The outcome of the famous 1976 Judgment of Paris, a blind wine tasting of ten wines by nine French judges, brought American wines to the forefront of the wine business. A Californian wine, the 1973 Stag’s Leap Wine Cellars S.L.V. Cabernet Sauvignon, was declared the winner, surpassing four highly prized French wines (Château Mouton- Rothschild 1970, Château Montrose 1970, Château Haut-Brion 1970, and Château Léoville Las Cases 1971). We collect ratings from experts for (almost) all vintages of the same ten wines over the years 1968–2021 and find that the Stag’s Leap Cabernet Sauvignon is far from being first. We conclude that either the 1973 vintage was overrated by the experts who tasted it in 1976, or 1973 was merely an outlier in this winery.
We use data from Wine Spectator on 266,301 bottles from 12 countries sold in the United States to investigate the link between the score awarded by the guide and the price charged. The link between quality and price is positive, in line with the literature. In a deeper inspection, however, hedonic regressions show that the price premium attached to higher quality is significant only for “superstar” wines with more than 90 points (on a 50–100 scale), while prices of wines between 50 and 90 points are not statistically different from each other. Furthermore, an analysis performed through normal heteroske- dastic and quantile regression models shows that the dispersion of quality-adjusted prices is described by an asymmetric U-shaped function of the score; that is, products with the lowest and highest quality have the highest residual standard deviation. Pursuing excel- lence is a risky strategy; the average price is significantly higher only for wines that achieve top scores, and the price premium becomes more volatile.
Wine investment returns can come from overall market trends or price increases with age. Because of the short wine price histories available, market and maturation effects are difficult to separate. Consequently, researchers often obtain dramatically different estimates of investment returns. We find that data sample bias may be the hidden cause of the disparate estimates. In wine auction data, the sample bias refers to a shift in the distribution of which wines are traded as a function of their age. Such sample bias in panel data sampled across many different wine labels can distort the estimation of price increases versus age and consequently impact the estimation of market trends. This analysis shows that segmenting the analysis such that the data panels contain wine labels with similar trading characteristics can lead to a more stable estimation.
The analysis here looks at data from Bordeaux, Italy, Australia, and California. An Age-Period-Cohort (APC) analysis is applied to data panels from each region. Then the data in each region is segmented by a measure of popularity in order to reduce sampling bias. Data thus segmented is then re-analyzed to demonstrate the difference in estimating price appreciation lifecycles and market trends.
A proposal to reform the United Kingdom’s excise duty on alcohol is under consideration during 2022. The proposal would change the tax base from volume of product to volume of alcohol, which would see a fall in the tax on sparkling wine (by about one-fifth), a rise in the tax on fortified wines of 18% alcohol by volume (ABV) (by about one-sixth), and table wines with more (less) than 11.5% ABV would become dearer (cheaper). With taxes on most beers unchanged and taxes on spirits lowered slightly, the pattern of UK wine consumption and imports would alter considerably. This article draws on a global model of national alcoholic beverage markets to estimate the likely bilateral trade effects of this proposed reform to UK excise duties. It compares them with the trade effects of the United Kingdom’s first two bilateral free trade agreements (FTAs), following the post-Brexit EU–UK Trade and Cooperation Agreement, which allows Australian and New Zealand vignerons tariff-free access to the UK wine market. Those two FTAs are estimated to cause the United Kingdom to import far more wine than is lost by the proposed changes in UK excise duties.
This paper uses a difference-in-differences approach to analyze the treatment effect of a hail weather shock in a specific Swiss wine-growing region. We exploit a natural experi- ment from Switzerland’s Three Lakes wine region in 2013 and examine its impact on the country’s retail market. We find statistically significant (1%-level) effects of –22.8% and +2.8% for the volume and price of wine consumed, respectively. These effects can be inter- preted as average treatment effects, which is the difference in outcomes between treatment and control groups using a pre-post shock study methodology. Several robustness checks confirm the statistical significance of the estimated effects and the initial assumptions.
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.
