Tariffs last chance
- Thread starter VLM
- Start date
Peter Creasey
Peter Creasey
I just now ordered some Burgundy at pre-tariff pricing (for fear that this might be the last chance).
. . . . Pete
. . . . Pete
Jayson Cohen
Jayson Cohen
This. Irreversible destruction of livelihoods and disruption of lives and security for an untold number of Americans, including many friends and their families.
Florida Jim
Florida Jim
From the Tablas Creek website blog:
December 23, 2019
I am writing to you to argue against the proposed 100% tariffs on European wines. As a partner in and General Manager at a California winery that just celebrated its 30th anniversary, it might seem surprising that I would opposed these tariffs. But I believe that the net effect that they would have on California wineries would be negative.
We sell about half our production direct, and half through a network of state-licensed wholesalers. This distribution system is mandated by law and known as the “3-tier system.” A producer like us cannot sell directly to restaurants and retailers in other states, and our ability to sell directly to consumers, while growing, is still restricted. So, our success is dependent upon the health of this distribution network. None of the 50+ distributors that we work with represents exclusively domestic wines; all have a diverse portfolio including wines that will be impacted by the proposed tariffs. Many get the majority of their business from European wines. For those distributors, the proposed tariffs amount to a death sentence. Sales will fall, in most cases dramatically, impacting their ability to represent our wines. In my experience, distributors react to the loss of a major supplier (a similar impact to these tariffs) by attempting to source new wines for their portfolio, rather than by selling more wine from their existing suppliers, many of whom are unable to increase production in the short term. If they do look for wines from other parts of the world, they will inevitably be distracted by the massive task of finding these new producers, integrating them into their portfolio, and educating their sales team on their new items. That will mean less focus for us, not more.
What’s more, the rising number of “franchise” laws, currently affecting wine sales in about 20 states, means that we don’t even have the freedom to leave a distributor who isn’t performing well (or isn’t able to maintain their sales team and delivery schedule because of a market disruption) to find another who could do a better job. In nearly half the country, if the work of our legally-mandated representatives is impacted by these tariffs, we have no recourse. Beyond the impact on wineries and distributors, other related businesses will be caught in the crossfire. Restaurants are famously low-margin businesses anyway. Increasing the costs of their wine programs will push some out of business, further reducing outlets for our wines. Wine retailers, too, including both independent and chain outlets, will be forced to source different wines (which comes with its own costs) or double the costs of their inventories. And American consumers will be faced with higher costs and fewer choices for products that they would like to buy, leaving less disposable income in their wine budgets.
Why wouldn’t the wine community just switch its sources to other, non-tariff countries? Wine is not a commodity, where a customer can simply swap in a wine, even one made from the same grape, from one part of the world for another and expect them to be comparable. Wines are products inextricably tied to the place in which they are produced. And the disruption of 100% tariffs on wines from the world’s oldest wine regions would have cascading impacts that would reach deep into a whole network of American businesses, investors, and consumers.
Even those of us who make wine in California.
Respectfully,
Jason Haas
Partner & General Manager
Tablas Creek Vineyard
Paso Robles, California
December 23, 2019
I am writing to you to argue against the proposed 100% tariffs on European wines. As a partner in and General Manager at a California winery that just celebrated its 30th anniversary, it might seem surprising that I would opposed these tariffs. But I believe that the net effect that they would have on California wineries would be negative.
We sell about half our production direct, and half through a network of state-licensed wholesalers. This distribution system is mandated by law and known as the “3-tier system.” A producer like us cannot sell directly to restaurants and retailers in other states, and our ability to sell directly to consumers, while growing, is still restricted. So, our success is dependent upon the health of this distribution network. None of the 50+ distributors that we work with represents exclusively domestic wines; all have a diverse portfolio including wines that will be impacted by the proposed tariffs. Many get the majority of their business from European wines. For those distributors, the proposed tariffs amount to a death sentence. Sales will fall, in most cases dramatically, impacting their ability to represent our wines. In my experience, distributors react to the loss of a major supplier (a similar impact to these tariffs) by attempting to source new wines for their portfolio, rather than by selling more wine from their existing suppliers, many of whom are unable to increase production in the short term. If they do look for wines from other parts of the world, they will inevitably be distracted by the massive task of finding these new producers, integrating them into their portfolio, and educating their sales team on their new items. That will mean less focus for us, not more.
What’s more, the rising number of “franchise” laws, currently affecting wine sales in about 20 states, means that we don’t even have the freedom to leave a distributor who isn’t performing well (or isn’t able to maintain their sales team and delivery schedule because of a market disruption) to find another who could do a better job. In nearly half the country, if the work of our legally-mandated representatives is impacted by these tariffs, we have no recourse. Beyond the impact on wineries and distributors, other related businesses will be caught in the crossfire. Restaurants are famously low-margin businesses anyway. Increasing the costs of their wine programs will push some out of business, further reducing outlets for our wines. Wine retailers, too, including both independent and chain outlets, will be forced to source different wines (which comes with its own costs) or double the costs of their inventories. And American consumers will be faced with higher costs and fewer choices for products that they would like to buy, leaving less disposable income in their wine budgets.
