Is Less, More? On “Usakhelauri” Wine

This summer I bought a small piece of land (0.15ha) in the village of Okhureshi to grow a vineyard. About 700 “Usakhelauri” vine seedlings planted on that land in November this year will soon provide the most scarce and expensive grapes in Georgia. In just in a couple of years the vines will mature, and I will enjoy something as nice as the neighboring vineyard depicted in the photo.

NO NAME…

Usakhelauri is an ancient red-wine grape variety unique to Georgia. The grapes are cultivated in just a couple of villages in the Lechkhumi region (West Georgia), as this variety can only grow in specific areas (micro zones) of this region. One season can only produce a couple of hundred tons of these rare grapes in Georgia. The unique and rare semi-sweet wines produced from this grape variety sell for 150-170 GEL (60-70 USD) per bottle.

The name Usakhelauri translates as “with no name”. By giving such a distinguished name to this grape variety, locals meant to portray the features of these grapes as being beyond words. As claimed on the website for Usakhelauri wines, “the most precious feelings have no name.”

WHAT’S THE BIG DEAL ABOUT RARE WINES?

While the worldwide price of most wines (basic and premium wines) varies between $5-$50 per bottle, some wines do hit prices of several hundred thousand US dollars. A bottle of Cabernet Sauvignon recently sold for $350,000, setting a new record for the most expensive wine ever sold in the world. Other examples of fabulous wine prices include Chateau Lafite’s 1869 (sold for $230,000 per bottle at an auction in Hong Kong) and 1947 Cheval Blanc (an imperial bottle sold for $304,375 at an auction in 2010).

Though such high prices of wine are seen only in exceptional cases, wine prices still vary a lot even for wines produced with similar grape varieties and wine-making techniques. Why do consumers pay a lot for some wines and not for others? Are some wines hundreds and thousands of times better than others?

Wine is a typical experience good, meaning that unobservable product characteristics play an important role in consumers’ buying decisions. Consumer value not only intrinsic (physical-chemical attributes of wine such as taste, color, etc. - the characteristics that cease to exist when wine is consumed) but also extrinsic characteristics such as region, aging, bottle form, vineyard and winery landscape, purchase place or occasion, consumer involvement in purchase, history and so on.

All of which provides wine producers with plenty of opportunities for product differentiation. For instance, the basic factors that make wine more expensive - oak, time and terroir - provide a notable mark-up on the bottle price. On average, additional prices per bottle are $2-4 for oak, $1 per year of aging and more than $5 for terroir.

One of the extrinsic signals consumers consider in their purchasing decisions is perceived scarcity of product. Scare products are generally preferred over abundant products (Amaldoss, W., and Jain, S., 2005). Scarcity can be on supply-side or demand-side. In case of supply-side scarcity, consumers consider the product to be exclusive, and are willing to pay more than for other similar products. Purchasing such products makes consumers to feel unique; they are happy and proud to get something that is rare and unavailable for others. As about 70 percent of the world's wine is produced from just 30 grape varieties, trying wines made from rare grapes is a dream of most wine geeks. On the other hand, demand-side scarcity is often perceived as related to products’ popularity. Consumers’ perception is that popularity caused a particular shelf of wine to be almost empty (e.g., Robinson et al., 2016). Researchers have looked at both types of scarcity and tried to show when (and if at all) product scarcity increases consumer preference. While the findings are rather controversial and depend on context as well as type of consumers (e.g., age, wine involvement, etc.), research in this area provides interesting insights for developing wine marketing strategies (Erica van Herpen et al., 2014).

Although it is easier to sell known and inexpensive wines than expensive ones, its characteristics make the product especially well-suited for value and thus price addition. However, the higher the price segment, the more sophisticated marketing efforts need to be made. An article from The Economist argues that mass advertising may even be counterproductive, as it makes expensive wines seem less exclusive. Expensive wines are often promoted through other publicity mechanisms, such as tasting rooms, gift baskets during the holiday season, or charity events.

LESS IS MORE

Notwithstanding its low yields, cultivating Usakhelauri grapes is associated with high profits for farm households. While only 1-1.5 kg of grapes can be harvested per vine (5-6 tons per ha), this drawback is easily offset by the high prices of Usakhelauri grapes, which vary between 10-20 GEL per kg (according to Okhureshi village dwellers). For a comparison, Table 1 presents the development of average grape prices for most common Georgian grape varieties, and shows that Usakhelauri grapes sell for several times higher than other grapes in Georgia, even the rare and expensive Aleksandrouli/Mujuretuli varieties (which go into the production of Khvnchkara wines). As for the yields of other Georgian grape varieties, Rkatisteli vines usually provide 15-20 tons per ha, Saperavi vines 10-15 tons per ha and Mujuretuli vines yield around 7 tons per ha.

Therefore, preserving the unique Usakhelauri grape variety is associated with higher incomes, even if only for a few farm households owning suitable land plots. Moreover, while the produced wine quantities are tiny, Usakhelauri wine still contributes to the branding of Georgian wines as being unique as well as the country’s overall rich indigenous grape varieties.

Table 1. Average prices of wine grapes in Georgia (in GEL per kg)

Source: http://rtveli2017.gov.ge/statistic

CHEERS!

When my vines enter their full production years, I expect to harvest about 1,000 kg grapes, and produce around 800 liters of wine per year. Although it would be unwise (and almost impossible) to sip all the produced wines with my family and friends, my newly planted vineyard is more to quench my nostalgia for Okhureshi (my home village!) than a business endeavor.

Others certainly have long-term business plans regarding this wine, as several new investments have been undertaken in Usakhelauri vineyards in the last couple of years. Those investments include several newborn agricultural cooperatives, which produce this rare wine, or are planning to in the future. May these businesses preserve the uniqueness and high quality of Usakhelauri wine, make best use of various marketing techniques, and be successful!

References

1. Amaldoss, W., and Jain, S. (2005). Pricing of conspicuous goods: A competitive analysis of social effects. Journal of Marketing Research, 42, 30-42.

2. Herpen, E. van., Rik Pieters, R., Zeelenberg , M. (2014). When less sells more or less: The scarcity principle in wine choice. Food Quality and Preference 36, 153-160.

3. Robinson, S. G., Brady, M.K., Lemon, K.N., Giebelhausen, M. (2016). Less of this one? I’ll take it: insights on the influence of self-based scarcity. International Journal of Research in Marketing 33, 961-965.

Pati Mamardashvili