Wines are usually evaluated by wine experts and enthusiasts who give numeric ratings as well as text reviews. While most wine classification studies have been based on conventional stat- istical models using numeric variables, there has been very limited work on implementing neural network models using wine reviews. In this paper, we apply neural network models (CNN, BiLSTM, and BERT) to extract useful information from wine reviews and classify wines according to different rating classes. Using a large collection of wine reviews from Wine Spectator, the study shows that BERT, a neural network framework recently developed by Google, has the best performance. In the two-class classification (90–100 and 80–89), BERT achieves an accuracy of 89.12%, followed by BiLSTM (88.69%) and CNN (88.02%). In the four-class classification (95–100, 90–94, 85–89, and 80–84), BERT yields an 81.57% accuracy, while the other two produce an 80% accuracy. The neural network models in the paper are independent of domain knowledge and thus can be easily extended to other kinds of text analysis. Expanding the limited work on wine text review classification studies, these models are up-to-date and provide valuable additions to wine data analysis.
Keywords: BERT, BiLSTM, CNN, natural language processing, neural networks, wine reviews.
A vast body of literature exists on estimating hedonic price functions, which relate the price of wine to its attributes. Some existing literature has employed producer-specific variables such as quantity sold and producer reputation in hedonic functions to potentially capture supply influences on prices. This practice is inconsistent with the original Rosen (1974) hedonic theoretic foundation. To overcome this deficiency, we extend the literature by using the Rosen two-stage approach, employing data from multi-markets for similar wines to estimate inverse supply functions. The application to Australian produced wines sold in different coun- tries demonstrates the importance of a wine’s quality and age as attributes in inverse supply functions. Results imply the additional costs of producing better quality and older wines are increased as both quality and age are increased. Estimates also suggest that lower marginal costs for attributes are associated with a smaller producer size and older more established producers.
Keywords: attribute supply, Australian wines, wine prices.
This study revisits the relationship between economic variables and alcohol consumption from a macro perspective. Focusing explicitly on the asymmetries of the responsiveness of alcohol consumption during the expansion and contraction phases of the business cycle, asymmetric panel estimators are employed. We employ a nonlinear autoregressive distributed lag model for a panel of 24 countries for the period 1961 to 2014. Findings show that expansion leads to a long-term increase in average alcohol consumption, while during contraction, the level of average alcohol consumption persists. Expansion, together with a pronounced reduction in the unemployment rate could, however, lead to a net reduction of gross alcohol and wine consumption. Nonetheless, if the recession corresponds with a surge in unemployment, this leads to a long-run increase in the level of total gross alcohol consumption but a decrease in wine and beer consumption. Reduction in unemployment does not lead to a reduction in beer consumption, as pre-expansion levels of beer consumption persist.
Keywords: alcohol intake, business cycles, unemployment, normal goods, PNARDL.
Firms rely on brand names to market goods to consumers, and consumers rely on brand names to locate goods that satisfy their preferences. If multiple firms are using the same or similar names, consumers may be confused about which product to buy, and firms may not obtain the benefits of their investments in quality. Recently, both firms and scholars in a number of industries have expressed concern about brand name congestion— too many firms clustering around too few terms. This paper applies computational linguistic analysis to chateau names in the Bordeaux wine region to study the degree of brand congestion within a mature, traditional, and high- value market. We find that Bordeaux producers have highly similar names to one another, far more than in comparable wine regions such as California and Alsace. More than a quarter of all Bordeaux producers have a name that is identical or nearly so to at least one other producer, and many terms are claimed by dozens of different producers. Interestingly, however, we find that the most famous and renowned producers have names that tend to be more distinctive than their less famous brethren.
Keywords: distinctiveness, marketing, text analysis, trademarks, wine branding.
Previous work has quantitatively analyzed expert wine descriptions to identify some so-called “expensive” and “cheap” words that are indicative of a wine’s price. This paper revisits that work. In particular, I examine whether words previously identified as expensive and cheap ones are still indicative of a wine’s price when using the same methods and a different, larger dataset. My findings mostly confirm previous conclusions, although many directions for further research into expensive and cheap wine words remain open.
Keywords: expert evaluation, wine.
Wineries in the “old world” export almost 40% of their production. This study analyzes the influence of vertical and horizontal networks on export performance. We draw on a sample of 183 Spanish wineries and examine the main independent variables using a two-step Heckman model. We find positive effects of horizontal networks and— at a somewhat lower level— down- stream vertical networks on export performance.
