The future of wine pricing
For the first time since we opened the shop 12 years ago there are many forces at work pushing wine prices higher. Forces that go beyond the normal ones of supply and demand, good vintages with large harvests and challenging years with low yields, and the normal ebb and flow of consumer demand for certain varietals, or appellations. Both on a global scale and right here in our own local area many factors are at work to change the wine marketplace and influence pricing.
The current trade war and ensuing tariffs levied against China and countries of the European Union are driving prices higher everywhere we turn. China is the largest producer of glass on the planet; we see this everyday when we try to find glassware for the shop that is not manufactured in China, it is a nearly impossible task. So, it is not a leap to recognize that if China is the largest manufacturer of all glass, they are likely the largest producer of bottles. Chinese made glass is a product area that is being tariffed, so even with domestic producers, we are seeing price increases due to the increased cost of glass bottles.
From the perspective of international trade, the biggest impacts are being felt with European wines.
The trade dispute with the European Union is centered around their support of Airbus. The consortium of European countries that support Airbus happen to be some of the largest wine producers as well, including France and Spain. Currently wine is under a 25% tariff, with some exemptions and carve-outs for certain products, and even at this level it is causing some dislocation in wine markets. We are seeing steady price increases on the affected products of about 20%. Over time, whether you agree with the Trump administration’s goals in this regard or not, you will see a shift in demand for domestically produced wines over their European equivalents just due to price.
The larger tariff concern is the recent “saber rattling” over the imposition of across-the-board, 100% tariffs on all wines from Europe. This level of price increases would be catastrophic for the European producers and likely existential for domestic importers of European wines. Concerns over this level of taxation seemed to wane a bit this week as news of some progress in talks between President Trump and French President Macron at the World Economic Forum in Davos. While the 25% tariffs are not pleasant for any of us, we hope the 100% level can be avoided.
Domestically, and specifically here in the wine-producing regions of the Inland Northwest, the outlook is less than sanguine as well. In anecdotal conversations this past week we have heard of several restaurants in Spokane that have closed since the beginning of the year. In what we feel are related events, we continue to see a steady march to even higher prices for wines out of Washington state. We speculate they are related due to the ever-increasing regulations on businesses like required family leave and sick time across the board in Washington and the minimum wage increase to $13.50 that went through on Jan. 1.
Small businesses, from wineries to restaurants, simply can’t take these constant impacts without passing the costs on to their customers. Just like the tariffs, this will ultimately cause wine consumers to alter their buying patterns to better priced bottles from other areas. Ironically in all of this, California produced wine is rapidly becoming the bargain alternative to many wines from Washington! We are seeing it most dramatically in the current glut of Washington wine on the market. On a frequent basis, we are seeing prominent Washington wineries developing “second label” offerings to attempt to move off some of the excess juice they have on their hands that is not selling at the price levels they are asking.
What are wine consumers to do? The answer is a complicated one. Flexibility will be key as you have to stay nimble to find the wines you like the most that are being least affected by the push and pull of all these factors. When you find a wine that you are fond of and is at the right price, buy it in bulk to help cushion the blow of coming price hikes. Also, be open to new wine regions as the price on wines from your favorite appellation of origin start to ratchet up. And finally, talk to your favorite wine professional about your favorites to learn if price hikes are coming; it may be possible to get in front of them. For producers in Idaho, Oregon and California the tale of price hikes in Washington should be a cautionary one, and an effort to avoid the “siren call” of ever-increasing wages and regulations would be wise.
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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.