Of price points and tariffs
Recently the Trump administration announced sweeping tariffs on European wine that will almost certainly trickle down to the retail market place. While the effect will become clear in the coming months, not all countries or categories of wine will be affected equally. Exempt from the tax will be wines from Italy. Wines from France, Spain and Portugal will be impacted, but with varying degrees. Also exempt is French Champagne and other sparkling wines from France, and any of their wines over 14% alcohol. Similarly, wines from Spain and Portugal that are over 14% alcohol are also exempt. Also exempt are any wines bottled in large formats.
Many wine consumers will recall that most European wine comes in under 14% alcohol, so the lion’s share of European imports will be subject to the tariffs. Alcohol levels of wines from Europe are typically lower. Since they harvest at lower sugar and higher acid levels, the wines are simply made in a leaner style. With lower brix levels at harvest, the resulting wines will have less alcohol. The reason for the tariff imposition has been given as the subsidies to Airbus from most of the European Union countries.
The effects of the increased taxes on the wines will clearly make it into retail wine pricing here at home, but it will likely take a couple of months and with varying degrees. Imported wines that come from small distributors and importers will likely see price increases more quickly. Smaller importers and distributors simply did not have the capital to order big quantities in front of the tariff hike to avoid the impact. Larger importers and distributors anticipated the hike and were better positioned to stock up on pre-tariff wine.
The logistics of shipping wine from Europe to the U.S. will likely cause the biggest upset. The tariffs were announced and fully implemented relatively quickly. So quickly that quite a few container ships full of wine were somewhere in the middle of either the Atlantic or the Pacific Oceans when the tariffs were implemented. Distributors had committed to the cargo at a pre-tariff level, however when the wine arrives in port, it will be subject to the tariff. It is not much of a “reach” to envision some contentious negotiations between wineries, importers and distributors as they try to divide the “pain” of the increased taxes.
Unlike the tariffs levied on China, those against the European wine producing countries being tied to Airbus show no easy or fast resolution. There is too much invested in the manufacturing of Airbus and it is unlikely the European Union countries will cease subsidizing the company. While the competitive landscape in global wine markets remains intense, and it will likely keep a lid on price increases to some degree, it does risk making most European offerings less competitive.
The tariff effects may also be masked by some degree to trends in wine pricing here in the US. The average bottle price of wine in the US continues to increase with the current average approaching $13. While the pricing trend is clear based on this increasing average, what is perhaps more telling is the current activity in mergers and acquisitions among the largest wine companies. There have been several recent deals that involved spinning off or selling of brands that reside in the under $10 per bottle segment. It is the only market segment to show declining sales.
As wine consumers’ tastes trend more toward smaller production, high quality and wines made with less manipulation and additives, they are fleeing the mass-produced, inexpensive wines so rapidly that this segment is becoming less viable. The other indicator of the trend toward quality versus price is in brand launches by the largest wine companies. Most every new brand we see being introduced by the marketing powerhouses is coming in above $20 per bottle retail, with some approaching the $40 level.
The good news with all of these recent additions to the wine marketplace is that you can taste the quality. It is crystal clear that these are better wines. Can you still find bargains on the lower end that over-deliver for the dollar spent? Of course. Even with those finds though, wine remains one of the products where you definitely get what you pay for. The appeal of a small production wine, where the owner-winemaker pays close attention to detail and what they put in their wines will continue to appeal to the majority of wine consumers.
Stop by the shop or email your questions on the effects of tariffs and their effect on price trends and we will do our best to answer them.
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George Balling is co-owner with his wife, Mary Lancaster, of the dinner party, a wine and gift shop in Coeur d’Alene by Costco. The dinner party has won the award for best wine shop in North Idaho twice, including for 2018. George is also published in several other publications around the country. After working in wineries in California and judging many wine competitions, he moved to Coeur d’Alene with Mary more than 10 years ago to open the shop. You can also follow us on Facebook at facebook.com/#!/dinnerpartyshop.