Why wouldn’t the wine community just switch its sources to other, non-tariff countries? Wine is not a commodity, where a customer can simply swap in a wine, even one made from the same grape, from one part of the world for another and expect them to be comparable. Wines are products inextricably tied to the place in which they are produced. And the disruption of 100% tariffs on wines from the world’s oldest wine regions would have cascading impacts that would reach deep into a whole network of American businesses, investors, and consumers.
Even those of us who make wine in California.
Respectfully,
Jason Haas
Partner & General Manager
Tablas Creek Vineyard
Paso Robles, California
Christian Miller (CMM)
Christian Miller
That's more or less what I wrote (with less precision and detail) in my comments to the trade rep. The tariffs will be a major shock to the distribution channels most needed by small domestic artisan or craft producers.
BTW, for those who weren't aware of it, Jason runs a great blog, well worth following or checking regularly.
Florida Jim
Florida Jim
Christian,
Speaking of which, my quote above was just what he wrote to the trade rep - the blog post is longer and substantially more detailed.
Best, Jim
Speaking of which, my quote above was just what he wrote to the trade rep - the blog post is longer and substantially more detailed.
Best, Jim
Pavel Tchichikov
Pavel Tchichikov
Tablas and Steve Edmunds make very strong arguments that are worth quoting to the trade ambassador, unless you have something substantial to add.
Keith Levenberg
Keith Levenberg
Crossing my fingers the comments make a difference (and am optimistic) but also sincerely hoping folks in the industry are working up a Plan B. For example, if we have to keep our purchases in a holding pen in the UK until the trade war is over, so be it.
WTF are you talking about? There is no plan B for your income just going away. Fuck your wine in England. People are going to lose jobs. Importing wines from Europe went from being a job to non-viable in an instant. This could also have terrible repercussions for small producers in Europe that rely on the US market. Some could even go out of business.
I know that for any given producer it doesn't happen overnight, but on a macro scale does this also accelerate the shift towards focusing on markets in Asia instead of the US?
(I never know how big that Asia focus actually is, and I imagine it varies, but I certainly hear about it).
Jayson Cohen
Jayson Cohen
That seems likely. And it could happen quickly. Say you are a grower and your US importer can’t follow through on taking its allocation of 2019s this spring/summer but your actual or prospective Chinese agent can take it. The grower may have no choice. The US importer may never get the allocation back.
Keith Levenberg
Keith Levenberg
I thought my point was obvious. Should I say it again but speak more slowly? I and many others would like to keep as many of our friends in the industry in business as possible. That's not going to happen unless there is a way around the tariffs. Offering consumers the service of holding wine offshore until the tariffs go away is one way around the tariffs, and exactly the same thing businesses do with offshore cash when it is too expensive to repatriate. If you have a better idea, why don't you offer it?
It's not just that. Many small producers can't just shift to other markets if they are heavily dependent on the US market, they may just cease to exist. Wines that are sought after and have representation in many markets will be able to shift their wines there and they may not trust the US market again, as you indicate. However, if 50% of your wine goes to the US and that just stops it is unlikely that other markets can absorb that and if you don't have the cushion to take that shock, well, that's that.
It's a tiny fraction of the wine market that can be recouped as "futures" sales and to expect importers to be able to absorb layout for holding product without an income stream seems pretty unrealistic. I'm with VLM on this one, if these tariffs go through for any amount of time, the damage to the industry will be unavoidable.
Christian Miller (CMM)
Christian Miller
And the producers rethinking allocations are the lucky ones. Many don't "allocate", just try to sell what they can, where they can.
Jeff Grossman
Jeff Grossman
I agree with Jayson: if an allocation moves away from the US we will never get it back. Why should the maker (then) fix something that isn't broke?
As to offshore holding pens, it's a little tricky: schnooks will have to ask for enough money to keep themselves afloat and buy the wine and pay for warehousing -- but not shipping -- until such time as the tariffs go down again. This is reminiscent of selling short in the stock market, or dealing with options: lots of moving parts and requires some expertise to navigate. I suppose the average label-fondler is not so motivated.
As to offshore holding pens, it's a little tricky: schnooks will have to ask for enough money to keep themselves afloat and buy the wine and pay for warehousing -- but not shipping -- until such time as the tariffs go down again. This is reminiscent of selling short in the stock market, or dealing with options: lots of moving parts and requires some expertise to navigate. I suppose the average label-fondler is not so motivated.