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:

 Points Price 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 1.5-1.99 Good value 1.01-1.49 Above average value 0.5-0.99 Below average value 0-0.49 Poor 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:
 Rank Name Price \$ QPR Interpretation 1 La Grand Ribe Cotes du Rhone Villages Centenaire 2009 - 91-93 points! 13.95 2.87 Very Good Value 2 Domaine Lafage Tessellae Old Vines 2011 - 93 points! 14.95 2.68 Very Good Value 3 Domaine de Couroulu Vacqueyras Cuvee Classique 2010 - 92-94 points! 19.95 2.53 Very Good Value 4 Chakana Wines Maipe Cabernet Sauvignon Reserve 2012 - 92 points! 14.95 2.12 Very Good Value 5 Bodegas Avante Avante 2010 - 92 points! 19.95 1.59 Good Value 6 Familia Eguren Bodegas Teso la Monja Romanico 2011 - 91 points! 16.50 1.53 Good Value 7 Bodegas Volver Single Vineyard Tempranillo 2011 - 91 points! 16.95 1.49 Above Avg 8 E. Guigal Crozes Hermitage 2009 - 92 points! 23.95 1.33 Above Avg 9 Anderson's Conn Valley "Eloge" Napa Valley Bordeaux Blend 2008 - 96-98 points! 106.90 1.19 Above Avg 10 Bodegas Convento Las Claras Tinto 2012 - 90 points! 17.95 1.11 Above Avg 11 Bodegas Alto Moncayo Garnacha 2010 - 92 points! 39.95 0.79 Below Avg 12 Beringer Cabernet Sauvignon Private Reserve 2010 - 96 points! 129.95 0.62 Below Avg 13 Peirson Meyer Cabernet Sauvignon 2007 - 94 points! 82.80 0.61 Below Avg 14 M. Chapoutier Chateauneuf du Pape Barbe Rac 2009 - 96 points! 139.95 0.57 Below Avg 15 Anderson's Conn Valley Right Bank Proprietary Red Wine 2008 - 92 points! 57.85 0.55 Below Avg 16 Shafer Cabernet Sauvignon Hillside Select 2006 - 97 points! 224.95 0.45 Poor Value 17 Finca Luzon Alma de Luzon 2004 - 90 points! 58.55 0.34 Poor 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