Posted by Liquid Discount on May 31, 2014
We have often rank ordered our wines by using a simple Quality to Price Ratio (QPR). This is very similar to how investors find relative value in stocks by comparing price-to-earnings or P/E Ratios. While the math is simple, a simple quality to price ratio assumes a linear relationship between quality and price. But is this relationship linear? For example, if you are willing to pay $20 for a 90 point wine, a simple QPR suggests prices as follows:
|2.0-3.99||Very good value|
|1.01-1.49||Above average value|
|0.5-0.99||Below average value|
The equation looks like this and can be easily modified for different assumptions:
From our experience and observations of wine retail, we think this is very reasonable.
Think about it: If you are willing to pay $20 for a 90 point wine, you would likely be willing to pay around $40 for a 93 point wine. From a value perspective, you would likely be indifferent between the two.
For starters, we have used this analysis to find relative values amongst Robert Parker's Red Wine picks 90 points and north. We had presented to you the 26 wines we carry with 90-98 Robert Parker ratings. Now here is the rankings of the Reds by wwpQPR using a baseline of $20 for 90 points:
|La Grand Ribe Cotes du Rhone Villages Centenaire 2009 - 91-93 points!||13.95||2.87||Very Good Value|
|2||Domaine Lafage Tessellae Old Vines 2011 - 93 points!||14.95||2.68||Very Good Value|
|3||Domaine de Couroulu Vacqueyras Cuvee Classique 2010 - 92-94 points!||19.95||2.53||Very Good Value|
|4||Chakana Wines Maipe Cabernet Sauvignon Reserve 2012 - 92 points!||14.95||2.12||Very Good Value|
|5||Bodegas Avante Avante 2010 - 92 points!||19.95||1.59||Good Value|
|6||Familia Eguren Bodegas Teso la Monja Romanico 2011 - 91 points!||16.50||1.53||Good Value|
|7||Bodegas Volver Single Vineyard Tempranillo 2011 - 91 points!||16.95||1.49||Above Avg|
|8||E. Guigal Crozes Hermitage 2009 - 92 points!||23.95||1.33||Above Avg|
|9||Anderson's Conn Valley "Eloge" Napa Valley Bordeaux Blend 2008 - 96-98 points!||106.90||1.19||Above Avg|
|10||Bodegas Convento Las Claras Tinto 2012 - 90 points!||17.95||1.11||Above Avg|
|11||Bodegas Alto Moncayo Garnacha 2010 - 92 points!||39.95||0.79||Below Avg|
|12||Beringer Cabernet Sauvignon Private Reserve 2010 - 96 points!||129.95||0.62||Below Avg|
|13||Peirson Meyer Cabernet Sauvignon 2007 - 94 points!||82.80||0.61||Below Avg|
|14||M. Chapoutier Chateauneuf du Pape Barbe Rac 2009 - 96 points!||139.95||0.57||Below Avg|
|15||Anderson's Conn Valley Right Bank Proprietary Red Wine 2008 - 92 points!||57.85||0.55||Below Avg|
|16||Shafer Cabernet Sauvignon Hillside Select 2006 - 97 points!||224.95||0.45||Poor Value|
|17||Finca Luzon Alma de Luzon 2004 - 90 points!||58.55||0.34||Poor Value|
It should be no surprise that the top 7 in this list are amongst the best sellers at Liquid Discount!
So should you stay clear of the bottom half of this list? That's where "you" need to apply "your judgement". If you put more of a premium on Napa Valley Cabernet, you may still find #12 and #13 to be "good value". What about the Shafer Hillside Select? If we were to draw an analogy, think of this similar to purchasing a Porsche car. Are these cars "good value"? Hell no! Especially if all that matters to you is getting from point A to point B. But a Porsche stands for exceptional luxury, class and quality as does the Shafer Hillside Select. And there are people willing to shell out on a Porsche and Shafer alike.
If you would like to carry out your own wwpQPR analysis, we suggest you define the categories for comparison. Expanding on our Napa example, regions like Napa command a price premium so the the base line price for a 90 point Napa Cabernet may be around $40 vs. the base line for a 90 point Chilean Cabernet may be around $15. So a $25 90-point Cabernet may provide above average or below average value depending on whether it is from Napa or Chile. There are many interesting ways to use this analysis and you can read the whole article here. We hope you find this tool useful to unearth relative value in wine.