Are You Overpaying for Wine?

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Wine. It’s an iconic product and a frequent staple at social gathering. It can also often serve as a symbol of sophistication and as a conversation starter.

Wine is also veiled in mystery and intrigue. There are a few out there who truly know what to look for and (perhaps more importantly) what to avoid when purchasing a bottle of wine. However, for most of us (yes, me included), choosing a bottle of wine is only slightly less difficult than predicting what the price of wheat will be three months from now. At a typical grocery store, consumers are presented with bewildering number of choices and decisions about a wine brand, varietal, description, closure type, price, and other characteristics—all of which seem to indicate that every one of the 1,000 bottles are the best, most sophisticated wine you’ve ever tried.

Think about how you make decisions about your wine purchase. You’re heading to a dinner party with friends and stop by a grocery store to pick up a bottle of wine. Perhaps you like a particular varietal (a Merlot or a Cabernet Sauvignon). And perhaps you enjoy wines from a particular region, such as the Napa Valley in California. And perhaps you even prefer wines that have labels with artfully decorated landscapes of sunsets and vineyards.

Let’s assume that you’ve done all of this mental deduction and you’ve narrowed down the choice to two bottles that both are between $15 and $20 and all have nearly identical characteristics except for one:
You note that bottle A is closed with a cork and bottle B has a screw cap.

Which bottle do you decide to place in your shopping cart?

For many people we anecdotally provided a similar scenario tended to choose the bottle with the cork. When asked why, the typical response was that a cork closure seemed to indicate an additional level of quality. But, in fact, screw cap closures have been shown to be better in preserving the quality of the wine at bottling.

Naturally, a colleague and I became curious: If wines closed with a screw cap were better able to preserve quality, but consumers perceived the opposite—by choosing to purchase a bottle with a cork closure instead—could we estimate how much value consumers place on this quality perception?

The details are in our paper, recently published in the Journal of Wine Economics, but here is a summary of what we found. Using over 1 million observations about weekly wine purchases made in grocery stores across 10 largest U.S. metropolitan areas between 2009 and 2012, we accounted for numerous wine bottle characteristics that can influence a person’s purchase decisions and focused on the impact of bottle closure. There were two primary results.

U.S. consumers pay, on average, approximately $1.00 per bottle more for wines with cork closures than similar wines with screw cap tops. That means that for grocery store wines—which represent approximately 70% of all wine sales in the United States and have an average price of about $12.50 per bottle—consumers perceived value of a bottle with a cork closure to be 8% higher than that with a screw cap.

But that’s not the end of the story! We also found that for lower-priced wines (e.g., under $8 per bottle), consumers perceived the value of the cork closure to be higher. For these wines, consumers paid 10–13% more for wine with a cork closure (relative to a similar wine with a screw cap). But, for more expensive wines (e.g., over $20 per bottle), the cork closure premium was only about 5%.

One explanation for the difference across price points may be that consumers use cork closures to signal that a bottle is of higher quality than it really is. For example, while you could certainly find an amazing wine for $7–$8, chances are higher that it may not be that good. However, if that bottle has a cork closure, perhaps it will be perceived as being better than it really is. On the other hand, a $30 wine is likely good regardless of whether it has a cork or screw cap closure, so there is less perceived value of paying extra for a cork closure.

So the next time you’re thinking about buying a wine, you may want to give that screw cap bottle a second look.

(Photo by MetaphoricalPlatypus is licensed under CC BY 4.0)

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About Author

Dr. Anton Bekkerman is an associate professor in the Department of Agricultural Economics and Economics at Montana State University, joining the faculty in 2009 after completing his PhD at North Carolina State University. Bekkerman's primary areas of research are grain marketing, basis and price forecast modeling, understanding how grain prices are affected by changes in supply chain infrastructures and quality demands, and analyzing the economic trade-offs of adopting alternative dryland cropping systems in Montana. One of his current projects is an investigation of how new grain loading technologies are affecting prices that Montana farmers receive for their wheat. Bekkerman is also examining the economic impacts that Montana's rapidly expanding dry pulse industry will have on the state's crop industry. Although Bekkerman grew up on the east coast, he has recently made a small step toward production agricultural after acquiring three backyard chickens.

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