Patterns of Relative Champagne Cost within the Same Producer: Time Series and Cross Sectional Analysis of the Cost of Entry-Level, Midrange and Premium Champagne American Association of Wine Economists 11th Annual Conference June 29, 2017 Padua, Italy Session #2A Paul Merton Ethos Wines Group, Inc. © 2017 Paul Merton

How have relative champagne prices in New York City evolved between 1948 through 2015? © 2017 Paul Merton

Why I selected hours of work required: Consistent Price A unit of measure most humans can conceptualize and have, for the last several hundred, if not thousands, of years, are familiar with. Fair comparison across time, space, economic position “The future is something which everyone reaches at the rate of sixty minutes an hour, whatever he does, whoever he is.” - CS Lewis © 2017 Paul Merton

Beyond a Nominal Price and ‘Real Price’ Analysis Hours of work required to purchase an “entry- level” non - vintage bottle, “midrange” vintage or a premium vintage “prestige” bottle of champagne. © 2017 Paul Merton

Champagne, France © 2017 Paul Merton

The Comité Interprofessionnel du vin de Champagne (CIVC) Regulates The raw materials Production processes Labeling of all bottles that bear the name “Champagne.” Minimal changes in product between 1948 - 2015 © 2017 Paul Merton

Three Tiers of Bottles In 2016, 74.4% of all bottles of champagne shipped to the US were Brut non-vintage and accounted for 61.5% of value. In 2016, Millésimés represent 1.3% of shipments to the US in volume and 1.5% in value. The Cuvées de Prestige represent 5.6% of shipments to the US in volume and 16.8% in value. © 2017 Paul Merton Source: CIVC, Bulletin Expeditions 2016

Weather Variation & Changes in Winemaker Practices minimize these changes and maintain a consistency premium vintage champagne has far greater variation vintage wine is not produced every year © 2017 Paul Merton

The Three Brands Bollinger Entry : non – vintage; Brut, Cuvee Parfaite Midrange : vintage; English Market, Brut, Grand Anne Premium : Prestige; Recently Disgorged (RD)*1952 Moet & Chandon Entry : non – vintage; White Seal, White Star, Brut Imperial, Imperial Midrange : vintage; Dry Imperial, Imperial Premium : Prestige; Dom Perignon Louis Roederer Entry : non – vintage, brut, Premier Midrange : vintage Premium : Prestige; Cristal The Three Brands © 2017 Paul Merton

Why Sherry – Lehmann? Opened shortly after repeal of Prohibition in 1934, located in same neighborhood of New York City Printed sales catalog of their wines since 1935 Consistent nominal price information available No “fire sale” or closeout prices Providing high quality data © 2017 Paul Merton

Converting the Currency Of A Specific Time At A Specific Place to a Universally Understood Value Champagne bottle prices are calculated in nominal US Dollars specific to a given year. Taxes are then applied using nominal rate Data points: hours required to purchase a bottle of champagne . © 2017 Paul Merton

Relative Price of Champagne in New York City Between 1948 - 2015 An experience of an hour of work is subjective and objective. However, one hour as the basic unit of work is a constant © 2017 Paul Merton

Who is walking into the store to buy a bottle of champagne? Wages are from five income groups Representing the income limits of 20%, 40%, 60%, 80% and the lower limit of top 5% of the US family income distribution We are talking about New Yorkers; meaning live and work in New York City. © 2017 Paul Merton

Calculating the price of champagne in terms of work hours # working hours per bottle = (Price of Wine + Sales Tax) / (Disposable Income / annual hours worked) Calculations made using disposable income, using historical taxes; not gross income Disposable income is the correct measure for determining how many hours of work are needed to pay for the bottle Why use Disposable Income? © 2017 Paul Merton

Real Disposable Income (RDI) is what matters to people. Total Personal Income minus personal current taxes To obtain the RDI for each year wages and taxes were examined. In the United States income from wages can be taxed at: the city or municipal level state level federal level Historical tax information comes from the Tax Foundation. Real Disposable Income (RDI) is what matters to people. © 2017 Paul Merton

Disposable Income calculation: Three Taxes 1. New York City and New York State (1965) Sales tax is applied to catalog price. (No income or benefit taxes) 2. Federal Income Taxes, Social Security, Disability, Medicare(1966), Disability (1957) and New York City and New York State Sales Tax are applied to the bottle 3. New York State Income Taxes, New York City Income Taxes (1966), Federal Income Taxes, Social Security, Disability, Medicare, Disability, and New York City and New York State Sales Tax are applied to the bottle price. Disposable Income calculation: Three Taxes © 2017 Paul Merton

Calculating Real Disposable Income City and state income taxes are taxed first, and the local taxes are then subtracted from the wages that are taxed at the federal level, or the standard deduction is applied (whichever is more tax advantageous to each group). Social Security (OASI), Disability (DI), and Medicare (HI) taxes are also included. Calculating Real Disposable Income © 2017 Paul Merton

Local & State Income Tax Deduction Baseline created by incorporating these taxes and a significant deduction . © 2017 Paul Merton

New York City and New York State Sales Tax New York City and New York State sales tax are added to the retail price of the bottles. © 2017 Paul Merton

Via the number of hours of work required to buy an “entry-level” non - vintage bottle, a midrange vintage bottle, or a premium prestige “vintage” bottle of champagne between 1948 though 2015. Results are calculated by the juxtaposition of disposable income and the total cost of a bottle of champagne each year. Evolution of Relative Champagne Prices in New York City 1948 - 2015 across different champagne products and income groups © 2017 Paul Merton

Observation 1 Over time, people across all income groups work fewer hours per bottle of entry - level champagne across all three brands: Bollinger, Moet & Chandon and Roederer. © 2017 Paul Merton

Observation 2 A bottle of premium champagne regardless of brand, required more hours of work by all income groups, except the fifth. © 2017 Paul Merton

Observation 3 For all income groups and all three levels of quality Champagne, the time series patterns for each of the three different brands were essentially the same. Thus, the observed patterns are not the consequence of idiosyncratic experience of a particular champagne house. © 2017 Paul Merton

Key Observations Thus Far All income groups worked fewer hours in 2015, for an entry non – vintage bottle than they did in 1948, and this was most dramatic for lower income groups. In general, premium products required more hours of work for all income groups in 2015, compared to 1948. For all income groups and all three levels of quality champagne, the time series patterns for each of the three different brands were essentially the same. The observed patterns are not the consequence of idiosyncratic experience of a particular champagne house. This is a live project. More to come! © 2017 Paul Merton

For Future Consideration Apply a more precise conversion such as the universal unit of time (adjusted working hours) to better compare data across different cities, countries, and at different moments. Requires three (3) sets of high quality data: Historical nominal pricing data, wage data, tax structre © 2017 Paul Merton

Appendix Hours of Work for Bollinger © 2017 Paul Merton

Appendix Hours of Work per Moet &Chandon © 2017 Paul Merton

Appendix: Hours of work per Louis Roederer © 2017 Paul Merton

Appendix: Unadjusted Hours of Work / per bottle of Moet & Chandon © 2017 Paul Merton

Appendix: Unadjusted Hours of Work / per bottle of Bollinger © 2017 Paul Merton

Appendix: Unadjusted Hours of Work / per bottle of Louis Roederer © 2017 Paul Merton

Appendix: Adjusted Hours of Work / per bottle of Louis Roederer © 2017 Paul Merton