Why are some wines more expensive than others? Would the cost of producing Grange differ from the cost of producing Koonunga Hill?

—D.F., Manly NSW

What’s the cost of making a Prada or Gucci handbag compared to its retail value? The first would be a small fraction of the second is my guess.

The equation would be similar with some expensive wines, but Penfolds Grange is probably not the best example.

Yes, Penfolds buys some of the grapes that go into Grange, but it pays a handsome price for them – about $12,000 a tonne. The grapes that go into Koonunga Hill would be well under $1000 a tonne (Riverland’s are about $100 a tonne). Grange grapes cost more because they’re grown at a very low yield (in tonnes per hectare) and only in great vineyards; they’re a limited resource.

However, even at $12,000 a tonne, the cost of the fruit in a bottle of Grange is probably only about $15. Add to that the cost of winemaking and maturation, which wouldn’t be very different to a $50 bottle of shiraz (expensive new barrels are extra), and the opportunity cost associated with ageing the wine for five years before it’s sold.

There are some marketing costs, but much of the price ($1000 a bottle for the current vintage) is the premium you pay for the fame and glory. This includes a blue-chip reputation, which has accumulated over more than 70 years since the first vintage in 1951, its history of long ageing (40 to 50 years), and the quality and special character of the wine.

A better example would be a less-prestigious wine that doesn’t include such a premium for its fame. The grapes are the main cost in any wine, but by the time it reaches you and me, that cost looks very minor.

The retail price is inflated by taxes and resellers’ margins. A bottle of wine includes a 29 per cent wine equalisation tax and 10 per cent GST.

In addition, we may have a wholesaler’s mark-up of, say, 25 per cent and a retailer’s mark-up of, say, 45 per cent. (In a restaurant, the mark-up can be anything between 100 and 300 per cent.)

And the more expensive the initial price, the greater the multiplier effect of the add-ons. Buying direct is the way to go!

Got a drinks question for Huon Hooke? thefullbottle@goodweekend.com.au