June 12, 2008, by Omer Gokcecus, Seton Hall University (gokcekom@shu.edu)

Increasingly wines arrive in the American wine market from all over the world. Accomplishments such as being on the Wine Spectator’s yearly best 100 wines for vintages from places such as Argentina or South Africa would not have been possible fifteen years ago.  Yet the market continues to expand with wine produced in more and more countries around the world.  The American wine market is one of the most open in the world. The result is that the American wine drinker has increasingly diverse options in their wine choice.  Yet, with all this diversity, is the American consumer benefiting through cheaper and better quality wines? 

To answer this question, my graduate student, Andrew Fargnoli and I wrote an article in the Journal of Wine Economics, (December 2007: 2(2), pp. 187-195), “Is Globalization Good for Wine Drinkers in the United States?” where we analyzed changes in price, quality, and variety of wines available to consumers since 1988. We focused on these three dimensions because it is sensible to think that wine drinkers will be better off with lower prices, higher quality, and greater variety.

To determine the nature of the changes in wine price, quality and variety, we examined the Wine Spectator’s Top 100 list which has been published every year since 1988.  If average American wine drinkers were each year to go out and buy the top 100 wines, would they pay less money, have better quality and more variety in national origin in 2005 than in 1988?  Each year the Wine Spectator uses the same four factors to determine the list. They are taste, availability, price, and the x-factor, which takes into account how significant the wine’s achievement for that year has been.  These factors exclude the very expensive, the very rare and boutique wines and allows our study to concentrate on the so-called “average” American wine drinker. 

Our findings show that globalization has benefited the American wine drinker. We find that there is an overall decrease in the real price of a shopping cart of all 100 wines from year to year. For instance, the real price (in 1988 prices) for the basket of the entire Top 100 list was $4,313 in 1988; $3,132 in 1993; $2,533 in 1999; and $2,421 in 2004.  That is nearly a 44% decrease in prices from 1988 to 2004.  At the same time, there was no significant change in the quality of the wines on the Top 100 list. From 1988 to 2005, average score did fluctuate within a range of 1.66 points—the difference between highest average score 93.61 (in 1988) and the lowest average score 91.95 (in 1996).  But as a whole these fluctuations in quality can be tacked up to chance and are not significant.

In terms of variety, the number of countries appearing on the Top 100 lists over the 18 years represented in this study increases, from six countries in 1988 to a total of eleven countries in 2005.  In 1988, only six countries—namely France, Italy, Spain, U.S., New Zealand, and Lebanon (the latter two each with only one wine)—are represented. In 2005, the number of countries nearly doubles to eleven.

Our econometric analyses show that the decreasing wine price over the past 17 years can be explained by the loss of shares of the Old World countries: Replacing a French wine with a U.S. wine lowers the average real price by 1.0%; an Australian wine by 1.1%; and a wine from non-incumbent countries by 1.5%. To put it differently, replacing an Old World wine (French, Italian, etc.) with a New World  wine (US, Australia etc.) lowers the average real price by 1%.  Replacing an Old World wine with a New-New World wine (Chile, South Africa etc.) lowers the average real price by 2.5%. The increased presence of newcomers puts significant downward pressure on prices.

Thanks to globalization, the world of wine is filled with greater variety, the same level of quality and, at least for the wine drinker in the United States, it is also a more affordable one.

This Table provides you with a data summary of the paper!

[This article was published in the June 2008 Issue of Wine Business Monthly]