There has been a lot of news coverage lately about the price of wine, which is expected to reach the lowest point in the last 5 years. This is primarily attributed to the surplus of California grapes and the rise of liquor and ready-to-drink cocktail alternatives.
In light of the visit from Maker Wines last week, news coverage like this makes me feel more confident in their business' value proposition and placement in the market. It seems a brand like theirs is well-positioned to finally capture more value from millenials, and it is also an alternative distribution channel for wineries' excess grapes.
However after 5 weeks of this class and each week hearing about more challenges with the wine industry, and then news articles like this one, it does beg the question -- is this really a good business to be in?
Based on how oversupply domestically in the US is driving down prices for consumers, I wonder what the impact will be in 2020 on imported wines. For example it would seem that it would be a very bad year to be a French wine exporter to the US, both because of the aforementioned US supply boom, but also because of the Trump administration trade tariffs that have hit certain French wine and luxury products with a 25% tariff with the potential to increase those tariffs to 100%.
ReplyDeleteFurthermore, I find it interesting to contrast the optimism for good pricing for consumers with the pessimism that many US wine distributors and retailers have publicly stated as a result of the import tariffs for EU wine. Ben Aneff, a managing director at Tribeca Wine Merchants, is on record as saying that “overall the tariffs on European wines were expected to cost some $10 billion in lost revenue and 78,000 job losses, hitting the nation’s 47,000 wine retailers and more than 6,500 importers and distributors disproportionately hard” (Reuters Jan 7, 2020), and it is further estimated that the tariffs could trim US wine sales by 2% nationally. Furthermore, small importers could go out of business as they won’t have sufficient free cash or working capital access to cover tariffs.
Given this context, it seems like an interesting time to be a US-based winery. On the one hand you’ve got high supply pushing prices down via domestic competition, but on the other hand you likely face less competition from the EU than you would otherwise expect. It will be interesting to see if wineries take this opening to aggressively invest in increasing distribution, marketing and sales at the expense of profits, or if suppressed prices limit the amount that wineries can realistically do in 2020.