Keywords: export performance, networks, Spanish wine sector.
Spirits represent around 50% of global alcohol consumption. This sector is much less studied than other alcoholic beverages such as wine or beer. This paper reviews the economic history of spirits and analyzes recent trends in the spirits markets. The technology to produce spirits is more complex than for wine or beer. Distillation was known in ancient Chinese, Indian, Greek, and Egyptian societies, but it took innovations by the Arabs to distill alcohol. Initially, this alcohol was used for medicinal purposes. Only in the Middle Ages did spirits become a widespread drink. The Industrial Revolution created a large consumer market and reduced the cost of spirits, contributing to excess consumption and alcoholism. Governments have intervened extensively in spirits markets to reduce excessive consumption and to raise taxes. There have been significant changes in spirits consumption and trade over time. Over the past 50 years, the share of spirits in global alcohol consumption increased from around 30% to around 50%. In the past decades, there was strong growth in emerging markets, including in China and India. Recent developments in the spirits industry include premium- ization, the growth of craft spirits, and the introduction of terroir for spirits.
Keywords: alcohol and health, alcohol regulations, craft and industry concentration, distillation technology, globalization and convergence of alcohol preferences, spirits.
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.
Francesca Bassi, Fulvia Pennoni and Luca Rossetto
Keywords: dynamic market segmentation, hidden Markov model, loyalty, repeated purchases, variety-seeking behavior.
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
Keywords: expert evaluation, hedonic regressions, matching estimators, stated preference.
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:
auctions, electronic exchanges, and over-the-counter markets (Oleksy, Czupryna, and Jakubczyk, 2021). Their findings suggest that the price-impact of various char- acteristics varies across trading venues. For instance, while auctions pay a substantial premium for a wine’s age, the marginal price effects of age are lower at electronic exchanges and over-the-counter markets. Similarly, the (positive) bottle size effect is strongest in electronic exchange markets and weakest at auctions.
The last paper of this issue, entitled “Consumer Stigma and the Reputation Trap Hypothesis: An In-Store Experiment with Colorado Wines,” is by Marco Costanigro and Becca B.R. Jablonski. The authors conduct an in-store experiment to test the hypothesis that Colorado wines may be in a “bad reputation trap.” Based on a 2×2 design where they varied the production region (Colorado vs. California) and grape variety (familiar vs. unfamiliar), they revealed the origin of production to only half of the participants (Costanigro and Jablonski, 2021). The authors measure taste perceptions on Likert scales and elicit valuations via a multi- ple 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” (p. 210).
New York University
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
Component Analysis” (Barth et al., 2021). The authors want to produce an efficient classifier to shed light on the important features of wines in the classification. They draw on a dataset of 178 wines with various chemical measurements (alcohol, malic acid, ash levels, alkalinity of ash, magnesium levels, total phenols, flavonoids phenols, non-flavonoid phenols, proanthocyanins, color intensity, hue, OD280/ OD315, and proline) made from the varieties Nebbiolo, Grignolino, and Barbera. They employ principal component analysis (PCA) in the k-nearest neighbor (kNN) classification to deal with multicollinearity issues among the explanatory var- iables. PCA can identify the underlying dominant features and provide a more suc- cinct and straightforward summary over the correlated covariates. The study suggests that a combination of kNN and PCA yields a simpler and more interpret- able classifier than kNN based on all 13 variables. “Our final classifier is based on only two principal components, which can be interpreted as strength of taste and level of alcohol and fermentation in wines, respectively” (p. 56).
Ursula Landazuri-Tveteraas, Frank Asche, and Hans-Martin Straume analyze the “Dynamics of Buyer-Seller Relations in Norwegian Wine Imports” (Landazuri- Tveteraas, Asche, and Straume, 2021). Drawing on specific Norwegian wine import- ing companies and their foreign partners, the authors analyze how the duration of firm-to-firm trade relationships are affected by different factors in an 11-year period stretching from 2004 to 2014. The study finds that most trade relationships are short-lived, that is, more than 75% of trade relationships end after less than two years. In addition, the authors’ findings suggest a positive relationship between wine price and trade partnership durations. “Deeper firm-to-firm trade rela- tionships for more exclusive wines are likely due to higher search costs for high- quality products” (p. 83).
