I’d love to see someone dig in and ask the large distributors and importers what their collective plan of action is. Lobbying, donations, pressure? What is it? And also, if this is getting back at Airbus for subsidies, why should Boeing be a beneficiary when they are showing little in the way of cleaning up their own house? And why must wine (really, alcohol) suffer?
This should be a time when all the invested parties, large and small, must find a strategy to work together. Which will be tough, because the polarity between the large and the small (and medium-sized) companies are seldom in harmony. Remember they all are in competition. This time though, they really all need to get in the same boat and row together. But I don’t see that happening.
So, what actions can one take that will effect change? Some proposed solutions? Sure! Let’s take a look at the different channels involved.
• Producer
• Importer
• Wholesale Distributor
• Retailer/Restaurateur
• End User (the “Consumer”)
You, the Producer
From the look of things, many producers are on the slopes skiing right now (New Year – Old Habits). Maybe they know something we don’t. Or maybe they just aren’t that worried. For those with a more dire view of the near future, what can a small-to-medium (under 50,000 cases) producer do, right now?
1) Take a good look at your inventory. For quick-consumption wines (white, rosé or wines that need to be drunk fresh, like Prosecco and some Beaujolais, etc.), if you think the tariffs are going to go into effect, you might bottle them up quick, make a deal with your importer, or if you are selling direct to the wholesale/distributor, provide some kind of incentive (like a discount) to get the wines out of your storerooms and onto the water, ASAP. And if a considerable discount (15-30%) bothers you, think about how much you will make if you don’t sell the wine.
2) Also you must look to other markets to move your inventory until this thing blows over. If it goes into effect, it will most likely put a crimp in your market timing, your release dates, your cash flow. You might need to offer an incentive to those markets to capture more than the usual allocation or expected amount of sales. And you won’t be the only one doing that. The larger suppliers are already on it. They have already sold stock into the wholesale distributors (usually a contractually obligated buy) and presently their warehouses are bulging with product at unprecedented and historic high levels of inventory. In other words, the back-up, the log-jam, it is already a fact.
3) If you have red wine and it can age a year without a lot of growing (and financial) pain, you might want to hold onto it, or maybe sell some off in bulk. Not your riservas or your grand crus, but your village wines, your simple appellations, your IGP’s. This happened 100 years ago, and people had not only to pivot but they were in a world economic depression that eventually worked its way into a world war. So, if you think things are bad now, think about how much more untenable it must have been 100 years ago, and it was like that for a whole generation. If you can buck it up for a year or two, do so.
4) This is a bit unconventional, but if you have family or associates in places like South America or other places unaffected by the proposed tariffs, you might want to ship bladders of your wine and let them finish the wine in their country. This will remove the ability to do an appellational wine, but it will move inventory. It may not be legal in some countries, but where there is a will, there is a way.
You, the Importer
1) If you specialize in French wine or Italian wine (or any of the other countries that are proposed to be affected) you are in a tight spot. You might lose some employees. Your margins will definitely be affected. And some of you might need to re-align your expectations of income, and take it down a notch. Don’t buy a new BMW or Jeep Grand Cherokee. You might look at an interim strategy whereby you delve into the wines of countries that won’t be affected or that will be needing some help themselves. Australia comes to mind. And while this is a longshot, this is a time when having a diverse portfolio might be a good idea.
2) If you can, and if you have the appropriate means, why not go to some of your producers and make a deal for a load of their wine, with longer payment terms and then turn around and go to your wholesale distributor or large retailer (and this should be on the scale of big box, and important retail chains, etc.), a company that has the money and the warehousing capacity, and get this stuff moving fast. I know, nothing happens fast these days, so this is a dire effort to salvage a scenario that could become calamitous. But someone, somewhere, has probably already beat most of you to the punch. The really big companies have already workshopped this (in late 2019) and implemented a “Jan. 1 Ship Now” strategy. You think I’m joking?
