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There is an ongoing debate on whether wine reviews provide meaningful information on wine properties and quality. However, few studies have been conducted aiming directly at comparing the utility of wine reviews and numeric measurements in wine data analysis. Based on data from close to 300,000 wines reviewed by Wine Spectator, we use logistic regression models to investigate whether wine reviews are useful in predicting a wine’s quality classification. We group our sample into one of two binary quality brackets, wines with a critical rating of 90 or above and the other group with ratings of 89 or below. This binary outcome constitutes our dependent variable. The explanatory vari- ables include different combinations of numerical covariates such as the price and age of wines and numerical representations of text reviews. By comparing the explanatory accuracy of the models, our results suggest that wine review descriptors are more accurate in predicting binary wine quality classifications than are various numerical covariates— including the wine’s price. In the study, we include three different feature extraction methods in text analysis: latent Dirichlet allocation, term frequency-inverse document frequency, and Doc2Vec text embedding. We find that Doc2Vec is the best performing feature extraction method that produces the highest classification accuracy due to its capability of using contextual information from text documents.

Keywords: classification, logistic regression, text analysis, wine review.

This paper explores growers’ supply response to the 2005 “Sideways effect” demand shock (Cuellar, Karnowsky, and Acosta, 2009) triggered by the 2004 release of the movie Sideways. We use a modified difference-in-difference approach to evaluate the supply response in California and regional supply response differences within California. We use U.S. Department of Agriculture data for the period 1999–2012 and find evidence of a supply response in the post-release period that is consistent with the “Sideways effect” on wine demand. The positive supply response for Pinot Noir is stronger than the negative response for Merlot and concentrated in lower value Central Valley vineyards.

Keywords: California, grapes, Merlot, Pinot Noir, supply response, wine.

The modern era of wine journalism has provided abundant information about wines and wide- spread use of numerical rating systems. A tiny difference, especially at the top of the distribu- tion of ratings, may have striking consequences on wine sales and investment returns. This article provides a general framework to obtain a consensus among tasters’ opinions (reflected as numerical wine ratings) via three subsequent stages: normalization, approval, and aggregation. It is inspired by contributions in political science, social choice, game theory, and operations research. We apply it to the Judgment of Paris as well as to rank 2018 en-primeur Bordeaux wines, rated by five international experts.

Olivier Gergaud, Victor Ginsburgh and Juan D. Moreno-Ternero

Keywords: global wine score, Judgment of Paris, ratings, 2018 en-primeur Bordeaux wines, wines

Using a sample of New York City restaurants, we examine the relationship between a wine’s bottle margin and whether the restaurant offers that same wine by the glass. We find that restaurants offer less expensive wines by the glass but set higher margins on these bottles than for similar wines offered only in bottles. Overall, offering wine by the glass is associated with a 5.0% increase in the bottle price and a 12.2% increase in the bottle margin. We find similar results for retail and wholesale markups of wine bottles. Our results offer evidence that settles a theoretical ambiguity in the menu-pricing literature (Anderson and Dana, 2009) about whether to raise or lower the price of a high-quantity package when introducing a low-quantity package of a good, as it applies to restaurant wine pricing.

James A. Dearden, Xiaohui Guo and Chad D. Meyerhoefer

Keywords: product-line pricing, restaurant wines

The Italian market of sparkling wines increases as volume and assortment (such as brands, appellations, typologies) mainly because of sparkling Prosecco consumption. We investigate the repeated purchase behavior of sparkling wines in two years within the supermarket channel through scanner data collected from a consumer panel. We propose a Hidden Markov Model to analyze these data, assuming an unobservable process to capture consum- ers’ preferences and allowing us to consider purchases sparsity over time. We consider multi- variate responses defining types of purchases, namely price, appellation, and sugar content. Customers’ covariates influence the initial and transition probabilities of the latent process. We identify five market segments, and we track their evolution over time. One segment includes Prosecco-oriented consumers, and we show that loyalty to Prosecco changes strongly over time according to the region of residence, income, and family type. The findings improve the understanding of the market and may provide evidence to design successful marketing strategies.

