Certain wines have achieved the status of "luxury items". The other day, Robert Frank's Wealth Report Blog in the WSJ had a post titled "What counts as "luxury?" in which he says "luxury by definition should be exclusive. So the idea of mass luxury... is a fiction. If everything is luxury, nothing is luxury."
Why is fine wine susceptible to being treated as a luxury item?
- Rare, hard-to-find bottles from sought-after producers (even from current vintages much less 1947) are essentially exclusive goods as they are made in finite quantities that become even scarcer as they are consumed.
- Fine wine possesses characteristics that drive consumers to be willing to pay a significant premium. The willingness to pay a premium, as described on the book jacket of Trading Up: The New American Luxury, occurs when a product or service is emotionally important to the consumer and delivers "the perceived values of quality, performance, and engagement." Sounds like great wine to me.
- Prices have climbed steadily for highly-rated wine as demand appears to be growing faster than supply. For evidence, read my prior market-related posts in this blog. One driver is the rapid pace of wealth creation. E.g., the number of U.S. households worth $5 million or more (not including one's primary residence) rose 23% in 2006 to a record 1.14 million. Read more in another recent post by Robert Frank called "Five million is the new million."
- Even with higher prices, wine is still a relatively "affordable" luxury within the financial reach of many more than just households with $5+ million net worth.
- Merely owning certain wines confers a halo of prestige upon the owner. It's almost as if being willing to pay a high price signals that you have the sophistication to value the nuances of the wine.
High prices alone don't deliver "luxury" status
Drinking a $150 bottle of lousy and generally available wine wouldn't be considered a moment of luxurious self-indulgence. To "qualify" in the luxury category, the wine must also be relatively scarce and of high absolute quality (often due to a respected reviewer's rating) to make you feel that you're having an out-of-the-ordinary experience.
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