Inside the World of Luxury Wines – In Conversation with Liz Thach MW and Peter Yeung
Since ARENI launched its latest Define Fine Wine paper, we have been asked multiple times what the difference is between ‘fine wine’ and ‘luxury wine’. To answer the question, we turned to Peter Yeung and Dr Liz Thach MW.
Dr Liz Thach MW is a well-known wine educator and researcher, as well as a wine, food and travel journalist. She is the Distinguished Professor of Wine and Management at Sonoma State University where she teaches in both the undergraduate and Wine MBA programs, and she has written eight wine books.
Peter Yeung, the host of the XChateau podcast, has been Vice President of Strategy & Business Development at Realm Cellars in Napa and Kosta Browne Winery in Sonoma. He holds the WSET Diploma as well a MSc from the London School of Economics.
Dr Liz Thach MW and Peter Yeung collaborated on the book Luxury Wine Marketing: The Art and Science of Luxury Wine Branding, published in 2019.
ARENI
Why did you decide to define luxury wine — why was a definition needed?
Dr Liz Thach MW
We actually started researching the book in 2015. I was a full-time professor at Sonoma State, and at the time the economy was really good and I kept having more and more producers in Napa and Sonoma asking me for research and data on luxury wines, and we had never actually researched that before.
And then, ironically, Peter Yeung stumbles into my office and ironically he was with Kosta Browne at the time, and he wanted to do the same thing. But more than that, Peter’s like: “We should have a book.” Peter’s timing was really good.
We had been doing research on the mass market up until that time and I was heading to Burgundy for my sabbatical and so this was perfect timing. So, I decided to turn my research project into interviewing a lot of the luxury Burgundian producers who don’t actually like to call themselves luxury. Half do and half don’t.
And then I came back and then Peter and I started doing two big consumer surveys on luxury, trying to understand who the luxury consumer is. We delved into the luxury research because it turns out there was no definition of luxury wine at that time. We kept looking for whether there a price point associated with it?
And there wasn’t. And so finally we decided to create our own based on all the research and all the data and all the interviews we had conducted with luxury producers. So that’s how it came about.
ARENI
And so why do you think producers were so interested in this definition?
Dr Liz Thach MW
Comparison might be part of it. They want to know what that benchmark is so they can know if they’re there or not.
Peter Yeung
Well, when I started in the industry, which was not too long before that time I came into your office, there was no research. I was looking for guidance and research on why selling wine at the high end was different than selling wine to the mass market. Anecdotally, everyone told me that that was the case, but there was nothing to rely on, no data, no research, only anecdotes.
And I think the definition was important mostly to align people on what exactly it is and understand how to build towards it. Our vision at the time was to be, you know, the greatest California Pinot Noir producer in the world and to have that global iconic status. And to do that, we needed to understand what those pillars are to build towards it. The definition in and of itself isn’t super important once you land on it, it’s what you do with it that’s important.
ARENI
‘Luxury’ when associated with wine is a notion that divides people. Why?
Dr Liz Thach MW
Some of the Burgundian producers — and I mean we’re talking the high-end ones — told me they didn’t like the word ‘luxury’ because they felt that Mother Earth and the vineyards and the terroir were what created the product. All they were there for was to shepherd the wine through the process, and that they didn’t necessarily want their wines to be high priced.
But because of Mother Nature, climate change and, especially, the fluctuations in production levels, that they had no control over, the price was going up. They didn’t actually want to take credit for that. France is the home of luxury products and they didn’t see themselves in that definition.
Others — mainly a lot of the luxury Burgundian producers who had gone and gotten an MBA — were like: “for sure, we’re luxury, we tick off every single box”. And they were very clear that they were luxury because they knew the definition.
I still have to be careful, when I talk to certain Burgundian producers, not to use the word ‘luxury’ because they get really upset and they sort of start getting emotional.
ARENI
So, without further ado, what is your definition of a luxury wine?
Peter Yeung
We said luxury wine is of the highest quality, so quality is the first piece. It comes from a special place on earth. It has an element of scarcity. That can take many forms, but not being available everywhere is part of that product and part of the definition of a luxury item, which is, by its definition, why some people don’t like the term. It separates people, otherwise it wouldn’t be defined as a luxury good. It has an elevated price and it provides a sense of privilege and pleasure to the owner. The owner who owns that bottle of luxury wine has a pleasure from owning it and not just from drinking it.
Some people get that sense of pleasure just from owning it and seeing it in their cellar. Others get the sense of pleasure from showing it off to their friends and other people.
“Luxury wine is of the highest quality, coming from a special place on earth, has an element of scarcity, an elevated price, and provides a sense of privilege and pleasure to the owner.”
Dr Liz Thach MW and Peter Yeung
ARENI
Is there any difference between a luxury wine, a cult wine and an icon wine?
Peter Yeung
I think they are somewhat nuanced. A “cult” is usually super, super small, whereas “luxury” doesn’t have to be, but “luxury” has to pass the test of time – we say at least 20 years. “Iconic” is a wine that is representative of its class, whether that’s a region or something else. There’s overlap between all three categories.