In the last paper of this issue, entitled “Do Whisky Investors Read the Bible? The Effect of Expert Ratings on the Vintage Single Malt Secondary Market,” David Moroz and Bruno Pecchioli find that quality scores of Jim Murray’s Whisky Bible are not powerful price predictors for whiskey ask prices (Moroz and Pecchioli, 2021). Their findings are similar to those in the wine literature (e.g., Ashenfelter and Jones, 2013) “in the sense that expert ratings are not efficient in explaining the price and can be improved. We show that distillery and bottler name, as a proxy for their respective reputations, are more accurate than ratings” (p. 99).
Karl Storchmann New York University
Alston, J., Arvik, T., Hart, J., and Lapsley, J. (2021). Brettanomics I: The cost of Brettanomyces in California wine production. Journal of Wine Economics, 16(1), 4–31.
Ashenfelter, O., and Jones, G. (2013). The demand for expert opinion: Bordeaux wine. Journal of Wine Economics, 8(3), 285–293.
Barth, J., Katumullage, D., Yang, C., and Cao, J. (2021). Classification of wines using princi- pal component analysis. Journal of Wine Economics, 16(1), 56–67.
Doan, M. P., and Sercu, P. (2021). Merging one’s way to the top: AB Inbev v. Heineken. Journal of Wine Economics, 16(1), 32–55.
Landazuri-Tveteraas, U., Asche, F., and Straume, H.-M. (2021). Dynamics of buyer-seller relations in Norwegian wine imports. Journal of Wine Economics, 16(1), 68–85.
Moroz, D., and Pecchioli, B. (2021). Do whisky investors read the Bible? The effect of expert ratings on the vintage single malt secondary market. Journal of Wine Economics, 16(1), 86–101.
This paper analyzes buying decisions when consumers consider the risk that a bottle of wine may be cork-tainted. Drawing on a sample of 804 subjects, we examine the role of gender, price level, and subjects’ country of origin and their personal cork-taint risk assessments. We find that women assess the cork-taint risk higher than men but are still more likely to buy bottles with cork closures. Young consumers from Asia are more risk-averse than people from Western countries. Gender and regional differences vanish for wines in higher price brackets.
In this paper, we explore the order book dynamics on the Liv-ex fine wine exchange. More specifically, by using the order book data, we examine new buy and sell order submissions and cancellations and various factors that may have an effect on the intensity of the trade process on both sides of the market. Our findings indicate the existence of significant relationships between the expected number of bids, offers, or order withdrawals and wine producers, contract type, bottle format, case size, weekday, and age. In particular, the wine age positively affects the buy and sell order submissions, but only up to a certain point, after which the number of orders starts to decrease.
The European grapevine moth is one of the most pertinent viticulture pests. In recent years, the moth extended to NewWorld countries, some of which started eradication programs.We used a dataset for Mendoza and a county-fixed effects regression model to estimate the impact of the moth on grape production across the province’s counties. Our results suggest that the moth led to a decrease of up to 8% of Mendoza’s grape production; however, this may have been worse without strong eradication efforts. We conclude that moth eradication programs may be economically justified in Argentina, and perhaps in other countries.
Consumers use expert ratings to help choose wine, and economists find correlations between ratings and transaction prices. Rating scales resemble hedonic scales in the behavioral sciences, which suffer from an “intersubjectivity” problem. Taste is a private sensation; people taste differently (an external validity problem), so ratings are often unreliable hedonic markers of enjoyment. But why? Hedonic measurements from food science (“general Labeled Magnitude Scales”) attempt to adjust for differences in perceived sensory sensitivity and offer clues. Resulting insights illustrate wine ratings’ shortcomings as reliable guides to enjoyment.
