US retailers and restaurateurs, already dinged by October's 25% wine tariff and terrified by the prospect of an all-encompassing 100% tariff, have significantly scaled back their European wine buying. And they show no signs of changing that approach.
That's the consensus from a variety of US importers and distributors in the wake of the news this week that US imports of French, Spanish, and German wine dropped dramatically after the 25% tariff took effect last autumn.
"When the 25% happened, there was no time to react to it," says Emily Peterson, the chief strategy officer at northern California-based importer Valkyrie Selections. "And with the threat of a 100% tariff, the last thing anyone wants to do is to have a couple of containers on the sea when the tariff is announced. So everyone is being very, very cautious."
Cautious indeed. Even though a different 100% tariff on French wine was tabled for the rest of the year this week, the US wine industry is still terrified about the possible expansion of the original 25% tariff to 100% and to include all European wine.
The fallout
The 25% tariffs were imposed in October 2019, in retaliation for EU subsidies to Airbus. Since then, the office of the US Trade Representative has increased the pressure, opening the way for 100% tariffs to be applied to EU wines generally. In a separate trade dispute, over France’s “digital tax”, the US government threatened to slap 100% tariffs on luxury goods, including Champagne. This latter possibility has been put on hold, at least until the end of this year.
The impact of the 25% tariff has been dramatic.
The US Census Bureau, which tracks wine imports, reported that Spanish shipments declined almost 17% in dollar terms from October to November 2019, while German shipments fell 40% over the same period. The monthly totals were the lowest for Spain since 2006, and the least since 2002 for Germany. French wine imports, meanwhile, fell by almost two-thirds in dollar volume over the October-November period, and the total was the least since 2008.
"We have to be conservative and we have to be patient," says Jim Oliver, the executive vice president and general manager for distributor Heritage Wine Cellars, based in suburban Chicago. "And we have to be optimistic that calmer heads will prevail."
In this, the US wine business has adopted a number of measures to deal with the 25% tariff, which targets still wine with less than 14% abv from France, Spain, Germany, and Britain. These include "adjusting" alcohol levels, so that more red wines weigh in at more than 14%, making them exempt from the tariff, as well as considering bottling wine in the US. Wine bottled in the US is not included in the tariff, either. In addition, there has also been some bulk buying, but Peterson says that is financially difficult for all but the biggest importers and distributors to handle.
Producers, importers, and distributors have also cut margins on some wines they consider essential to their portfolios to keep price increases to a minimum, but this hasn't been widespread. In addition, say importers, many smaller producers are less flexible, and their price is their price, regardless of the tariff.
An opportunity for someone else?
Ironically, there seems to be little enthusiasm for bringing in more wine from countries not included in the tariff, including South Africa, Chile, and Argentina. The problem, says Oliver, is the complexity of adding new producers to the wine supply chain – first, finding a producer who fits the niche the importer needs, and then finding enough distributors in the US to handle the new wines. And this doesn't include the paperwork and bureaucracy to add the wines.
But none of that has been enough to encourage on- and off-premise operators to buy wine covered by the tariff. Importers say it has become increasingly common to have customers refuse to even consider "tariffed" wines, despite their best efforts. "So a lot of people are not even bringing the wines in," says Andrew Stover of Washington, D.C.'s Siema Wines. "What's the point if no one is going to buy them?"
Importer Ed Proctor, who owns La Cigale Wines in Fort Worth, Texas, says he doesn't even ask any more. Proctor was especially hard hit when the 25% tariff took effect; it landed on a pre-sale of high-end red Bordeaux, and he says the tariff eliminated his profit on the deal.
"So I'm taking the decision away from them," says Proctor, whose portfolio is primarily French and Italian. "I'm going to find them something they will want to buy."
Which seems to be the watchword for everyone until there is more certainty about the existing 25% tariff and the proposed 100% duty.
Jeff Siegel