3) This might also be the year of lowered expectations. Which is actually pretty well-timed (and this in no way endorses the lunacy of these proposed tariffs) because we are here in the USA in an election year. What does that mean? I took a look at the business in election years, over the last generation or so, and typically what happens is a slowdown, if there is an unpopular or disruptive political situation. I think this year qualifies for that, no matter your political persuasion. Nobody’s perfectly happy. No one is set. Everything is in play. So, change is part of the daily life, even if the change suits you or not. None the less, this is a slow growth year, so, it might be a good time to clean your house, prune your portfolio and trim down. Wine growth is slowing among the younger generations (thanks, White Claw), and the distribution of wealth is still lopsided. The premiumization of wine is for the select few at the top (e.g. the Château Latour’s and the Billionaire class). Those of us in, and struggling to stay in, the middle class really have immediate concerns other than enlarging our wine collections (health care, war and peace, climate disruption, to name a few). So, crawl out of your (or our) bubble and treat this like a business that needs to be run in good health and with long-term life expectancy for the company.
You, the Wholesale Distributor
Ideally, there should also be some discussion of the Direct to Consumer model. But that, for imported wines, is still in its infancy and doesn’t represent a sizable share of the business. Yet.
The wholesale distribution channel is a mish-mosh of different-sized companies. And these folks really could offer the one-two punch at a political level. But many of them are not progressively political in their business strategies, and the big ones really liked the tax break they got in 2018. And they usually sit in a more conservative camp, even if it does not line-up 100% with their interests. At the end, everyone votes from their own personal pocketbook. So, the small and medium sized distributors are not going to get the biggest companies to link arms with them in a movement of solidarity. And if that does happen, I fully expect to see a sky full of porcine pilots floating above me. I remind anyone still reading that the alcohol beverage industry is showing unprecedented high levels of inventory in their warehouses (as the US Chamber of Commerce attests), they are full and bulging and just had an abbreviated holiday selling season, and we’re going into an election year. So, for those of you reading this whom it means something to (and this will really be a Sisyphean exercise) let’s look at what you can do.
1) If you are in direct business with your producers, and if you have room, get with them ASAP and make a deal to get their wines out of their storehouses and into yours. Negotiate terms (with generous discounts for larger purchase and extended payment terms being of paramount consideration). This will be painful for all. But again, it ain’t like 1920. Put the bullet between the teeth and bite.
2) If you are dealing with importers, they already have their alternatives and options (listed above), and if they would edge away from what has become incredibly larger margins of profit (35-45% and above) and work more towards 18-25% (for now) perhaps all will not be lost. But think of it as if you are on the Titanic and the ship just hit a very large iceberg. You all need to move fast.
3) This might also be a time to look at parallel goods, ones that don’t need extensive licensing and health department requirements, to broaden your clientele base. May be a good time to find micro farmers in your area. After all you are already calling on cool and groovy restaurants. I’m not kidding (I am a micro-farmer, and I cannot produce enough for the demand of my micro product).
4) If you are a small distributor that specializes in wines of France, or biodynamic wines of Europe or any number of niches that will potentially be affected, maybe now is the time to:
a.Rebalance your portfolio
b.Merge with another smaller company for greater diversity
c.Consider liquidating and closing that chapter of your life
[Sidebar: the 4c option is a drastic, last ditch effort to keep your head above water. It isn’t something I offer casually or capriciously, but there is a high rate of failure in the small-to-medium sized distribution channel and this is a tsunami of a challenge. It isn’t dishonorable to fail, but it is disheartening]
You, the Retailer/Restaurateur
Depending on your size (and I’m going to assume the big box retailers and the national restaurant chain buyers aren’t reading this post) you have more flexibility. You are not totally dependent on one kind of wine from one place. But if you are a French brasserie or an Italian trattoria and you like to use 100% French or Italian wines, you might need to pivot. So, let’s take a look at possible paths for you and the rest of the folks.