ARENI
Can you be “cult” “icon” and “luxury” at the same time?
Dr Liz Thach MW
We differentiate “cult” and “luxury”. A lot of luxury wines started as cult wines. Screaming Eagle is a great example. Small production when it was first produced, it was given away for free by the by the producer. And now it’s $4,000 a bottle, or something like that. It started as a cult wine. Part of our definition of luxury is there must have been consistent quality for more than 20 years to fit into luxury. You can start as cult, and then eventually you can move into luxury, but some cult wines never make it into the luxury category. I agree with Peter on “icon”.
ARENI
Going back to luxury wines and that definition, the highest quality is the first thing. When we are trying to define what quality is, it is the same as trying to define excellence?
Dr Liz Thach MW
I think for us the key things about quality when it comes to luxury is no money spared on creating the very, very best.
What you’re doing in the vineyard, what you’re doing in the cellar, what you’re doing in your marketing; with everything you are always focusing on the very, very best and so maybe you could call that excellence. Related to that is this timeline, this 20 years of doing this really well, and this sense of heritage that comes with that.
The key thing about quality when it comes to luxury is no money spared on creating the very, very best.
Dr Liz Thach MW
ARENI
People say to me: Well, it’s funny that a wine needs to have the capacity to age to be a fine wine, because people don’t age their wines anymore. Well, it doesn’t really matter if they drink it young, that’s not the purpose.
Dr Liz Thach MW
Exactly. That’s where I think our definitions definitely overlap, is that ability to age and ability to sell well on the secondary market.
ARENI
And there’s no secondary market if you don’t have a wine that has the capacity to age or a consistency of quality as well.
Dr Liz Thach MW
Exactly. The true sign of when you’re entering luxury territory is when people start counterfeiting you.
ARENI
The second attribute is “coming from a special place on earth”. I’m going to ask a very French question: why did you choose to articulate it this way? Isn’t any special place on earth “terroir”, or can we understand it in a different way?
Peter Yeung
Back to defining terms. I think terroir has a few different definitions, some of which includes the role of man and some which does not. I think the “special place on earth” is very similar, but it may not necessarily include that role of man in that particular term.
ARENI
I was wondering if there was a different cultural interpretation of “sense of place” and terroir, because terroir seems to be used of course, a lot by the French, and sense of place I’ve heard a lot in the New World. Is New World redefining what terroir means to them? Is there an intrinsic difference between “sense of place” and “terroir”, because they’ve emerged from different subcultures of the wine world?
Dr Liz Thach MW
That’s a fascinating question. We use the “sense of place”, and it probably is because we’re writing from a New World perspective, even though we did a lot of our research on the Old World. And the “sense of place”; I think terroir is a piece of that. But I think the consumer comes into this. The consumer is like, “Oh, my dream”, especially if you’re a wine connoisseur. “My dream is to go to this one special place where they make wine”.
ARENI
The third attribute is the element of scarcity. Does orchestrated scarcity produce a different result than natural scarcity?
Peter Yeung
I think it always makes a difference, but you can get close with orchestrated scarcity. Natural scarcity is natural. When you’re orchestrating things, there’s naturally going to be some temptation at some point in time to say, “I have a little more wine I can sell, right?” And that’s going to degrade the notion of scarcity.
You can get a lot of benefits by orchestrating it. One of the major Napa producers will orchestrate scarcity by changing how much goes into import versus domestic sales every year. They’re constantly making their consumers feel the scarcity.
But when it’s naturally scarce, I think that’s when you have a real fervour for it. And people believe it because now you’re saying “no” to everybody and you’re saying no to the billionaire that comes to buy your wine.
Dr Liz Thach MW
I would argue that even small producers who have a limited production naturally are managing scarcity. They have to or they’ll get everybody mad at them.
ARENI
Is there a volume of production over which you can’t be classified as luxury? How does scarcity relate to larger production luxury wines?
Peter Yeung
I think they still have many elements of scarcity. When you buy Dom Perignon, even though it might be in the supermarket, it’s locked behind a glass door, right? The high price point makes it have also another element of scarcity. It creates an element of scarcity that may be perceived scarcity than actual physical scarcity of the product.
ARENI
Well, you talked about the price. It’s the perfect tie in to the next attribute of your definition, which is about an elevated price. And I think you came up with a real number. A luxury wine starts at $100 in the US market. How did you come up with $100?
Dr Liz Thach MW
We used several methods. First of all, we went and looked at all of the research that had been written on luxury wine pricing, which was not that much, but we found multiple definitions. Some people had it at $25, some people had it at $50 and some people had it at more. We put a huge database together of luxury wines around the world, and we noticed that most all of them were $100 or more.
We created an affordable luxury category, which is $50 to $99. But $100 is truly the cut off.
ARENI
You started the research in 2015 and the book was published in 2019. Being over $100 now is not something as exceptional as it was six or seven years ago. If you were to do that research again today, do you think a $100 is still the cut-off line today?
Peter Yeung
I would say it’s still the minimum benchmark for a luxury wine. But let’s be clear that we have these six attributes of luxury wine. And just because you’re priced at $100 doesn’t mean you’re a luxury wine.