As part of a classic article in this journal, Richard Quandt identified 123 wine descriptors that he deemed to be bullshit. In this paper, I examine whether wine consumers are willing to pay any more (or less) for wine if it is described by one of those “bullshit” descriptors. I use three methods to examine that. The first method involves applying a hedonic regression to a dataset of prices and expert descriptions for about 50,000 wines. The second method involves applying a match- ing estimator to the same dataset. The third method involves a stated-preference survey of about 500 wine consumers. The three methods suggest that for most of the descriptors Quandt deemed to be bullshit, most consumers’ marginal willingness to pay for a descriptor is zero or near-zero. Yet, for some of the descriptors, some consumers do seem to have a non-zero marginal willing- ness to pay, perhaps because the descriptors shape a consumer’s subjective experience or because they signal objective aspects of wine.

Kevin W. Capehart

This study provides a perspective on the market performance of divestitures in the global brewing industry. In 2018, the five largest players accounted for 60% of the global beer volume. We analyze to what extent the capital market values divestitures in an industry where players usually seek efficiency gains and growth through mergers and acquisitions. Based on a sample of 61 divestiture intent announcements in the period from 1999–2018, this study shows that publicly listed brewing groups experience significant positive abnormal returns of about 1.4%. We measure the influential effect of success determinants concerning the underlying industry, the divested business, the divestiture structure, and the divestor itself.

Ludwig Erl and Florian Kiesel

Keywords: brewing industry, divestiture, event study, industry consolidation.

We conducted an in-store experiment to test the hypothesis that Colorado wines may suffer from reputational stigma. The context relates to marketing challenges faced by novel wine regions entering the competitive retail environment, even in a local context, and the possibility of being stuck in a “bad reputation trap.” Adopting a 2×2 design where we varied region of production (Colorado vs. California) and grape variety (familiar vs. unfamiliar), we adminis- tered a between-subject information treatment that revealed the origin of production to only half of the participants. We measured taste perceptions using Likert scales, and we elicited val- uation via a multiple price listing. Our results are consistent with the presence of stigma against wines produced in Colorado. In the discussion, we draw from the literature on stigmatized markets to suggest plausible strategies to remove or avoid stigma.L1, L15, Q1, Q13

This article examines how selected attributes of Bordeaux fine wines (producer, vintage, quality, bottle size, case, flaws, and transaction volume) affect prices in three types of trading venues: auc- tions, electronic exchange, and the over-the-counter (OTC) market. The findings indicate a price differentiation across the venues. Wine aging leads to relatively higher prices at auctions than on the electronic exchange or the OTC. There is a nearly linear relationship between prices and wine ratings, the strongest of which is found in the case of auctions. The bottle size effect is mostly positive for supersized formats and is the strongest on an electronic exchange and the weakest at auctions. The transaction volume negatively affects wine prices in all the trading venues. The simulation results facilitate the construction of more realistic trading models and may help traders make more informed decisions on the choice of a trading venue, depending on the wine characteristics.

This paper analyzes the nonlinear relationship between the advertising investment and repu- tation of collective brand members in an experience goods industry, as well as the moderating role of their market share within the collective brand. The central assumption is that the quality reputation of collective brand members has a positive effect on their advertising invest- ment until a reputation threshold is reached, after which the effect on advertising investment becomes negative. This change in the slope is explained by the information sets (firm reputa- tion and collective reputation) used by consumers to reduce uncertainty, which leads to a weaker motivation for the firm to invest in advertising. In addition, scale economies of adver- tising mean that the market share of collective brand members negatively moderates the cur- vilinear relationship between quality reputation and advertising investment. The results for a sample of 176 companies in a Spanish experience goods industry (i.e., winemaking) between 2004 and 2014 show an inverted U-shaped relationship between the advertising investment and reputation of collective brand members. The results also show that market share nega- tively moderates this curvilinear relationship.

This article documents how the COVID-19 crisis has affected the drinking behavior of Latin European wine consumers. Using a large online survey conducted during the first lockdown in France, Italy, Portugal, and Spain (n = 7,324 individuals), we reconstruct the purchasing and consumption patterns of the respondents. The number of people who maintained their wine consumption frequency is significantly higher than those who increased or decreased their con- sumption. Wine consumption frequency held up better than other types of alcohol (beer and spirits). We analyze heterogeneities among countries and individuals by employing the Marascuilo procedure and an ordered logit model. The latter identifies the impact of demo- graphic, commercial, and psychosocial factors on wine consumption frequency. The results shed light on changes in wine consumer behavior during the first lockdown and consider pos- sible post-lockdown trends that could be useful to industry players.

