Loading... Please wait...

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:

Points | Price |

90 | $20.00 |

95 | $21.11 |

100 | $22.22 |

This is far from reality and a 100 point wine would likely be worth 10x a 90 point wine or around $200 if not more!

We started thinking about a better way to rank order relative value in wine and rather than reinvent the wheel, googled for answers. We found a simple yet elegant solution conceptualized by

The equation is based on a simple observation: "

The normalized scale can be interpreted as follows:

wwpQPR | Interpretation |

>8.0 | Incredible value |

4.0-7.99 | Outstanding value |

2.0-3.99 | Very good value |

1.5-1.99 | Good value |

1.01-1.49 | Above average value |

0.5-0.99 | Below average value |

0-0.49 | Poor 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.

If math hasn't been your forte, no worries. There is a handy Javascript app on the WWP blog that does the math for you. Follow the link and look to the right of the page. Or in Excel simply use: =(2^((Q-90)/3))/(P/20)

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:

**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.