Luxury wine is a subset of wines priced at $100 and greater. And just because there’s more wine priced over $100, doesn’t mean that there’s more luxury wines.
Luxury wine is a subset of wines priced at $100 and greater. And just because there’s more wine priced over $100 doesn’t mean that there’s more luxury wines.
Peter Yeung
Dr Liz Thach MW
We have special occasion wines, which are $200 to $499, and that’s where Dom Perignon and Krug are now fitting. And then icon wines, which are $500 to $999, and then you get to the dream wines which are $1,000 and up per bottle.
The concept of dream is really important in the luxury literature, because luxury is often about a dream. You know, a little boy sees this beautiful BMW sports car go by and has a dream that someday “I’m going to own that”. And all of us who love wine say “Gosh, someday I really want to be able to taste a bottle of Pétrus”.
That concept of dream and aspiration is really critical for luxury products
ARENI
The last attribute of your definition is it provides a sense of privilege and pleasure to the owner. And I was really intrigued by the choice of vocabulary because you mentioned the owner, but not the drinker.
Dr Liz Thach MW
The owner is the one who owns the bottle of luxury wine or, I guess, the purchaser. The owner is the consumer.
ARENI
Would it make sense to study the wine owners?
Dr Liz Thach MW
Like I said, when we started, our research, there was lots of research on luxury products, but hardly anything on luxury wine. We had to go into the luxury product research. The thing that comes up consistently in luxury is this sense of privilege “I’m finally able to buy this” or “somebody gave this to me as a gift, I feel so privileged to have this”. You know, we can wear fake diamonds and then we can wear real diamonds and people may not know the difference, but we do.
And then at the same time, there’s the pleasure principle. Luxury brings pleasure. And with wine, the pleasure comes in sharing.
ARENI
We haven’t talked much about the differences between fine wine and luxury wines, if there are any. Does the distinction between luxury wines and fine wine makes any sense to you? If so, how would you explain those nuances or those differences?
Peter Yeung
A lot of ARENI’s definitions, and our definition of luxury wine, are very similar, but there is a difference in that I think fine wine tends to be more producer driven. It’s what the producer is trying to say and trying to craft, whereas luxury wine is both producer driven and consumer driven, where it takes into account the brand reputation and all that.
The brand reputation and its status in the world of wine is an important element of luxury wine, which may not be so important in the fine wine category.
ARENI
Brand is not an accepted concept everywhere.
Peter Yeung
In Burgundy they hate the term ‘brand’. At the same time, whether they like it or not, it is a brand and it is a luxury product, because there’s no amount of cost really that gets you to pricing a bottle at $1,000 a bottle or more. It’s market demand and consumer perception of the wine.
ARENI
Your book is about luxury wine marketing. What does luxury wine marketing mean?
Peter Yeung
This is probably the most common criticism, if you want to call it that — I don’t view it as criticism — of our book, is that it doesn’t say exactly what everyone should be doing.
But if everyone did the exact same thing, it would certainly no longer be luxury. It would no longer have value. It’s very dependent on who you are as a brand, what your reputation is, what headwinds and tailwinds you have, and how you desire to navigate that marketplace.
There is a different pathway for each person. That pathway also changes in the context of the time. It’s not like 20 or 40 years ago, where if you’ve got a few hundred-point scores, your brand was elevated and a big thing.
We did some research for the book where we looked at Robert Parker/Wine Advocate 100-point scores. If my memory serves me right, in 1995, there were like eight, and in 2015 there were over 100, I believe. What was interesting was the percentage of wines reviewed to get a 100-point score was exactly the same; 0.2% of the wines scored 100 points. The wine world is so much bigger that they’ve reviewed so many more wines and therefore so many more wines got 100 points. But the percentage that 100 points wines represent within the pool of tasted wines remains the same.
In 1995, there were like eight [100 points wines] and in 2015 there were over 100, I believe. What was interesting was the percentage of wines reviewed to get a 100-point score was exactly the same; 0.2% of the wines scored 100 points.The wine world is so much bigger that they’ve reviewed so many more wines and therefore so many more wines got 100 points. But the percentage that 100 points wines represent within the pool of tasted wines remains the same.
Peter Yeung
ARENI
Say I’ve earned a lot of money tomorrow and I want to create a luxury wine. Are there any kind of steps that I need to go through?
Dr Liz Thach MW
Yes. And that’s what we call the five P’s. The first P is passion. And the second P is patience. And I don’t know if we talked about that as much as we should have in the book, but there has to be this incredible passion for this place, this sacred place on Earth, where you’re creating your wine, and the desire for it to be the best, this excellence.
But patience is super important with creating a luxury brand because, again, it’s going to take you years. You might be lucky and be able to hit that cult status within five years. But in our definition, you won’t have that heritage.
ARENI
When you look at the future of luxury wines, what excites you the most and what do you fear the most?
Dr Liz Thach MW
We see, especially with younger consumers who can afford to buy luxury wines, is this desire for accountability when it comes to sustainability.
This is becoming more important to the new consumer, and so I’m very excited about that. I would like to see a lot more of that in the wine world.
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