Does Price Correlate with Quality?

"What people need to understand is this: Price has no impact on quality." Gary Vaynerchuk

So, the other day, I'm browsing the web and I see a Twitter update pop up from @garyvee saying he's going to be on Fox & Friends in a few minutes. So I turn on the TV and sure enough Gary is doing one of his [now usual] 3-5 minute spots where he introduces the audience to a set of interesting, value-priced wines. Something he said didn't ring true with me- it's the quote above.

First off, I have to say that I'm a huge fan of Gary's. I probably wouldn't be writing this blog if it weren't for his groundbreaking work on his daily video blog Wine Library TV.

And I don't want to take what he said out of context, and I think we all know the point he was trying to make to a national television audience. It's that spending a lot of money on wine doesn't guarantee you'll get a good bottle of wine, and there's good wine to be had at all price points.

But I wanted to continue the conversation and drill down to see what the correlation between price and quality looks like. So I consulted the Wine Spectator ratings for the 2005 Napa Cabernet Sauvignons they rated. I chose Wine Spectator because they taste wines blind against wines from the same appellation and variety (ie, Napa Cab in this case).

Now, we can debate whether Wine Spectator's numerical ratings are the best judge of quality, and whether numerical ratings are valid in general, but I don't know of another way to go about this, nor another source that rates as many wines blind. So for the sake of argument, let's go with Spectator ratings for now. We can discuss the merit of their numerical rating system another time.

I plotted the Wine Spectator rating of each of the wines vs. the release price. I then asked Excel to create a trend line to model the scatter plot and the result is the image at the top of this piece. As you can see, as price goes higher so does quality. If price didn't correlate with quality, we'd see a flat line, or a line with a negative slope.

We do see that the distribution of the plot is rather wide- that is to say that there is not perfect 1:1 correspondence between quality and price. And that's where value plays come in. But in general, as we'd expect, quality does correlate with price. That's not to say that high prices cause quality wine- rather quality wine is generally the result of hundreds of things that cost money.

Ask any winemaker and he'll tell you this. Whether these things result in discernible quality differences that align with what you want in a wine is another matter, but judging from the Spectator ratings alone, I think it's safe to say that there is indeed a correlation between price and quality.

As I was going through these ratings, I found a number of fascinating facts and figures. I'll be following up on those in a future post or two.

Further Reading:

• Defining value: Introducing the wwpQPR
• How to Buy Wine Like Warren Buffett Buys Stocks
• An interview with Paul Clary from Clary Ranch Wines where he explains in simple terms how costs in the vineyard need to be justified in terms of the difference it makes in quality
• Ryan Zepaltas from Zepaltas Wines answers a similar question- "What is one little thing you pride yourself on that might be expensive and time consuming that people might not realize you do?"

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Question of the Day: What do you think? Does price impact quality when it comes to wines?