We used a survey to investigate some motives for drinking red, sparkling, and white wine among 3,433 Norwegian respondents. Respondents with interest in wine drank all types of wine more frequently than those with little interest. Interest in cultural activities, which often are associated with wine consumption, also increased the frequency of consumption of all types of wine. Respondents who scored high on conspicuous attitudes drank sparkling and white wine more frequently than respondents with low scores. However, conspicuous attitudes did not affect the frequency of red wine consumption.
Changes in winery ratings in leading wine guides, that is, improvements as well as deteriorations, are typically attributed to corresponding changes in the quality of the wines produced by the respective winery.What remains unexplored in this context is changes in editorship and/or changes in the composition of the wine tasting teams working for the respective guide. Using data from two particularly prestigious German wine guides (Gault Millau and Vinum), this paper shows that these latter changes have a rather small, yet statistically significant impact on changes in winery ratings. Thus, consumers are well-advised to consider these changes before making their purchasing decision.
Much literature shows that the ratings assigned by wine judges are uncertain, some authors have proposed that judges be tested, and a few wine competitions do test judges. However, no literature or competition has yet proposed a test or rating for judges based on realistic competition conditions. This article uses coefficients of multiple correlation to rate each of 54 judges who assigned ratings to 2,811 wines entered in a commercial competition. Results show that there is a strong and positive correlation between the ratings assigned by most judges to most wines. However, those correlations also show that the ratings assigned by approximately 10% of judges are indistinguishable from random assignments. Using correlations to rate the raters, a program is underway to monitor those judges and variations in competition protocol that may affect their ratings.
This article describes a new empirical model of the world’s markets for alcoholic beverages and, to illustrate its usefulness, reports results from projections of those markets from 2016– 2018 to 2025 under various scenarios. It not only revises and updates a model of the world’s wine markets (Wittwer, Berger, and Anderson, 2003), but also adds beer and spirits so as to capture the substitutability of those beverages among consumers. The model has some of the features of an economy-wide computable general equilibrium model, with inter- national trade linking the markets of its 44 countries and seven residual regions. It is used to simulate prospects for these markets by 2025 (business-as-usual), which points to Asia’s rise. Then two alternative scenarios to 2025 are explored: one simulates the withdrawal of the United Kingdom from the European Union (EU); the other simulates the effects of the recent imposition of additional 25% tariffs on selected beverages imported by the United States from several EU member countries. Future applications of the model are discussed in the concluding section.
American Viticultural Areas (AVAs) are descriptors of where wine grapes are grown that are designed to capture qualities unique to the wine and to influence its price. Sub-AVAs are sub- divisions of well-known AVAs designed to have the same effect. In this paper, I study the impact of the Napa Valley Sub-AVA system on the pricing and rating of Napa Valley wines. The analysis utilizes a primary hedonic pricing model to isolate both the individual Sub-AVA’s price effect and the system’s cumulative price effect. This study uses a unique dataset of 5,017 Napa Valley wines reviewed by the Connoisseurs’ Guide to California Wine over the 10-year period from 2004–2013. Estimated price effects persist even after controlling for rating differences, implying that consumers value the wines of sub-AVA’s independently of critics’ ratings. These results indicate that Sub-AVAs deliver a more substantial price effect than previous literature has suggested.
This article examines whether there are different hedonic price models for different German wines by grape variety, and identifies influential factors that focus on weather variables and direct and indirect quality measures for wine prices. A log linear regression model is first applied only for Riesling, and then machine learning is used to find hedonic price models for Riesling, Silvaner, Pinot Blanc, and Pinot Noir. Machine learning exhibits slightly greater explanatory power, suggests adding additional variables, and allows for a more detailed interpretation of results. Gault&Millau points are shown to have a significant positive impact on German wine prices. The log linear approach suggests a huge effect of different quality categories on the wine prices for Riesling with the highest price premiums for Auslese and “Beerenauslese/Trockenbeerenauslese/Eiswein (Batbaice),” while the machine learning model shows, that additionally the alcohol level has a positive effect on wines in the quality categories “QbA,” “Kabinett,” and “Spätlese,” and a mostly negative one in the categories “Auslese” and “Batbaice.” Weather variables exert different affects per grape variety, but all grape varieties have problems coping with rising maximum temperatures in the winter and with rising minimum and maximum temperatures in the harvest season.