1) Number one on your list is the relationship you have with your customers. They are your lifeblood. And if you are challenged, temporarily, let them know, let them be open to empathize with your plight, bring them into the circle. This is really important for all channels, but your channel actually can utilize this more directly because you are in front of your customers, every single one of them, day in and day out. They are your neighbors, your friends, your town folk. Find a way to offer something to them, a little lagniappe, to sweeten the bitterness of the impending event. The warehouses will still have wine – they might not have 2019 Provence rosé, but we all know now, some, even many, rosés can age. I just bought a 2017 Tempranillo rosato from Rioja for $2.99 and it was delicious (and we all know that there are Rioja producers that age their rosatos for many years, so this isn’t a new thing). Now is the time to become a better buyer, to whittle your possibly bloviated inventory down to a more workable level. This can be a good thing. Do not panic. Think – Opportunity.
2) Get with your French or Italian wine specialist in the wholesale distribution channel and buddy up with them. Work some deals – they still have a ton of inventory inside their warehouses. Do a program for 2020. Plan now, get the wine committed to you, one way or another. Distributors cannot sell you wine on consignment, that’s illegal, but there are other creative ways to go about getting what you want and need. And those men and women and their bosses all need to sell some wine.
3) Do not continue to be in love with your wine list, your style of buying (and selling) wine and your “position” as a wine buyer. Throw it all away, along with your ego, and treat this like a moment in which your usually flexible business style is momentarily confined to that which is only essential for the success of your business. No frills, no standing at the bar on Friday while all your buyers pant and sweat and beg you to buy their wines. Time to take it down a notch and treat this as a moment in which all of us are being humbled by our political overlords. We must be smarter, swifter and more humane than them. This will pass, but in the meantime imagine you are in a prison or a concentration camp and you must survive. And you need those closest to you to want you to succeed. OK? End of sermon.
You, the End User (the “Consumer”)
Unless you only drink Piesporter Michelsberg Spatlese, Griotte-Chambertin or Brunello di Montalcino, you have options. Not to say you should abandon any of the wine-producing countries under the proposed draconian tariffs, but you are at the end of the supply chain, and that chain is long. By the time it hits you, unless you are an avid Provence rosé wine lover and will only drink the 2019 (not the 2018), you should be fairly insulated from this nonsense. But if you are buying futures or your first growths are hitting the shores or any number of other “buts,” you might want to take a breath and look at some of your possible solutions.
1) Make sure your relationship with your wine retailer is as good as it can be. He or she will be getting any number of deals, and they will pass them on to their better customers.
2) Now is a good time to go hunting for wines that will become deals when the tariffs hit. Search out your little local stores, even some of the mom-and-pop stores that buy wines from recommendations of their salespeople. I’ve found many a gem in little unknown off-the-beaten-track stores, all over the country. It’s like panning for gold. They are there.
3) If you have a wine cellar, maybe it is time to find out what’s in there. And start drinking the wines that need to be drunk up in 2019. Time to pop open the 1991 Port, the 2004 Barolo, the 2000 Châteauneuf-du-Pape.
4) Don’t panic. Those of us in the “wine bubble” think that’s all there is to the world, our little carousel of drama. Sure, write your congressman (or congresswoman), sign every one of those petitions. Hey, if these wine activists can get a march on Washington, become part of the Million-Wine Marchers. But do not expect your politicians to give a damn about you. All they care about right now is getting reelected, their lifetime pension and their Rolls-Royce healthcare for life.
Frankly, I don’t see the current administration going full nuclear on the 100% tariffs, especially with the need to keep some of those countries (the EU) on the same side of the fence as us, if the Middle East erupts into a larger confrontation. And also, bear in mind the current resident of the White House is liable to change his mind as often as his socks, in the next few weeks. I think it will either be a non-issue or be eclipsed by larger, more imminent concerns and crises. Ya think?
And all this on the 100th anniversary of Prohibition – great timing – Happy New Year!
written and photographed by Alfonso Cevola limited rights reserved On the Wine Trail in Italy
wine blog + Italian wine blog + Italy W
