January 11, 2014
Relative Value: 17 Robert Parker 90+ Reds Rank Ordered
We have often rank ordered our wines by using a simple Quality to Price Ratio (QPR). This is very similar to how investors find relative value in stocks by comparing price-to-earnings or P/E Ratios. While the math is simple, a simple quality to price ratio assumes a linear relationship between quality and price. But is this relationship linear? For example, if you are willing to pay $20 for a 90 point wine, a simple QPR suggests prices as follows:

PointsPrice
90
  $20.00
95
  $21.11
100
  $22.22

This is far from reality and a 100 point wine would likely be worth 10x a 90 point wine or around $200 if not more!

We started thinking about a better way to rank order relative value in wine and rather than reinvent the wheel, googled for answers. We found a simple yet elegant solution conceptualized by Robert Dwyer of the Wellesley Wine Press. He calls the score the wwpQPR (short for Wellesley Wine Press Quality to Price Ratio).

The equation is based on a simple observation: "each incremental point north of 90 is exponentially harder to attain, whereas each point south of 90 is exponentially more detrimental". The equation requires a base line to be set: in our example this is $20 for a 90 point wine. The equation then makes the assumption: "For every 3 points north of the baseline quality, effective quality doubles. For every 3 points south of the baseline, quality is cut in half." The equation then normalizes the wwpQPR with a baseline of "1.0" such that any wine scoring better than 1.0 is above average and less than 1.0 is below average.

The normalized scale can be interpreted as follows:

wwpQPR
Interpretation
>8.0
Incredible value
   4.0-7.99
Outstanding value
   2.0-3.99
Very good value
   1.5-1.99Good value
   1.01-1.49
Above average value
   0.5-0.99
Below average value
   0-0.49Poor value



The equation looks like this and can be easily modified for different assumptions:


From our experience and observations of wine retail, we think this is very reasonable. Think about it: If you are willing to pay $20 for a 90 point wine, you would likely be willing to pay around $40 for a 93 point wine. From a value perspective, you would likely be indifferent between the two.

If math hasn't been your forte, no worries. There is a handy Javascript app on the WWP blog that does the math for you. Follow the link and look to the right of the page. Or in Excel simply use: =(2^((Q-90)/3))/(P/20)




For starters, we have used this analysis to find relative values amongst Robert Parker's Red Wine picks 90 points and north. We had recently presented to you the 26 wines we carry with 90-98 Robert Parker ratings. Now here is the rankings of the Reds by wwpQPR using a baseline of $20 for 90 points:
RankNamePrice $
QPRInterpretation
1
La Grand Ribe Cotes du Rhone Villages Centenaire 2009 - 91-93 points!13.95   2.87Very Good Value
2
Domaine Lafage Tessellae Old Vines 2011 - 93 points!14.95   2.68Very Good Value
3
Domaine de Couroulu Vacqueyras Cuvee Classique 2010 - 92-94 points!19.95   2.53Very Good Value
4
Chakana Wines Maipe Cabernet Sauvignon Reserve 2012 - 92 points!14.95   2.12Very Good Value
5
Bodegas Avante Avante 2010 - 92 points!19.95   1.59Good Value
6
Familia Eguren Bodegas Teso la Monja Romanico 2011 - 91 points!16.50   1.53Good Value
7
Bodegas Volver Single Vineyard Tempranillo 2011 - 91 points!16.95   1.49Above Avg
8
E. Guigal Crozes Hermitage 2009 - 92 points!23.95   1.33Above Avg
9
Anderson's Conn Valley "Eloge" Napa Valley Bordeaux Blend 2008 - 96-98 points!106.90   1.19Above Avg
10
Bodegas Convento Las Claras Tinto 2012 - 90 points!17.95   1.11Above Avg
11
Bodegas Alto Moncayo Garnacha 2010 - 92 points!39.95   0.79Below Avg
12
Beringer Cabernet Sauvignon Private Reserve 2010 - 96 points!129.95   0.62Below Avg
13
Peirson Meyer Cabernet Sauvignon 2007 - 94 points!82.80   0.61Below Avg
14
M. Chapoutier Chateauneuf du Pape Barbe Rac 2009 - 96 points!139.95   0.57Below Avg
15
Anderson's Conn Valley Right Bank Proprietary Red Wine 2008 - 92 points!57.85   0.55Below Avg
16
Shafer Cabernet Sauvignon Hillside Select 2006 - 97 points!224.95   0.45Poor Value
17
Finca Luzon Alma de Luzon 2004 - 90 points!58.55   0.34Poor Value

It should be no surprise that the top 7 in this list are amongst the best sellers at Liquid Discount!

So should you stay clear of the bottom half of this list? That's where "you" need to apply "your judgement". If you put more of a premium on Napa Valley Cabernet, you may still find #12 and #13 to be "good value". What about the Shafer Hillside Select? If we were to draw an analogy, think of this similar to purchasing a Porsche car. Are these cars "good value"? Hell no! Especially if all that matters to you is getting from point A to point B. But a Porsche stands for exceptional luxury, class and quality as does the Shafer Hillside Select. And there are people willing to shell out on a Porsche and Shafer alike.

If you would like to carry out your own wwpQPR analysis, we suggest you define the categories for comparison. Expanding on our Napa example, regions like Napa command a price premium so the the base line price for a 90 point Napa Cabernet may be around $40 vs. the base line for a 90 point Chilean Cabernet may be around $15. So a $25 90-point Cabernet may provide above average or below average value depending on whether it is from Napa or Chile. There are many interesting ways to use this analysis and you can read the whole article here. We hope you find this tool useful to unearth relative value in wine.

Sincerely,
The Liquid Discount Team
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