100% Tariff on European Wines

[B.A.R.]

This is potentially devastating to so many small businesses,  importers, distributors, wine retailers, and restauranteurs - not to mention terrible for consumers. Absolutely unnecessary.

https://www.nytimes.com/2020/01/06/dining/drinks/**Censored**-wine-tariff-eu.html

Contact info here:

https://account.votility.com/enterprise/NAWR/ec/698

and here:

https://www.regulations.gov/document?D=USTR-2019-0003-2518 

[Count Bobulescu]

Read a report on testimony to USTR which said wine tariffs were backed by US big tech, (unsurprising if disappointing), but also backed by US cheesemakers, (very surprising and disappointing). Apparently US cheesemakers, unlike (most) US winemakers support tariffs on imported cheese.

Funnily enough, neither alcohol or wine was specifically mentioned in the Federal Register notice, but there is a disclaimer saying that would not preclude them.

Federal Register Notice on Wine Tariffs

List of testifiers:

Wine Hearing Panels

[Count Bobulescu]

Here's a rational analysis of the issue from Wine-Searcher.

 

straight-talking-on-wine-tariffs

[Mark Slater]

3 hours ago, Count Bobulescu said:

Here's a rational analysis of the issue from Wine-Searcher.

 

straight-talking-on-wine-tariffs

I think this argument misses the point. My most recent retail job showed me that most European wine sold at retail is in the "value" segment. That means $10 and under. Think of shopping for wine at Trader Joe's and not seeing anything under $10. That's huge. No more $4.99 pinot grigio. Veuve Clicquot on "sale" for $99. $22 for basic Prosecco. I think the public outcry will be huge. 

[Ericandblueboy]

48 minutes ago, Mark Slater said:

I think this argument misses the point. My most recent retail job showed me that most European wine sold at retail is in the "value" segment. That means $10 and under. Think of shopping for wine at Trader Joe's and not seeing anything under $10. That's huge. No more $4.99 pinot grigio. Veuve Clicquot on "sale" for $99. $22 for basic Prosecco. I think the public outcry will be huge. 

If my Cava goes from $15 to $30 a bottle, you bet I'd be caterwauling - although I probably wouldn't know why at first.

[MarkS]

I'll have to drink less wine and make the cellar last. 

[B.A.R.]

6 hours ago, Count Bobulescu said:

Here's a rational analysis of the issue from Wine-Searcher.

 

straight-talking-on-wine-tariffs

 

3 hours ago, Mark Slater said:

I think this argument misses the point. 

I would say his arguments are far from rational. Because of the byzantine and archaic structure of US wine distribution, a significant portion of wine distributors in the US are small businesses. And let's just assume that only 20% of all of these small business mix of sales is European wine. Once those wines get hit by a tariff of close to 100% those sales are gone. Even worse, many of these distributors have already paid for wines, or will pay for them prior to shipment. The value of their investment is now halved. 

Distribution is a clusterfuck of regulations from city/county/state to state. If you own the distribution rights in VA to 100 Italian wineries, and you want to replace that revenue stream with wines from CA, it's damn near impossible. Once a winery designates a distributor, the only way to change is if the distributor (a) loses license, (b) goes bankrupt, or (c) does not sell a set quantity of your wines for a period of time (like, 2 years).

And, because of the same distribution structure, American wineries, in particular small American wineries, will suffer as their distribution may have negative cash flow, attempt to restructure, cut costs, cut payroll, or even worse, fold.

[Count Bobulescu]

6 hours ago, Mark Slater said:

I think this argument misses the point. My most recent retail job showed me that most European wine sold at retail is in the "value" segment. That means $10 and under. Think of shopping for wine at Trader Joe's and not seeing anything under $10. That's huge. No more $4.99 pinot grigio. Veuve Clicquot on "sale" for $99. $22 for basic Prosecco. I think the public outcry will be huge. 

 

3 hours ago, B.A.R. said:

 

I would say his arguments are far from rational. Because of the byzantine and archaic structure of US wine distribution, a significant portion of wine distributors in the US are small businesses. And let's just assume that only 20% of all of these small business mix of sales is European wine. Once those wines get hit by a tariff of close to 100% those sales are gone. Even worse, many of these distributors have already paid for wines, or will pay for them prior to shipment. The value of their investment is now halved. 