This article provides an empirical case study of the impacts of the COVID-19 pandemic on global beverage markets, particularly the wine sector. Both international trade and domestic sales have been adversely affected by temporary shifts away from on-premise sales by social distancing measures and self-isolation that led to the closure of restaurants, bars, and clubs, plus declines in international travel and tourism. Partly offsetting this has been a boost to off-premise and direct e-commerce sales. We first estimate those impacts in 2020 and their expected partial recovery in 2021 using a new model of global beverage markets. Further recent disruption to the global wine trade has been the imposition by China in late 2020 of prohibitive tariffs on its imports of bottled wine from Australia. Its diversionary and trade- reducing effects are compared with those due to COVID-19.

This issue of the Journal of Wine Economics opens with two COVID-related papers.

First, Glyn Wittwer and Kym Anderson analyze “COVID-19 and Global Beverage Markets: Implications for Wine” (Wittwer and Anderson, 2021). The authors employ a model of global beverage markets to simulate the respective effects of the COVID-19 pandemic (Wittwer and Anderson, 2020). They find that both international trade and domestic sales have been adversely affected by temporary shifts away from on-premise sales. These losses have partially been offset by gains in off-premise and direct e-commerce sales. “Further recent disruption to the global wine trade has been the imposition by China in late 2020 of prohibitive tariffs on its imports of bottled wine from Australia. Its diversionary and trade-reducing effects are compared with those due to COVID-19” (Wittwer and Anderson, 2021, p. 117).

Magalie Dubois and collaborators shed light on the question, “Did Wine Consumption Change during the COVID-19 Lockdown in France, Italy, Spain, and Portugal?” (Dubois et al. 2021). Drawing on an online survey of more than 7,300 individuals conducted during the first lockdown phase, the authors analyze purchasing and consumption patterns. They find that more people reduced their wine consumption frequency than maintained or increased it. Further analyses highlight various aspects of heterogeneity among countries and individuals and their determinants.

In “Reputation and Advertising of Collective Brand Members in the Wine Industry: The Moderating Role of Market Share,” Ricardo Sellers-Rubio, Francisco Mas-Ruiz, and Franco Sancho-Esper analyze the nonlinear relationship between advertising investments and reputation of collective brand members (Sellers-Rubio, Mas-Ruiz, and Sancho-Esper, 2021). They draw on a sample of 176 Spanish wineries and show that the quality reputation of collective brand members has a positive effect on their advertising investment until a reputation threshold is reached. In addition, scale economies of advertising mean that the market share of collective brand members negatively moderates the curvilinear relationship between quality reputation and advertising investments.

In their paper entitled “On Fine Wine Pricing across Different Trading Venues,” Paweł Oleksy, Marcin Czupryna, and Michał Jakubczyk shed light on how selected attributes of fine Bordeaux wines affect prices in three types of trading venues:

This article aims to estimate the effect of expert assessments on the prices for single malt Scotch whiskies on the investment market. Our results obtained using an original dataset combining data from Jim Murray’s Whisky Bible and a web trading platform specializing in whisky investment show that the quality rating is not a powerful predictor of investor ask prices, especially when controlling for distillery and bottler reputation. This finding suggests that although the Murray score may embed information of use to unsophisticated investors, its effect on price can be outperformed by a detailed knowledge of the whisky industry.

As for all traded products, aggregated wine imports build on numerous trades at the firm level. To ensure consumers access to a variety of wines with different qualities, importers need to connect to different wine exporters. Some of these relationships will last for a long time, while the duration of others may be short. In this article, we employ transaction-level data to analyze the duration of trade relationships in wine imports to Norway from 2004 to 2014. We find that most relationships are short-lived, as more than 75% of trade relationships end after less than two years. Furthermore, we find that higher-quality wines, as indicated by the import price, increase trade duration. Deeper firm-to-firm trade relationships for more exclusive wines are likely due to higher search costs for high-quality products. The results also show that the size of the initial trade between the partners, or degree of commitment, is a positive determinant for persistent relationships.

