Price inflation 5 April 2019

Half a century is a long time in the world of luxury. Tastes change, affecting perceived value perhaps more than the actual input costs. A price list I came across from the Civil Service Wine and Spirits Store (which in the 1970s was Johannesburg’s finest wine merchant) provides a useful insight into what has happened in the luxury wine sector.

In 1971 you could buy a bottle of 1964 Dom Perignon for R7-50, and a bottle of Moet for R4-50. Today the current release of Dom Perignon sells for R2250 while the Moet trades from around R450 upwards. Neither of these wines comes from a specific vineyard: they are made mainly from bought-in grapes, where the only volume limitation is the potential of the Champagne region to deliver sufficient fruit of suitable quality. If you index price inflation here the Moet has increased 100 fold, the Dom Perignon three times that amount. Clearly the latter has become more desirable compared with the Moet.

In 1971 a bottle of Nederburg Cabernet cost about R1-00. A comparable Nederburg today would cost R100 – suggesting, somewhat surprisingly, the same multiple for local wine as for the standard Moet viz. around 100. Interestingly, the most expensive South African wine at Civil Service almost fifty years ago was Zonnebloem Late Harvest at R1-65. Clearly in those days sweeter wines were more highly regarded than dry reds.

On that same price list a five year old bottle of Chateau Figeac cost R3-25 – less than twice the price of the Zonnebloem. Today the 2015 Figeac retails for R3000. Here the multiple of almost 1000 reflects the vastly increased international demand constrained by the supply limitations of the single estate, a situation which differs dramatically from branded Champagne.

The same 100 times multiple seems to work quite well for most “ordinary” luxuries, and South Africans consumers have adjusted their expectations accordingly. A Volkswagen Beetle cost around R2000 in the early 1970s; its equivalent would sell for over R200k today. A R50k house would – in a normal (rather than deeply depressed) market – go for R5m. Middle class salaries reflect this recalibration.

When it comes to the rarer luxuries, the hyper-inflation of imports – as evidenced by the prices of prestige-cuvée Champagne – suggests that tolerance and expectations have risen ahead of the real cost curve. Punters expect to pay R450 for Moet just as their fathers paid R4-50 fifty years ago. Everything else has adjusted more in less in line with that. When it comes to Dom Perignon, they’re not applying the same index. For Dom Perignon the multiple is 300, for Cristal it’s a staggering 500. Romanée-Conti, the rarest of great wines (now and 50 years ago), has seen the price of a five year old bottle increase from R20 to R300000-00, the effect of overwhelming worldwide demand for a Burgundy produced from grapes grown in a vineyard of less than two hectares. Unsurprisingly, given Rand devaluation and the fact that “captured” ministers and SOE CEOs spend their money on strongly branded luxuries, there’s a lot less Romanée-Conti being consumed in South Africa today than in the 1970s, but vastly more Dom Perignon.

The promise of luxury/rarity encourages those who have more disposable income to allocate a greater percentage of their resources to showy expenditure. This extends not merely to the hyped international brands, but equally importantly to the local wine market. I went to a distributor tasting a few weeks back. There were roughly 100 wines on offer, mostly from the more exclusive estates. At least one third were destined to sell for more than R200 – and half of that number was actually targeted at over R300. Several would have been over R500 per bottle on shelf.

I’ve no doubt that most of these wines would have been better than what was on offer 50 years ago, but this isn’t what’s driving the price inflation: it’s the me-too marketing of cheeky producers and the assumed gullibility of their audience.

 

 

 

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