UsableMarkets

It’s not often that I repost something, but I recently discovered that this post was missing from my site! I decided to repost it since it’s one of my favorites. My apologies if you’ve read it before. Other wine related posts can be found in the wine markets category. ~alex

Not knowing the quality of what you’re buying is, of course, the trait of a market which lacks transparency.

The wine market, for example, involves many choices which vary widely over price and quality. Selecting the best wine at the best price usually requires some cost, such as being certified as a sommelier, or through plenty of trial and error (which may not be a cost to some people!).

If you haven’t “paid the cost” required to be conversant in wine, then you’re usually at the mercy of the local wine shop manager, a friend’s recommendation, or perhaps you use other signals, such as buying the wine with the prettiest label, such as Yellowtail (which I recommend not buying).

In the online world there tends to be more transparency. Wine.com for example, categorizes their wines by price, among other things, and allows users to sort their results by rating.

But there are some problems even here. The wines are rated by a variety of wine publications, and there’s no assurance that all these different rating are comparable, although some certainly are. In addition, not all wines are rated, and certainly no wine with a low rating has that rating associated with it. Just try and find a wine with a stated rating below 85 on wine.com.

This lack of transparency (far more severe in the offline world than in the online world) benefits the sellers of wine, of course, since even wine that is not good can still get fair consideration. Buyers of wine, trying to buy wine in this somewhat opaque market, of course begin to rely on other signals for quality. Price is one such signal. Labels are another.

One solution might be to faithfully display ratings for wines that have been evaluated, including those with bad ratings. Sellers, however, are unlikely to do this.

My own, rather humorous suggestion is a wine Price/Taste ratio. Much like every stock has a P/E ratio, each wine could receive a P/T ratio which would tell you the quality of the wine for the price you’re paying.

It could work as follows:

1. Taste would be determined by some independent third party. If the existing wine rating agencies could standardize their rating systems, and apply them to most wines, then this could easily be used.
2. Price is merely the standard retail price for the wine.

For example, this Terre Rouge 2002 Syrah gets a P/T of 0.82

And this Capcanes 2003 Mas Donis Barrica gets a P/T of 0.15

The lower P/T, just like P/E, indicates a better value, and in this case, knowing the relative P/T scores for each of these wines, you’d be crazy to buy the Terre Rouge, despite its higher rating.

3. The final piece to the puzzle (and of course the most difficult) is getting widespread adoption, so that no matter when and where you, you can see a wine’s P/T ratio.

I’m sure this rather simplistic solution would need to be improved, but one can easily imagine that the constant question – which wine should I buy – could easily be answered. I buy the wine with the best P/T!

This, of course, ignores all the other reasons why you might want to buy wine (impress your friends, for example), but it is a start at making wine markets more transparent.

As always, thanks for listening.
~alex