Dennis Kreps, CEO of Quintessential Wines, the US importer of Georges Duboeuf wines from Les Vins Georges Duboeuf in Beaujolais, was watching television when a report came on that shocked him to the quick. The US administration had imposed tariffs on French wine. And not just token tariffs, but tariffs at 25%, a level that would have a major effect on sales of Beaujolais wine, which retails between $13 and $25. When asked to estimate how much, he replied “I’d say a 50% reduction in sales.''
It was October 2nd and Kreps had contracts for Quintessential to buy Beaujolais Nouveau, set for release on November 21st. Quintessential would now be paying 25% more for those wines. It had a financial exposure in the millions on the Duboeuf contract alone, before even considering its other affected imports.
Gallingly, wine was never involved in the original dispute. The tariff was collateral damage of retaliation against the EU for subsidizing launch costs of Airbus aircraft 15 years ago. The World Trade Organization (WTO) took until September 30th 2019 to come out with a verdict against the EU, and is expected to come out with a similar verdict against the US early in 2020 (the EU case against subsidies of Boeing was filed nine months later than the US case against the EU). The two sides had been unable to negotiate a settlement and the office of the US Trade Representative announced that tariffs would come into effect on October 18th.
Kreps immediately met with his senior colleagues to agree a strategy. Simply adding the tariff to the retail price would price Beaujolais out of the market. The three nouveau wines (Beaujolais Nouveau, Beaujolais-Villages Nouveau, and Beaujolais Nouveau Rosé), in particular, were due to sell in the $13-$15 range. A 25% tariff would seriously blunt demand for what was a fun wine intended for immediate consumption. The idea was quickly rejected.
What emerged, after some discussion, came from one of Quintessential’s distributors. It was an ‘equal shares’ plan that would require Quintessential, Duboeuf, and US distributors to each eat one third of the tariff. The objective was to totally absorb the tariff for the 2019 release so that the consumer would see no price increase. It was felt they had to do that in order to avoid long-term damage to the Beaujolais market in the US A crucial part of the plan was that Quintessential’s US distributors would have to each be persuaded to come on board. Not something that could be taken as a foregone conclusion. Kreps would be asking them to take a big hit for the year.
Kreps put the proposal to Franck Duboeuf (son of Georges Duboeuf, and CEO of the company his father founded) in a hasty phone call. Duboeuf and Quintessential realised that passing the tariffs on to consumers would devastate the French grower,s due to reduced sales. Back in France, Duboeuf met with his growers, some 300 in total, to tell them what had been agreed and that Les Vins George Duboeuf would honor all of its contracts with them. He did not want growers reducing plantings or tearing out vines for no reason. Les Vins George Duboeuf would absorb the loss.
Two thirds of the actors were on board. Kreps could go to his distributors with a united front. When the talk was done, virtually all of the distributors came on board.
Kreps and Duboeuf are hopeful that the tariffs will be gone next year and they can get back to growing the market as they have over the past five years. For the present, this example of Beaujolais in the US shows what a huge effect on ordinary lives something as apparently abstract as a trade tariff can have, and the inventive and far-reaching steps the affected actors will go to in order to protect themselves, their farmers, and their consumers.
Andrew Chalk
