, and are also able to work with artists. “In luxury, other than the creator, the most important people for the brand are the workers, those who make the product, and the salespeople, those who are in direct contact with the client. All the others are really at their service.”
When applied to luxury wine teams, four critical roles exist that must be filled with the right skill sets. The winemaker is the key artist of the team. His or her production team are the artisans, learning and building their craft and implementing the vision of the artist. The sales and marketing team is the main connection with the customer and requires solid relationship skills and an artistic edge to drive the brand’s differentiation. Finally comes the general manager, who must have both left-brain and right-brain skills and can manage the personalities of the artists while driving business objectives. These roles are depicted in Figure 12.1, overleaf.