Classification of wines with a large number of correlated covariates may lead to classification results that are difficult to interpret. In this study, we use a publicly available dataset on wines from three known cultivars, where there are 13 highly correlated variables measuring chemical compounds of wines. The goal is to produce an efficient classifier with straightforward inter- pretation to shed light on the important features of wines in the classification. To achieve the goal, we incorporate principal component analysis (PCA) in the k-nearest neighbor (kNN) classification to deal with the serious multicollinearity among the explanatory variables. PCA can identify the underlying dominant features and provide a more succinct and straight- forward summary over the correlated covariates. The study shows that kNN combined with PCA yields a much simpler and interpretable classifier that has comparable performance with kNN based on all the 13 variables. The appropriate number of principal components is chosen to strike a balance between predictive accuracy and simplicity of interpretation. Our final classifier is based on only two principal components, which can be interpreted as the strength of taste and level of alcohol and fermentation in wines, respectively.

Leuven’s Den Hoorn brewery, now AB Inbev SA, has become the world’s largest brewing group by far, but critics say the company overpaid for its acquisitions. In this article, we study typical stock market reactions to the many takeover announcements by AB Inbev and the industry’s runner-up, Heineken. Unlike Heineken’s, the market leader’s takeover announcements were met by, on average, a –2% price reaction in the stock market in the announcement month, but most of that is already undone in the next month. For Heineken, the same pattern shows up, only faster: the V-shaped reaction takes a few weeks rather than a few months. Such V-reactions may actually reflect a temporary rise in uncertainty rather than overpaying. The finding that reactions are reversed and heterogeneous across firms, raises issues of interpretation and optimal test design of event studies.

The yeast, Brettanomyces bruxellensis (Brett) is a significant cause of quality defects associated with red wine spoilage. At least some wine producers spend significant resources to prevent, detect, and mitigate damage from Brett, and many express concern about it, but some producers and consumers say they like it in small doses. Brett damage is especially of concern in premium red wine and has become more of a concern to producers in recent years as consumers have become better informed about it. We combine information from diverse sources to develop an initial understanding of the economics of Brettanomyces and management practices to mitigate its consequences. An analysis of detailed confidential data from three wineries in California reveals that at least some wineries are incurring signifi- cant costs to reduce the risk of infection with Brettanomyces. Some other wineries that opt not to spend so much on prevention are incurring higher costs in treating infected wines and in lost value from wines being downgraded to lower-valued blends. Results from an online survey of industry participants reinforce the analysis of the detailed data from the three wineries and suggest that the findings may be indicative of conditions more generally across the industry.

This issue of the Journal of Wine Economics opens with “Brettanomics I: The Cost of Brettanomyces in California Wine Production” by Julian Alston, Torey Arvik, Jarrett Hart, and James Lapsley (Alston et al., 2021). The authors explore the various costs induced by the yeast Brettanomyces bruxellensis, short Brett, on red wine. While some winemakers and consumers may tolerate (and may even like) low levels of Brett, it is generally deemed a quality defect, in particular in premium wines.

Drawing on data of three wineries in California, the authors find a trade-off between the cost associated with preventing the risk of Brett infections on the one hand and treatment of infected wines and lost value from wines being downgraded to lower-valued blends on the other hand.

Further, a Brett survey among wine industry professionals from different regions, including from abroad, shows that all respondents most commonly report some Brett-induced negative quality effects; however, some also see benefits. Within the sample, “respondents from California—particularly Sonoma—are more likely than respondents from other regions to find an improvement in quality owing to Brett” (p. XX). While all respondents from different parts of the United States control Brett, respondents from outside of California are more likely to pursue a more rigorous anti-Brett course.

In “Merging One’s Way to the Top: AB Inbev v. Heineken,” Minh Phuong Doan and Piet Sercu examine and compare the effects of AB Inbev’s and Heineken’s take- overs (Doan and Sercu, 2021). While AB Inbev SA has become the world’s largest brewing group by far, critics claim it overpaid for its acquisitions and overdid the leveraging and subsequent cost-cutting. In contrast, the industry’s number two, Heineken, has not attracted similar criticism. The authors employ an event-study methodology to analyze whether AB Inbev overpaid.

Analyzing monthly data shows that AB Inbev takeover announcements caused a 1.3–2.5 percent price drop in the market. However, the devaluations were reversed and offset about one month later. For Heineken, similar patterns occurred but with a shorter reversal time of only one week. “Such V-reactions may actually reflect a temporary rise in uncertainty rather than overpaying” (p. 32).

In the third paper of this issue, Jackson Barth, Duwani Katumullage, Chenyu Yang, and Jing Cao examine the “Classification of Wines Using Principal