Distribution is a clusterfuck of regulations from city/county/state to state. If you own the distribution rights in VA to 100 Italian wineries, and you want to replace that revenue stream with wines from CA, it's damn near impossible. Once a winery designates a distributor, the only way to change is if the distributor (a) loses license, (b) goes bankrupt, or (c) does not sell a set quantity of your wines for a period of time (like, 2 years).

And, because of the same distribution structure, American wineries, in particular small American wineries, will suffer as their distribution may have negative cash flow, attempt to restructure, cut costs, cut payroll, or even worse, fold.

 

 

The majority of wine sold at retail from just about everywhere is in the value sector, however you define it.

 

For sure, people won't be happy, but I don't think there'll be a huge outcry. More likely in my view, people will try something different that is tariff free, as the piece said.

I find the claims of 100% retail price increases due to 100% tariffs to be exaggerated scaremongering that undermines the credibility of the speaker.

 

Traders everywhere, and not just in the wine trade, often try to use issues such as this to try set new benchmark prices. The consumer should really only have to bear (A) the actual cost of the tariff + (B) the cost to traders of financing the tariff (5% interest?), rather than traders maintaining their percentage margins on artificially high prices, as opposed to the same nominal profit. That way, the consumer doesn't get whacked for an unnecessary additional 20-25% as the numbers below demonstrate.

 

Take Veuve at $50 retail and using approximate 20/25/50 importer/wholesaler/retailer markups that works out to a dockside price of $22, giving the importer $4, wholesaler $7, and retailer $17 per btl.  

 

Add 100% tariff = $44 + ($22 x5% tariff financing =$1.1) = $45.1 + $4 +$7+$17  = $73.  New price $79.99 discounted to $74.99.

The tariff is $22, but the cost of financing it just $1.10.

 

Why do traders need, desire, or expect to take a margin on a government tax? If $4, $7, and $17 were sufficient profit pre tariff, why is something close to that insufficient post tariff?  Given that the consumer is on the hook for 100% of the tariff, the only cost to the trade is the $1.10 cost of financing the tariff out of $28 profit.

 

You'll get no disagreement  from me that distribution generally, is a cluster, and the specific franchise states, mostly in the south, such as Va, are worst of all.

I don't favor tariffs, or seek to minimize their negative effect, but I do take issue with what I view as inaccurate and unwarranted scaremongering.

I think too many people fall into the trap of equating a 100% tariff with a 100% retail price increase, when that is not a foregone conclusion.

 

 

[Count Bobulescu]

Quick clarification. When I wrote the post above I had been under the mistaken impression that wine franchise laws were confined to 6-8 mostly southern states. There are in fact 21-22 states with such franchise laws.

Here's a background piece on the topic. 

 

Wine Franchise Laws

 

[Mark Slater]

  Unfortunately, Virginia is one of those.

[zgast]

Well - we can all just switch to new world wines instead.  I recall reading in WaPo comments that Don highly recommends Kim Crawford Sauvignon Blanc😉

[Mark Slater]

2 hours ago, zgast said:

Well - we can all just switch to new world wines instead.  I recall reading in WaPo comments that Don highly recommends Kim Crawford Sauvignon Blanc😉

If you want to drink corporate,  generic NZ sauvignon Blanc, sure. Kim Crawford sold his winery and his NAME to Constellation Brands some years ago. He started a new company, Loveblock Vintners that he makes the wine for. Try that instead. The tariff price increases should take some time to become obvious as distributors empty their current inventory on the market. 

[zgast]

1 hour ago, Mark Slater said:

If you want to drink corporate,  generic NZ sauvignon Blanc, sure. Kim Crawford sold his winery and his NAME to Constellation Brands some years ago. He started a new company, Loveblock Vintners that he makes the wine for. Try that instead. The tariff price increases should take some time to become obvious as distributors empty their current inventory on the market. 

That was actually a joke - the Washington Post had an article about the wine and Don let his true feelings show....

I'd love to try the Loveblock, though.  I'll have to keep an eye out for it.

[DonRocks]

1 hour ago, zgast said:

That was actually a joke - the Washington Post had an article about the wine and Don let his true feelings show....

I don't remember this!

If you're in Rite-Aid, want a Sauvignon Blanc, and have less than $20 to your name, then Kim Crawford is the wine for you, but I can't imagine I'd either recommend it (if you're serious) or completely trash it (if you're kidding). 

