S-curves in wine (and shirts)

The average price for a bottle of wine sold in the UK last year was £7.07.

As it turns out, you don’t get a lot of actual wine for your money at that point.  Like so many things, the price-quality relationship follows an S-curve.

The bottom of the curve: you're not really buying wine

Buy a £6 bottle of wine in the UK and not much of that money goes towards wine.

Excise duty on a standard 12.5% ABV bottle is £2.87. VAT is £1.20. The bottle itself, the label, the cork or screwcap: roughly another £1.10 for packaging and logistics. Retailer margin. Importer margin. Transport from vineyard to port to warehouse to shelf.

By the time all of that is accounted for, at £6 a bottle, only about 75p of what you spend reaches the vineyard [1]

The wine itself - the grapes, the farming, the winemaking - might be worth 40 or 50p. At that price point, there are corners being cut you probably don't want to think about: high-yield, irrigated vines from undistinguished land, industrial-scale fermentation, sweetness added to cover rough edges. 

This is not a scandal. The fixed costs of bringing any bottle of wine to a British shelf are high and largely fixed.

But none of this fixed cost changes with price. A £5 bottle and a £50 bottle pay the same duty. The glass, label and logistics costs about the same.

The steep part: where your money starts working

Wine distributor Bibendum publish an annual industry analysis called Vinonomics. [2]

Spend £10 instead and, by Bibendum's modelling, the wine content jumps to roughly £2.10 - around seven times more than at £6. Spend £20 and you're looking at £6.33 worth of actual wine, which is nearly 22 times more than the cheapest bottles.

This is why wine merchants have been saying for decades that spending a bit more is disproportionately rewarded. It's not opinion. It's the structure of the pricing. The curve is steep in the £10-25 range because that's where the fixed-cost floor has been cleared and the incremental spend translates almost directly to better grapes, better farming, and better winemaking.

What does "better" mean in practice? At the lower end, winemakers are making compromises: maximising yield per hectare, blending across regions, relying on additives and residual sugar to create the impression of body and fruit.

As the price rises, those compromises become unnecessary. Grapes can be hand-picked from better-tended vines on more expressive land. The cellar work can be gentler. The winemaker can afford to be patient.

The top of the curve: you're buying a story

Here is where the curve flattens again - most of what you are paying for isn’t grapes.  It’s brand, prestige or scarcity.

An interesting side note - there is some evidence that price alone can have an impact on our enjoyment. 

A Stanford study in 2008 used an MRI to look at what happens in the brain [4]. Subjects were given the same wine but told it cost different amounts. The part of the brain that registers pleasure — the medial orbitofrontal cortex — lit up more for the "expensive" bottle. Expectation was doing most of the work. Remove the price information and the effect vanished.

None of this means expensive wine is indistinguishable from cheap wine. Expert tasters - sommeliers, winemakers - do derive more enjoyment from more expensive wines in blind conditions. The quality difference is real and they can perceive it. The question is whether we can.

And the honest answer for most people, most of the time, is: above a certain price, probably not. What you are increasingly paying for, beyond the quality ceiling your palate can actually detect, is land prestige, scarcity, collector demand, and the feeling of having spent a lot on something.

The curve is flat again at the top. Not because the wine stops improving - it does, very slightly, for those trained to perceive it - but because the improvement in your experience stops keeping pace with the increase in price.

The practical conclusion - and shirt analogy

The sweet spot is between £10 and £25 a bottle. Below £10, the fixed costs eat most of what you spend. Above £25, you're increasingly buying prestige, provenance, and the psychology of spending.

Between those numbers, the marginal pound buys wine.

I suspect, the S-curve exists for most things.  It certainly applies to shirts.

The important thing about a shirt is the fabric.  Like the wine example above, a lot of the cost of a shirt is fixed - import duties, VAT, logistics, packaging.  Actually making a shirt is also largely a fixed cost - an army of skilled workers cut and sew the garment.  The industry term is CMT (Cut, make, trim) and it’s typically £3-4 per shirt.

The only way to reduce the actual CMT cost is to pay people less - sweatshops basically.

So the big delta is the fabric - you can buy shirt fabric for £3 per meter or £30.

At the bottom end we are approaching tea towel quality.  Often the fabric will have some sort of weave to it - twill or herringbone or similar - which can hide a multitude of sins.  If it’s poplin then it’ll be very light and thin.

Our fabric comes from an Italian mill called Monti.  They started in 1911 in a town called Treviso, just north of Venice.  [4]

(Side note: I happen to know that two other Jermyn street brands use the same fabric in shirts which they sell for over £200.  It’s just a case of higher markups - a whole other topic).

We got right to the top of the S-curve, but deliberately didn’t go into the flat bit.  We chose the mill’s second most expensive fabric.  The most expensive is finer and wouldn’t be practical for a day to day shirt as it lacks durability.

Above that there are even more expensive options, but they tend to be limited supply, like with wine.  Sea Island cotton is the rarest and finest cotton in the world.  It’s grown in Barbados, Jamaica and Antigua and accounts for 0.00004% of global cotton production.  James Bond wears Sea Island cotton because Ian Fleming was a fan of the locally made fabric - he wrote all 14 novels from his home and estate, Goldeneye, in Jamaica.

So when we claim to use the finest fabrics we could find we are actually not being entirely truthful.  We used the second best because the best is impractically fine and we ignored the rare because you’re paying for prestige and scarcity.

[1] https://danoregan.substack.com/p/how-uk-wine-duty-eats-your-bottle

[2] https://www.bibendum-wine.co.uk/news-stories/articles/wine/uk-wine-duty-explained-vinonomics/

[3] https://www.gsb.stanford.edu/insights/baba-shiv-how-wines-price-tag-affect-its-taste

[4] https://monti.it/