The objective of this article is to analyze the determinants of world wine exports in the first globalization, taking into account the principal exporting countries and using an extended version of the gravity model. The article distinguishes between ordinary- and high-quality wines. Our econometric results show that wine exports were not affected by the increase in the size of the markets of consuming countries, since in most of them wine was an alcoholic beverage consumed by a very small minority of the population. The harvests of the producing countries, particularly in preceding years, significantly and positively affected their exports. Conversely, the harvests of importers hurt exports as there was a home bias in consumption due to cultural, price, or tariff protection reasons. In the interwar period, the wine trade was severely affected by a series of shocks such as WWI, the Soviet revolution, the Prohibition, and the 1930s depression. As was the case with trade as a whole, the fall in trans- action costs, favored exports, at least those of lower-priced and lower-quality wine. However, the liberalization of trade had a lesser impact on wine than on other products.
This issue of the Journal of Wine Economics opens with “Explaining World Wine Exports in the First Wave of Globalization, 1848–1938” (Ayuda, Ferrer-Pérez, and Pinilla, 2020). María-Isabel Ayuda, Hugo Ferrer-Pérez, and Vicente Pinilla analyze the determinants of world wine exports during the century preceding WWII. Employing an extended gravity model, the authors find that much of the trade volume is determined by external shocks (e.g., Russian Revolution, WWI, Prohibition) and by (lagged) grape yields. As expected, they find a positive effect of exporting countries’ yields and a negative effect of importing countries’ yields. The results also suggest the existence of a significant home bias. In addition, “as was the case with trade as a whole, the fall in transaction costs favored exports, at least those of lower-priced and lower-quality wine. However, the liberalization of trade had a lesser impact on wine than on other products” (p. 263). In the following paper, entitled “Pricing Models for German Wine: Hedonic Regression vs. Machine Learning,” Britta Niklas and Wolfram Rinke present various hedonic and machine learning models in order to explain retail prices of German Riesling wine (Niklas and Rinke, 2020). The study suggests that machine learning exhibits slightly greater explanatory power than the hedonic approach and allows for a more detailed interpretation of the results. The machine learning model is then applied to other varieties such as Silvaner, Pinot Blanc, and Pinot Noir. The analysis suggests that the influence of an independent variable on the wine price cannot be estimated by a single coefficient, since the marginal effects vary among quality categories, as well as by price points and critical scores. Regarding temperature variables, the authors find that “during the harvest season, especially higher minimum and maximum temperatures lead to a negative price effect for wines of all grape varieties and quality categories, so that earlier harvest is recommended for all grape varieties in cases of warmer harvest seasons, such as was the case in 2018” (p. 306) In “An Empirical Analysis of the Effect of Sub-Divisions of American Viticultural Areas on Wine Prices: A Hedonic Study of Napa Valley,” Grant Keating analyzes the economic value of sub-AVAs within the Napa Valley appellation (Keating, 2020). Drawing on a dataset of 5,017 Napa Valley wines reviewed by The Connoisseurs’ Guide to California Wine between 2004 and 2013, he runs various hedonic pricing models. The reduced form and rating-based models suggest that the majority of the sub-AVA effects stem from pure sub-AVA influences as opposed to indirect effects through critics’ ratings. That is, consumers value sub-AVA wines independently of critical scores. “These results indicate that Sub- AVAs deliver a more substantial price effect than previous literature has suggested” (p. 312) The last paper in this issue, entitled “A Model of Global Beverage Markets,” is by Glyn Wittwer and Kym Anderson. The article describes a new general equilibrium model of the world’s markets for alcoholic beverages, differentiated by wine, beer, and spirits; the model distinguishes 44 countries and 7 residual regions. Employing their model, the authors report results from various projections to 2025 under different scenarios. Two alternative scenarios are explored and compared to the business-as-usual benchmark. One scenario simulates the withdrawal of the United Kingdom from the European Union (EU); the other simulates the effects of the recent imposition of additional 25% tariffs on selected beverages imported by the United States from several EU member countries. Future model applications may include simulations of COVID effects on wine consumption and trade.
