In 2020, Sky-High Tariffs Are Crippling The Fine Wine Industry

Food & Drink

2020 has not been easy for the wine world. To list off a few hurdles: a globe of bars shut down. A global pandemic. Climate change. California and Oregon facing the most destructive wildfire season in history.

And one of the biggest stories in the wine press this year is tariffs. Thanks to a trade dispute in the aviation field, as of October of 2019, wines under 14% alcohol from France, Germany, the U.K. and Spain now encounter 25% tariffs—a one, two punch for a wine industry struggling in the Covid-19 world. 

“The escalation of tariffs on the distilled spirits and wine sectors, by either the U.S. or EU, will only increase harm to an industry already suffering,” said the group of U.S., EU, and U.K. spirits, wine and beer associations in an open letter to the World Trade Organization. “The spirits and wine industries and hospitality sector are facing incredible economic harm due to the mandatory closings of restaurants, bars and distillery and winery tasting rooms in response to the outbreak of COVID-19.”   

Ben Aneff, president of the U.S. Wine Trade Alliance, continues. “These tariffs are causing serious harm to small, family-owned businesses around the country. They do a great deal more harm to U.S. businesses than to their targets overseas, which makes them incredibly ineffective at convincing the EU to change its behavior.”

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(Currently, sparkling wines like Champagne, large-format bottles and higher-ABV wines are exempt from the tariffs, and collectors will be sure to see a spike in sales in those categories.)

So how is the industry navigating a year of high tariffs?

“In an industry that’s dominated by family run businesses that tend to operate on low margins, the 25% tariff came as a major surprise in October 2019 and made it extremely difficult for many retailers and importers to continue operating.” describes David Parker, the CEO of Benchmark and the President of the National Wine Retailers Association.

“The tariffs have heavily impacted wines from Bordeaux, the cornerstone of fine collectable wines, and Burgundy, the wines that have been challenging Bordeaux’s dominance in this collectible market for the last decade or so,” says Parker. “These tariffs have shifted both consumer and collector focus—As recorded by The Wine Market Journal, prices at auction for rare Bordeaux and Burgundy stock in the U.S. have increased roughly 5-10% since the tariffs have gone into place.”

Tariffs are causing changing prices and distribution, but stirring rippling effects across the country. “These cost pressures created by these tariffs, selection and availability of these wines is down, prices are increasing and sales channels that had been built up over generations have been disrupted,” says Parker. “Retailers, importers and distributors that specialized in these wines have been especially hurt. It’s been estimated that thousands of wine jobs and wine businesses have been lost or severely damaged by these tariffs.”

In the fine wine retail world, “The increased tariffs were a challenge, as we scrambled to buy product before the inevitable tax hikes,” says Bauer Wine & Spirits general manager Howie Rubin. “There was some pushback, as consumers weren’t willing to spend 20% more on the bottles they liked.”

Parker notes an expanded interest in regions beyond the classic big names. “North American and South American wines became more of a ‘go-to’ at the time. We’ve seen demand and collecting interest increase more for the non-tariffed wines, with collectible American and Italian wines increasing roughly 15% in value overall in the last 12 months.”

On the on-premise front, “Tariffs add insult to injury because all of the great wines of the world are imported by small boutique companies that are run and managed by impassioned brand ambassadors, unlike larger distributors pushing commercial products,” describes Jordan Salcito, noted sommelier and founder of RAMONA. “These small importers usually bank on a big spring or fall of sales to restaurants, but instead this year the restaurant scene in the U.S.’s largest cities has been decimated by COVID-19 this year—that is the insult. The injury is that these small distributors now need to go into pocket to stay afloat. Ultimately, it is unclear what wines will make it to the U.S. this year.”

As restaurants buckled down in anticipation of the tariffs, beverage directors had to decide how valuable wines from these regions were. “We saw as an industry a tariff being imposed on wines being imported at the beginning of the year with the looming threat of more to come. I had a lot of the people I work with allocate resources to pad inventory and others that didn’t have the means to do so,” describes Ted Rink, the beverage director at Chicago’s BLVD Steakhouse. “There are many distributors still struggling to get certain labels back into stock.  Certainly frustrating on the restaurant and retail end, but something that is navigable if you aren’t married to certain labels.” 

Peter Monteleone, the director of purchasing at Martine’s Wines, noted the same disruption in purchasing. “The flow of our inventory has been interrupted quite drastically, with other importers choosing to either let stocks of tariffed wines run out as they figure out how to pivot to products without tariffs, or as they adapt their pricing structures to spread the tariffs over other parts of their portfolios. This means either we’re unable to buy certain items or we have to pay a higher price for them.”

He’s finding that he can get away with the higher price for some regions, but not for others. “For the more well-known regions/appellations (Burgundy, Loire, etc.) we’re able to spread the tariffs over multiple items and/or charge a higher price as these are known entities—almost commodity regions in a sense.  However for more obscure regions affected by tariffs, like the Jura, Irouleguy, Jurancon, etc.—raising pricing significantly will simply push buyers to the more well-known regions.”

But he’s noticed buyers are less likely to stock obscure regions in this climate—they want bottles they can turn over easily. “Specifically, we haven’t purchased Jurancon since before last Oct when the tariffs hit, and we’ve been selective with Jura by purchasing very few items/SKUs, as well as with Irouleguy.  For some of our other producers in more well-known regions, we’re choosing to not repurchase lesser known items/AOCs that we feel aren’t sellable at a much higher tariff price and focusing on the items with more market exposure and a higher turn rate. One example would be with Sancerre–we’re buying plenty of Sancerre blanc from one of our major producers, but are not currently buying their Sancerre Rosé or Pouilly-Fume.”

“Given the production timelines as well as inventory pipeline both stateside and from Europe, the wine industry isn’t the most nimble with respect to market adaptation when hit with something as drastic as a 25% increase in cost of goods,” sighs Monteleone.

So what needs to happen? 

The industry has been lobbying, but it’s largely up to the Office of the United States Trade Representative to step into action. 

“We are in the middle of the worst pandemic of our lifetime, and the USTR’s actions only contribute to America’s problems, exacerbating the weaknesses of our economy. They should listen to the record-breaking outreach they have received both from the public and Congress, and end these job-killing tariffs,” says US Wine Trade Alliance’s Aneff.

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