Italian Wine News
Imported wine prices climb as the US dollar weakens
|Ezio Ciotti, operations manager for Vinity Wine Co., which sells Italian wine and liqueurs, says he has already had to raise prices and may cut some wines because of dwindling profit margins.
Chronicle photo by Craig Lee
But the squeeze has become so intense that wine prices are likely to start popping, say people in the wine trade. That may help California gain back some of its eroding domestic market share -- although many retailers say imports remain a better buy than California juice.
The dollar's falloff, with the encouragement of the Bush administration, has been precipitous. The Australian dollar was worth 51 U.S. cents on Jan. 1, 2002, 56 U.S. cents on Jan. 1, 2003 and jumped to 75 U.S. cents on Jan. 1, 2004, says Lynn Reaser, chief economist with Bank of America Capital Management in St. Louis.
The New Zealand dollar has appreciated, as has the South African rand and the Argentine and Chilean pesos. Virtually every big wine-producing nation is seeing its products become dramatically more expensive when purchased with U.S. dollars.
In Europe, a single euro bought 89 U.S. cents two years ago and now buys about $1.25 worth of goods. Reaser expects the rate to hit a record $1.30 this year if the Federal Reserve does not raise interest rates and if U.S. job growth remains sluggish -- factors that deter the kind of foreign investment that would strengthen the U.S. dollar.
Since the Aussie dollar is worth 50 percent more in U.S. currency than it used to, you might expect 50-percent price hikes for Aussie wines sold here, as well as 40-percent jumps for European wines and so on.
But that hasn't happened. Overseas producers "have been absorbing the difference, hoping the currency would stop rising," says consultant Vic Motto with MKF in St. Helena. "Prices haven't moved with currency fluctuations because that would wreak havoc in the market. But profits have declined and now the producers are forced to raise prices."
Emeryville-based wine importer Ezio Ciotti is one of many caught in the squeeze. "It's a nightmare," says the operations manager for Vinity Wine Co., which sells Italian wine and liqueurs to customers including Il Fornaio restaurants, A.G. Ferrari Foods and Whole Foods markets.
Ciotti is currently paying for wines ordered in September, when the exchange rate was $1.10 to a euro. When the bills came due, the rate was $1.26, meaning Vinity must pay an extra 16 cents for each euro of wine purchased.
Some of Ciotti's Italian business partners are willing to swallow part of the cost, but some are not, he says. "The gap has to come from some pocket. If the winery can't absorb some of it, we drop them."
Vinity has raised its prices 10 percent, but that isn't enough, says Ciotti, who fears the euro could rise to an astronomical $1.50. While Vinity is still profitable, it may eliminate the 30 percent of its product line that retails for $6 to $8 because the narrow profit margin on those wines has dwindled away.
To diversify its portfolio, Vinity recently began distributing wines from Argentina, where there are some good deals, despite the appreciation of the Argentine peso, Ciotti says. Vinity may even start distributing California wines, although "California wines aren't super-interesting," Ciotti says. "On the quality of our Italian wines we are confident; it's the price that is penalizing us."
Retailers have been bargaining hard with suppliers like Vinity to keep prices down, although pricing pressure is growing.
Oakland-based Cost Plus World Market, with about 200 stores nationwide, has been in tough negotiations with its distributors and managed to keep most if its holiday 2003 prices the same as those in 2002.
By shaving profits and pressuring suppliers, Cost Plus raised prices on only a few of its Champagnes during the holidays, and none rose more than $1, says Peter Eastlake, the chain's associate national buyer.
"We're doing everything in our power so the customer is not paying for the devalued dollar," Eastlake says. But "I think the reality has set in that the dollar is not going to make the valiant comeback people had hoped .... Now that newer vintages are coming in from Europe, I think we're going to start seeing some price increases."
With virtually every overseas currency becoming more expensive here, Carl Davidson, general manager and buyer for the five-store Vino chain, says he is hunting harder for wines to sell for $12 and less, a big part of his business.
Davidson, whose East Bay company both imports and sells wine at retail, is searching out lesser-known producers in up-and-coming wine regions like Puglia and Sicily in Italy, as well as in Spain and Portugal. He has been forced to raise some prices -- a $15 Sancerre now goes for $17, for example -- but he says it is still a good value.
While California producers are offering deep discounts, "the under-$15 wines still have a tough time competing with the Europeans in both quality and variety," says Davidson, who stocks about 55 percent imports and 45 percent U. S. wines. "Frankly, there's a reason why California wines are discounted."
Wilfred Wong, eCommerce cellar master for Beverages & more in Concord, says he believes California wines remain overpriced by 30 to 60 percent, despite higher import prices and price-cutting on domestic bottlings in the last two years due to a surplus of grapes.
Wong doesn't expect U.S. wines to regain the 85 percent of the domestic market they enjoyed 20 years ago. American wineries' market share has fallen to 75 percent in the last two years and will probably stay there, he says.
"There's more global competition for U.S. wineries than there used to be, " says Wong, who is looking to Spain, Portugal and Argentina for bargains these days. "There's always someone coming in with good deals."
But Motto says American consumers have always been price sensitive, if not downright fickle. "The truth is that imports only grow when they're inexpensive," he says. "There are decades of hard facts to back that up. I definitely expect the situation to reverse" and the United States to regain market share.
All eyes are on Australia, of course, which has become a wine powerhouse in the last decade. Australian wine exports to the United States have risen 50 percent or more annually for several years and Australia has surpassed France as our No. 2 foreign supplier. (Italy is No. 1.)
But import growth dipped slightly in December, a decline that is expected to continue. "We're very comfortable because Australian wine has been growing strongly over the past 10 years and it has a foothold in the U.S. market," says Helen Jenkin, trade commissioner with the Australian Consulate in San Francisco.
"I don't believe a price increase of $1 or $2 is going to stop people buying, but I imagine there is going to be a slowdown in the growth," says Jenkin, who acknowledges that Aussie wineries are having a tougher time selling their goods here than they did a few months ago.
"It's no longer a no-brainer to snap up an Australian wine because it's so cheap," she says. "But even if our price competitiveness disappears, Australian wines can still compete on quality."
|Originally published on the © 2004|
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