Is Lanzarote Wine Expensive? An Economics 101
A simple matter of quality and scarcity explained.
This is a question we hear a lot, or as a flippant remark as to the “high” price in a social media comment. It is one we are also likely to hear a lot more of. On the face of it, with little understanding, it might seem a fair point when compared to many supermarket or even other Spanish wines. But you don’t have to look too far to understand why wines from the Island command a higher price tag. With such few references available on the Island and even fewer available to export due to shortages, it seems an opportune time to answer this question.
First of all, let’s talk about quality. While wine is very much an individual taste, Lanzarote wine can certainly be viewed as premium quality. From our experience, feedback from Wine Shop Lanzarote customers, and from our Wine Tours Lanzarote guests is excellent. Aside from those whom we have direct contact, over the years famous critics such as Robert Parker have given glowing reviews of many of the Island wines. At the same time, day to day wine enthusiasts rate the Island's wines highly on applications such as Vivino. Bermejo Seco, for instance, rates as a 4.1 on this app, which puts it in the top 2% of all wines in the world.
Of course, ensuring quality doesn’t come easy and it certainly isn’t cheap. It takes painstaking work from the vineyard all the way through to bottling. Lanzarote vineyards are truly unique, a miracle sculptured by man in the wake of the Timanfaya volcanic eruptions of 1730 – 1736. The vineyards are some of the lowest yielding on earth, with just 300 vines per hectare in parts of the main wine region of La Geria, which compares to between 4,000-7,000 p/h in a typical vineyard the world over. The work in the vineyard, year-round including the harvest is 100% manual. It is both heroic viticulture and time consuming, but crucially it results in high quality produce due to hand selection. The resultant island wide harvest tends to fluctuate between 700,000 Kg and 4 million Kg per annum. Due to exceptionally dry winters in recent years, we have been towards the lower end of this range, which is severely restricting supply on the Island.
Along with 3 million visitors a year to Lanzarote alone, we also have an Island of enthusiastic wine drinkers. This means those relatively few bottles are in high demand, and following the reopening from the pandemic, combined with consecutively poor yields it has caused a major shortage of wine. 90 % of production is consumed within the Canary Islands with very little finding its way overseas, even in a high yielding year. While references on our website have sold out, we do in fact have a decent range compared to what has been available at many of the island´s wineries!
Across the “wine world,” wine from any volcanic region is very much in vogue. Nowadays, it can be argued it is a category of wine on its own, forget New World, Old World, or Bordeaux or Shiraz, volcanic wine could sit in its own category on a wine list. Volcanic wines and Canary Island wines have drawn plenty of media attention over the past years and this of course has attracted interest from wine lovers both overseas and locally, looking for something new and different to enjoy. The pandemic and a lack of travellers to the island, in fact encouraged local wineries to set up online shops with distribution across continental Europe. This has also helped to make the wines more accessible and therefore in demand.
Of course, with this finished product (wine) in high demand, the raw material (grapes) is also implicitly affected. The economics of Lanzarote wine is changing rapidly at the moment, and we will cover this in a separate article soon. In 2022 Lanzarote grape prices increased to over 3 euro per kilogram, a 50% increase on 2021. With many flagship wines needing nearly 2 Kg of grapes to produce each bottle, the resultant cost of the “raw material” behind a bottle of wine has increased substantially in just one year. That is before taking into account broader inflationary pressures along the chain.
All of these dynamics apply to the domestic market, but exporting and importing brings with it a whole new level of additional costs. In the UK, the average wine price breached GBP 6.00 a bottle for the first time in 2020. With nearly 2 Kg of grapes to produce a bottle of wine in Lanzarote, the "raw material" i.e. the grapes cost this, before they have even been processed into wine!
To export, and not just for us, there are many considerations. Starting with the obvious one, transport. As very little is shipped from Lanzarote to Northern Europe it means it is hard to source, it takes time and is very expensive. It is frustrating, especially as the Canaries were once one of the main shipping routes to the UK (think Canary Wharf!). We send our wines with thermal protection and with specialist transporters, and as it is alcohol we are further restricted to who we can use.
Next up we have taxes and duties. Importing into the UK results in a per bottle duty of GBP2.23 (more for sparkling wines). 20% VAT is then applied to the importation value, PLUS the per bottle excise amount, effectively a double taxation! Fees have to be paid to the clearing house too.
Wine Shop Lanzarote
Relating this to our operation, the wine has to be delivered to a warehouse, stored and then picked and packed and delivered to customers when a purchase order arrives. The packaging for our wines is eco-friendly and robust, and of course this adds another layer of costs. The flip side of this is cheaper, weaker and non-eco-friendly packaging, a higher breakage rate to be factored in and of course much more admin time. We know from experience this is a false economy!
These summarise the direct costs, but there are website, accounting, card transaction, and other sundry fees when operating overseas. We do not benefit from economies of scale benefitted by large multi-nationals. But for Wine Shop Lanzarote, as a small independent company offering a first-class personalised service and product information, it is how we want it to remain. The quality of our service must sit hand in hand with our product.
Of course, everything mentioned above results in a higher price of wine in the UK and Ireland versus Lanzarote. The price though is fair, and we have even managed to be competitive versus duty free prices at Lanzarote airport (and we even deliver them to your door!).
We feel very privileged to bring a range of Lanzarote’s unique wines and craft beers to the UK and Ireland for the first time and look forward to building the project in the years to come. We are thankful for the encouragement and support from our customers from both our Wine Tours and Wine Shop businesses.
To close, armed with all the information, our Wine Tours Lanzarote guests often leave us and comment that the wine from Lanzarote is in fact too cheap. In our view, prices, like with most things, are only heading in one direction. Our wine growing area is very small and it is finite, so supply (yield) will not increase materially either, even with subsidies and regeneration projects.
Separately to this, a few years ago a new technology was introduced to the Island which many bodegas adopted. While keeping our "young" wines fresh, it also helped to smooth out annual wine production, as it essentially allowed some must (grape juice) to be stored at near freezing temperatures, until a batch on wine was required. The must would then be return to a normalised temperature and processed into wine. However, all these stocks are now at zero, so even a bumper year would only help with a slight restocking of reserves, at best.
We are certainly in an interesting, challenging yet exciting moment for Lanzarote wine, and we hope to reflect this in Wine Shop Lanzarote in the months and years ahead. We will cover this changing environment in more detail very soon, so keep an eye out.
As always, we are interested in hearing your thoughts and comments.