It’s time for a knee-jerk response to a news article. As a rule I try to come up with my own topics, but the topic of the dollar’s continued fall and the impact on wine prices has been generating more and more buzz lately. As someone who tries to be aware of the macro-economic factors that influence my business and is a major proponent of European wine I have been forming an opinion on this topic lately, and here is my two cents.
First off, the recent increases in wine prices are by no means attributable just to the dollar’s drop in value. The most basic force in all areas of economy is supply and demand, and the demand for wine has been skyrocketing as of late. First, the United States continues to storm forward as a wine consumer. It’s not just that the dollar doesn’t by as much as it used to—it’s also that while it used to be only a select group that purchased imported wines today that group is substantially larger and is getting bigger by the moment.
Perhaps even more significantly, there are new markets for these goods. When it comes to French wine the first market to discuss is the Far East. Most noticeably it is Japan but China and other Eastern nations, along with Russia, are quickly swallowing up more and more wine. As worldwide demand increases, the US will have to compete more and more for these goods.
So brace yourself for a harsh reality: wine prices are going to go up. For the big name wines, they are going to go up a whole lot. There is more demand than ever, and money we are bringing to the table isn’t worth as much as it has been in the past. However, I should also point out that much of this fuss (and the headlines) is based on a very small portion of wine. Yes, the price of Romanee-Conti is going to be outrageous for the 05 vintage (it will be released to the US market soon, and rumors are it will run up to $7500 a bottle). The big name Bordeaux (Petrus, Cheval-Blanc, First Growths) are also going to continue skyrocketing. What is motivating the people who are paying these new prices is not the quality of wine in the bottle but rather the status that comes with owning those wines. Until wine is no longer cool, I don’t think you will see any slowdown on the price increases there.
The confusion comes from the fact that the price increases in these collector wines generate massive headlines but are not necessarily reflective of the overall wine industry. Most people are looking for wine between $8 and $20. If no options are available, they will move on to something else. The wineries know this, and like anyone in the agricultural business they are well aware of the fact that a crop surplus is never a good thing.
It is for this reason that many producers across Europe have a vested interest in keeping their wines affordable for the US market. No matter how you spin it, the USA is going to be the most important market in the world for wine within the next five years, and we don’t produce enough on our own (France, Italy, Spain, and Australia all dwarf the US in terms of volume of wine produced). Wine consumption across Europe is plummeting. The wineries that can’t just sit back and wait for a bunch of wealthy Japanese and ego-driven Americans to throw an absurd amount of money at them for a status symbol know they must maintain and develop a presence in the United States.
Because of this, I believe many of them will suck it up and take a hit in the short-term. They won’t swallow all of the lost profit resulting for the growth in the Euro but they will work to keep their wines available and affordable, even if it means taking some losses up front. There long-term success depends on it.
Finally, there is also a (understandable) misconception that domestic wines are going to become great values. I’m not convinced. Domestic wineries, especially those in California, have been more than happy to follow along on any price increase. In fact, it is quite disturbing how many domestic wineries continue to up their prices year after year despite no change in quality of the wine. The simple justification is “someone else is getting it.” Based on quality of product, I would argue that American wines are overpriced to European wines (speaking in very broad terms, of course), and not only do domestic wines have no currency exchange to blame this on but there is no reason to believe they will slow down the price increases anytime soon. In fact, I’d be more concerned about how these wines that have taken drastic price increases over the past three to five years are going to do once the dollar does rebound than about how European wines will fare in the short-term.
Another footnote for everyone to put in the back of their thoughts: these European countries have been producing and selling wine in some cases for close to two millenniums, and it has been an international business for the majority of that period. They’ve been through this before and know how to handle these fluctuations. More importantly, the domestic wineries should be worried about what happens when the French wineries no longer have to struggle to keep their prices down because of a weak dollar.
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