? 🤪

[Count Bobulescu]

Pretty soon you won't be able to find a Rite-Aid. AFAIK all remaining Rite-Aids are converting to Walgreens shortly.

[Count Bobulescu]

Great suggestion from a small importer at the USTR testimony. Target the scary yellow label, and it's siblings.

making-big-name-champagne-the-tariff-target

Transcript of the full testimony is on the USTR site. Before you rush to read it, it's 400 paaaages.......

 

[zgast]

23 hours ago, DonRocks said:

I don't remember this!

If you're in Rite-Aid, want a Sauvignon Blanc, and have less than $20 to your name, then Kim Crawford is the wine for you, but I can't imagine I'd either recommend it (if you're serious) or completely trash it (if you're kidding). 

? 🤪

I am serious about having read it in the comments of a Washington Post article.  I just spent 20 minutes trying to find it and couldn't, so I could be slipping into an age of lesser memory facilities.

As far as Kim Crawford, I think it's a quaffable white at the $12 price point.  It's not a serious wine - and the commercials are atrocious - but it's fine.  Everything on a sliding scale with price as the ultimate yardstick. I'd love to devote more time and energy to finding good wines at a similar price point, but I'm not going to shift my spending to everyday wines costing more than $25 or $30 at this point.   

[Mark Slater]

21 minutes ago, zgast said:

I am serious about having read it in the comments of a Washington Post article.  I just spent 20 minutes trying to find it and couldn't, so I could be slipping into an age of lesser memory facilities.

As far as Kim Crawford, I think it's a quaffable white at the $12 price point.  It's not a serious wine - and the commercials are atrocious - but it's fine.  Everything on a sliding scale with price as the ultimate yardstick. I'd love to devote more time and energy to finding good wines at a similar price point, but I'm not going to shift my spending to everyday wines costing more than $25 or $30 at this point.   

The tariffs might make that difficult. As far as Kim Crawford, Constellation has global distribution and global marketing. I'd rather drink something that's a little closer to the winemaker than corporate juice hawked all over the world. 

[ktmoomau]

I was talking to the CheeseMonster at a recent class, and she was saying that for cheese- while European cheese are subsidized- that if you have no cheeses at those lower price points, it is hard to get people in the door to a specialty cheese shop, and because the selection will be lower overall it will be doubly hard to get people in the door to better cheese shops.  Also they will be paying more in freight that was often distributed with other products which now won't be as high of orders.   It was a very interesting conversation- I wish I could recall more of it.

[zgast]

On 1/14/2020 at 2:54 PM, ktmoomau said:

I was talking to the CheeseMonster at a recent class, and she was saying that for cheese- while European cheese are subsidized- that if you have no cheeses at those lower price points, it is hard to get people in the door to a specialty cheese shop, and because the selection will be lower overall it will be doubly hard to get people in the door to better cheese shops.  Also they will be paying more in freight that was often distributed with other products which now won't be as high of orders.   It was a very interesting conversation- I wish I could recall more of it.

Sounds like I should take one of those cheese classes - are there any you'd recommend?

[ktmoomau]

45 minutes ago, zgast said:

Sounds like I should take one of those cheese classes - are there any you'd recommend?

All of them!!! Ha,ha,ha.  So the second Saturdays look fun.  They will be doing a little retail then for cheese.  The Alpines she brought to our class were really delicious.  I didn't realize how much I liked Alpine cheese.  The private class prices aren't terrible if you can put a group together.  I would do a more specific class than what we did- which was a pairing class, but as a first class the pairing was super fun!  

[Count Bobulescu]

Commentators are speculating that in mid February WTO will issue a ruling against the US for subsidies to Boeing, made in retaliation for EU subsidies to Airbus, and this will give the US cover to withdraw the threat of 100%, and end the 25% wine tariffs. Kinda seems that way with the recent announcement of a tariff  postponement until at least the end of the year. 

[Count Bobulescu]

Just when you thought it was safe to go back in the water.......

The legislatures in MD, NY, & NE, are all currently considering digital services tax proposals, similar to the French tax that prompted the wine tariffs. AFAIK, NY has a flat rate of 5%, and MD has four bands ranging from 2.5% to 10%. Testimony in MD suggested, that if passed, it would likely face court challenge.