New York University
In this paper, we use copula-GARCH models applied to daily data from March 2010 to March 2018 to test the time-varying dependence of the Liv-ex 50, a secondary market fine wine index comprised of the ten most recent vintages of the five Bordeaux First Growths, with a portfolio composed of the six main stock markets (S&P 500, CAC 40, DAX 30, FTSE 100, and Hang Seng). Our results suggest that the Liv-ex 50 underperforms the six stock indexes, but provides diversification benefits in terms of volatility, asymmetry, and extreme events.
This paper examines the impact of exports and its main determinants on the financial perfor- mance of the Romanian wine industry. We draw on a dataset consisting of mixed firm-level (i.e., 207 companies) data, Google Trends data, and regional variables covering the period from 2009 to 2017. We show that Romanian wine exports, at the firm level, are positively affected by regional wine yields (especially in the case of red wine varieties), temperature, and firm agglomeration, and negatively impacted by firm size. We also find a close positive correlation between financial performance and exports.
We identify and examine the performance of frontier investments from 2002 to 2017. Using fine wine as a setting, we find that the trade frequency and value of frontier investments in the form of Alpine wines have increased in recent years, leading to a rise in their prices above inflation rates. We further document that this frontier investment has been favorable in terms of risk-adjusted returns and volatility for investors. We also observe that the inclusion of frontier wines in a financial portfolio is favorable for investors, both in terms of returns and diversification benefits, due to low correlation coefficients. The identification and investment into frontier assets appears beneficial for investors looking for new opportunities.
Assuming horizontal differentiation and using an expanded gravity model, the main objective of this article is to assess the determinants of Portuguese wine exports. Horizontal differenti- ation is considered, with still and fortified wines being distinguished, as well as three distinct designations of origin: Vinho Verde, Douro, and Port wines. The results from the period between 2006 and 2016 suggest that wineries and private and public agencies should focus their commercial and policy efforts on countries with high purchasing power and/or with great potential for growth, regardless of whether the customs costs are higher. Moreover, it is concluded that horizontal differentiation influences the export determinants, suggesting there should exist different internationalization strategies for distinct types of wine.
While France leads the way in the Chinese import market of wine, China is France’s third largest wine export market by value. In this article, I analyze the determinants of France’s wine exports to China, differentiated by French wine growing regions. I estimate a simple demand using a dataset on wine shipments of 100 different types of French bottled wines to China between 1998 and 2015. I find a wide range of income and price effects across French regions—a range not unlike those found by studies spanning multiple countries. Bordeaux wines exhibit the largest Chinese income elasticity. However, other French regions appear to catch up. Price elasticity, meanwhile, is particularly low for highly reputable wines, but quite high for wines targeting middle-class customers and wines from regions tra- ditionally known for white wines.
This special issue of the Journal of Wine Economics is based on a workshop entitled “Wine, Macroeconomics, and Finance” jointly organized by INSEEC U., INFER, and LAREFI (University of Bordeaux), and sets out to contribute to various macroeconomic aspects of two domains of wine economics, the international wine trade, and the role of wine as a financial asset. The rapidly growing body of literature has examined wine predominantly from a microeconomic angle, with the hedonic pricing model as its most commonly employed work horse. While hedonic analyses indirectly consider demand but do not explicitly take into account macroeconomic variables, various authors have shown that wine prices and the wine trade follow the same macroeconomic determi- nants, such as exchange rates, incomes, or economic cycles, as do traditional financial assets (e.g., Cevik and Sedik, 2014; Jiao, 2017; Cardebat and Jiao, 2018). Economic analyses of the international wine trade are mainly based on works by Anderson (e.g., Anderson, Norman, and Wittwer, 2003; Anderson and Pinilla, 2018). Relevant questions include the understanding of trade’s determinants (Bargain et al., 2018), analyzing trade barriers (Anderson and Wittwer, 2017; Mariani and Pomarici, 2019), or predicting the evolution of export flows in an uncer- tain world with fluctuating exchange rates (Cardebat and Figuet, 2019). The interna- tional wine trade has been subject to rapid changes, such as an increase in volumes traded, rising competition and product diversity, and growing protectionism. In this special issue, three papers highlight various trade-relevant issues. Olivier Bargain analyzes French wine exports to China, France’s third largest wine export market by value (Bargain, 2020). Bargain draws on a dataset of 100 dif- ferent types of bottled wines shipped to China between 1998 and 2015. Disaggregating French wine exports by color and growing region shipped to China between 1998 and 2015. He finds a wide range of income and price effects across French regions—a range of values similar to those found by studies examin- ing multiple countries. Bordeaux wines, particularly at the high end, exhibit the largest Chinese income elasticity. Price elasticities are generally significantly lower than income elasticities and appear to be particularly low for reputable premium wines.
