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Economic study: Wine appellations boost prices

Obtaining an official wine appellation from the U.S. government can boost prices up to $14 per bottle, according to an economic study that focused on Oregon’s Willamette Valley.
Mateusz Perkowski

Capital Press

Published on January 23, 2018 2:34PM

Last changed on January 25, 2018 2:55PM

Winegrapes grow in the Willamette Valley. A university study looked at the impact of American Viticultural Area appellations and sub-appellations on wine price.

Mateusz Perkowski/Capital Press File

Winegrapes grow in the Willamette Valley. A university study looked at the impact of American Viticultural Area appellations and sub-appellations on wine price.

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Convincing the federal government to officially recognize a wine region’s unique “terroir” can substantially boost the price per bottle, according to a recent study.

The study found that certain geographic regions within Oregon’s Willamette Valley saw statistically significant wine price premiums due to their federal designation as “American Viticultural Area” appellations.

Average prices and wine rankings were compared across six sub-appellations within the overall Willamette Valley AVA as part of the research, which was headed by economics professor Omer Gokcekus of Seton Hall University in New Jersey. The study was published in the Journal of Wine Economics.

After obtaining their sub-appellation designations, wines from four of those areas — Chehalem Mountains, Dundee Hills, Ribbon Ridge and Yamhill Carlton — saw their price-to-quality ratio outpace the rest of the Willamette Valley.

All other things being equal, the sub-AVA designations contributed to higher prices ranging from $1.43 to $14.13 for a bottle with a 90-point score from Wine Spectator, an industry publication that rates wines.

Price premiums for wines produced in the Dundee Hills AVA were the highest found in the study.

Russell Gladhart, whose family owns Winter’s Hill Estate, said the Dundee Hills AVA benefits from being densely planted with vineyards within a relatively compact area.

The resulting lack of variation makes wines from the region more distinct, he said. “The customer knows more precisely where the wine came from.”

Gokcekus, the study’s author, said he became intrigued by the phenomenon while attending an academic conference in Oregon.

“There should be a reason for this,” he said.

For wineries to petition the U.S. Alcohol and Tobacco Tax and Trade Bureau for a sub-AVA, there must be an economic motivation, Gokcekus said.

“I was expecting to see an increase, otherwise, why should you bother?” he said.

Even so, Gokcekus said he was surprised by the size of price premiums some wines commanded solely due to their appellation.

The range of grape-growing conditions is narrower within a smaller appellation, leading consumers to believe they’re at less risk of buying a lower-quality wine from that region, he said.

There’s also a sense of exclusivity that comes from purchasing wine from an area that only has a limited number of bottles available, Gokcekus said.

“We are talking about wine. In my mind, we are talking about perceptions,” he said.

Creating ever-smaller appellations probably stops making economic sense at some point, though.

As the number of wineries within each area shrinks, they must each spend more money to promote the region and can’t pool their resources as effectively, Gokcekus said.

“On the one hand, there is exclusivity. On the other hand, there is cost,” he said. “It’s a kind of balancing act.”

Wineries won’t gain much from a sub-AVA designation if they’re located within a larger appellation that hasn’t won many accolades, he said. In this case, the Willamette Valley had already established a solid footing in the wine industry.

“It’s a prerequisite,” Gokcekus said. “The AVA you are in should already have a certain reputation.”

Although a sub-AVA designation may boost prices higher than they’d rise based on quality alone, it’s also necessary for wines from the region to stand out, he said.

For example, the price-to-quality ratio for two sub-AVAs, Eola-Amity Hills and McMinnville, did not meaningfully surpass the rest of the Willamette Valley despite the designations, he found.

While the price-to-quality ratios increased in both regions, they largely kept pace with the larger appellation — probably because their average wine ratings didn’t exceed the Willamette Valley’s average, Gokcekus said.

Being located within a well-known sub-AVA, such as Dundee Hills, is associated with a premium but winemakers must source 95 percent of their grapes from that appellation to promote it on their label, said Denise Flora, co-owner of the Native Flora winery.

That requirement isn’t a problem for Native Flora, which is a boutique winery that relies entirely on the 16 acres of vineyards growing on its estate, she said. “It fits our business model.”



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