It has been exactly two years to the month since my last post. How little I could anticipate the radical shifts that have taken place in the wine industry, and the world at large, as we all quarantine during a global pandemic.
I intended to make my next subject a continuation of the FAQ series. After all, there have been only two so far and there are so many questions to answer! But I couldn’t do that without first addressing our current situation.
Since October, 2019 many importers were already burdened with an additional 25% import tariff on still wines at 14% ABV or below from France, Germany, Spain and the UK, due to a trade dispute. (Wine above 14% ABV from those countries are exempt). To put that in perspective, duty/IRT normally in the hundreds of dollars for a shipment of wines <14% ABV might now be in the thousands of dollars on wines from those countries, depending on the value of the wine. It has significantly impacted sales of French wines, which include the already expensive Bordeaux and Burgundy.
The Coronavirus impact, and the resulting stay at home orders, are felt in every corner of the world. Sadly, some businesses that have closed, particularly restaurants, may never open again. On the other hand, wine buying online has increased, as everyone has no choice but to stay at home.
In the meantime, California ABC (Alcoholic Beverage Control) have temporarily revised its laws to allow takeout alcohol with food orders, illegal prior to the Coronavirus pandemic. Many other states have done the same. It would previously have been unimaginable to think you can order a Moscow Mule or a glass of wine with your to go order, but this creative way to handle the current crisis has helped restaurants survive. It won’t last in this exact form, but could become the genesis for something new in the future.
Several restaurants have converted to grocery outlets, providing fresh produce for sale to consumers. Street markets have opened in a limited way, with social distancing, to provide restaurant food alongside the fruit and vegetables.
Amid the wreckage of cancelled wine tours, tastings and educational experiences, mixologists and sommeliers are finding ways to conduct virtual tastings and education via online teleconferencing.
I was one of those who had never even heard of Zoom prior to this period. Now I’m on at least one Zoom call a week, both professional and personal.
The Wine Importing and Distribution class I teach at San Diego State is going online this year. SDSU is adapting by providing test tube type wine samples for students, delivering them before classes so that we can all taste together. My own class may not seem to need wine tasting the way French Wine or Sparkling Wine obviously does, but I feel it’s helpful to incorporate wine from different regions in my six-week course to evaluate and discuss the relationship between regional expectation, price, packaging and quality. These are all components of a brand that an importer should consider when sourcing for their portfolio, whether they are a new importer or have been in business for many years.
As a consultant, I represent potential importers that are now putting strategic plans on hold, and established importers who are seeing a decline in their sales and reevaluating scheduled projects. Others are pivoting to take advantage of online sales openings with companies such as wine.com, which has a national reach and whose business has increased dramatically.
I have a couple of clients who are waiting for their Federal Basic Permits to be approved and taking this time to establish their websites, take a deep dive into content and develop marketing materials. One had an extensive trip booked to Italy in March, with scheduled visits to winemakers and producers. Those travel arrangements were cancelled, naturally, but he is employing teleconferencing to meet with each of them and discuss future collaborations, so that when the world opens up again he won’t have lost an opportunity to form and develop relationships that are so indispensable in this industry.
Another client, with a fledgling business is working with his producers to get all their labels US compliant and submitted for approval. TTB (Alcohol Tobacco Tax and Trade Bureau) is still operational and processing label applications from their homes. He’s also organizing freight options and getting quotes, so that he’s putting downtime to good use.
In a newsletter from San Diego Bay Wine & Food Festival (that also gives a detailed rundown of local restaurants that are open for takeout), I read about one local company making lemons out of lemonade. This will not presumably be a long-term strategy, but shows more out of the box thinking that will help a lot of people and engender good will:
“Pacific Coast Spirits in Oceanside, CA
Pacific Coast Sprits is producing batches of hand sanitizer for local residents. They are now partnering with local breweries to purchase beer that is going bad due to business being closed and turning it into alcohol to be used for hand sanitizer. The hand sanitizer will be both donated and sold back to the community. The projects, called #SDSanitizerCollab, will make use of product that would otherwise go to waste and provide work and jobs for both partnering breweries and the Pacific Coast Spirits Distillery.”
There are many of us that don’t think it will be ‘business as usual’ when the economy does come back. There are signs that the shift to online sales, as a robust part of new business strategy, is here to stay. Whether your business model includes online sales or not, it is still advantageous to know how it works. As an importer, your channel (within the 3-tier system) is to distributors. Ensuring that your distributor customer has a balanced concentration of on-premise and off-premise accounts in their region could make a difference to your sales down the road.
If you are just starting out, you are possibly considering a new model or weighing your options in what will undoubtedly be a changed environment. A Federal Basic Permit allows for the importation of wine, beer and distilled spirits if you check those boxes when you first apply. It requires neither additional paperwork nor additional fees. Is it possible that you have options in the distilled spirits category? Gin with locally sourced botanicals, e.g. Or a whiskey from France, along with the French wines you are sourcing? A special liqueur? Laws are more rigid for distilled spirits in some states and licensing fees may be higher, so become familiar with those restrictions and factor that in your decision making, but diversification and reinvention can include carving out a niche that will maintain a revenue source during difficult times.
There may, and should, be more challenges to the 3-tier system to allow flexibility in wine sales and shipping. Yes, distributors and state taxes should be protected, but the stranglehold that the 3-tier system has had on the alcohol industry since the repeal of Prohibition in 1933 is inhibiting trade and restricting consumer choice. Opening it up is simply expanding a free market economy, a cornerstone of democracy.
One of the ways to keep up with developments within the industry is to subscribe to M Shanken Communication. They are the publisher of Wine Spectator, but also have links on their website to Market Watch and Shanken News Daily, which are free to industry people (importers, distributors, retailers, etc.) http://www.mshanken.com
Thinking in terms of your portfolio, don’t necessarily make any changes to the countries of origin that motivated you to take this journey in the first place. If those countries happen to be France and Spain, the tariff adds additional challenges to a post-COVID-19 world, but I know that many producers are sharing the costs of the tariff with their importers or dropping their prices to accommodate the additional expense. It won’t last forever, but right now it is definitely a budgetary consideration. You might consider adding Italy (no 25% tariff) and being conservative about the investment in tariff-heavy countries for now. Diversification is never a bad thing, if the choice fits your goals and objectives
In 2011, post-recession, I wrote, “When difficult times are the catalyst for change it is extremely daunting, but leaping into that void can sometimes be the most rewarding thing you’ll ever do.” I still believe the most challenging period of our lives produce the best opportunities for change, but during quarantine take a moment for reflection before making that leap into the void. Don’t abandon your new career, but take the time to write your business plan if you’ve been putting if off, or consider a course correction based on new information. Even bigger questions might arise: what do you really want to do with your life? How will it be meaningful? How will you position your wine business to weather unexpected storms along the way? Balance in all things.
We hear pundits on TV and government officials say, “we will get through this”. It is motivating and comforting. But this is uncharted territory with potentially deadly consequences. Take care, keep distance and stay safe.