Similarly, Anthony Macedo, Sofia Gouveia, and João Rebelo examine “Horizontal Differentiation and Determinants of Wine Exports: Evidence from Portugal” (Macedo, Gouveia, and Rebelo, 2020). The authors draw on data of Portuguese wine export to 89 countries for the time from 2006 to 2016. They estimate various gravity models distinguishing between fortified and still table wines, as well as the designations Douro, Vinho Verde, and Port. The results suggest that exports of fortified wine are more affected by the importing country’s income and by tariffs than are still table wines. On the other hand, fortified wine exports are more sensitive to real exchange rate changes. In the following paper, Albert Lessoua, Mihai Mutascu, and Camélia Turcu examine “Firm Performance and Exports: Evidence from the Romanian Wine Industry” (Lessoua, Mutascu, and Turcu, 2020). Drawing on various firm-level data- sets for 207 wine producers from 2009 to 2017, the authors show that winery exports are positively affected by regional wine productivity, the share of red wine produced, growing season temperatures, vineyard size, as well as by firm agglomeration. In a next step, they find evidence of a significant positive correlation between exports and financial performance. The last two papers of this special issue are devoted to wine as a financial asset. Whether or not wine outperforms common stock has been discussed controversially in the literature. Recent analyses have agreed that wine returns may have become less favorable to those of traditional assets such as stocks or bonds since around 2010. In addition, the correlation with traditional financial markets may be increasing, thus reducing possible diversification benefits (see, e.g., Fogarty and Sadler, 2014; Le Fur and Outreville, 2019). Philippe Masset, Jean-Philippe Weisskopf, and Clémentine Fauchery employ the classic CAPM method and analyze “Last Frontier Investments: The Case of Alpine Wines” (Masset, Weisskopf, and Fauchery, 2020). Drawing on a 2002–2017 auction price sample of wines from Austria, Germany, Switzerland, Northern Italy, and the Rhône Valley, which are all situated within the perimeter of the Alps or along Alpine rivers and lakes, the authors find that the trade fre- quency and value of these frontier investments have significantly increased over recent years resulting in above-inflation secondary market prices. Their analysis suggests that Alpine wines have been a favorable investment, particularly in terms of risk-adjusted returns and volatility. The last paper of this issue, entitled “Looking Beyond the Wine Risk-Adjusted Performance,” co-authors Frantz Maurer, Jean-Marie Cardebat, and Linda Jiao examine secondary market prices of the most liquid wines, that is, the top five clas- sified growths of the Médoc (Maurer, Cardebat, and Jiao, 2020). They employ a Copula-GARCH model on daily data and, compared to common stock, find subpar returns on these wines for the time period from March 2010 to March 2018. Nevertheless, wine may still serve as an interesting diversification instrument, particularly in view of its lower risk in terms of volatility, extreme events, and asymmetry.
University of Bordeaux and INSEEC U.
This article presents a new experimental protocol for estimating consumers’ willingness-to-pay (WTP) for products involved in a reshuffle of geographical indications (GIs), e.g., a change of hierarchical levels within a restricted area. Although the collective reputation of a given GI depends on its temporal stability, reshuffling a GI area could make it better aligned with product quality or consumers’ perception. We first provide a simple theoretical model in which consumers put a negative value on within-GI quality variance, thereby showing that reshuffling the GI designation scheme may increase WTP without any change in product quality. Using the experimental protocol, we evaluate consumer perceptions of different reshuffling scenarios for the vineyards of Marsannay, Burgundy, France. The results reveal a significant increase in WTP for the current distribution of products’ quality. Elicited WTP values are then used to simulate the optimal GI reshuffle.