Last year brought change to every level of the wine business. Some sectors benefited while others suffered. Many challenges remain in 2021, but the industry has opportunities. Let’s take a look at wine importers.
1. Airbus Tariffs
In October 2019, the U.S. Trade Representative (USTR) levied a 25% tariff on still wines at or under 14% alcohol. The tariff covered wines from France, Germany, and Spain. There was no exemption for wines in transit. If the wine hadn’t arrived, importers paid the tariff.
Tariffs are taxes on goods that reduce consumer choice and raise prices. Importers pay the tax, then pass the increase to distributors, retailers, and consumers.
According to Decanter magazine, French wine imports alone fell 35% through August 2020, though it’s impossible to separate the pandemic’s impact.
The USTR levied a new tariff on French and German still wines over 14 percent on January 12, 2021. This extra tariff includes wines in transit and European wines bottled in the U.S.
Restaurants, small importers, and small distributors may not survive the impact of the tariffs and the pandemic. European wines are vital for these businesses.
Any changes to the tariffs will likely not come until August, leaving businesses to suffer for months to come.
2. Government Resources
Many importers had problems accessing the Small Business Administration’s Paycheck Protection Program (PPP) funding. Few received any payments in the first go-round as large companies benefited by getting in early. First-round funds were spent in two weeks.
|H.R. 748 - CARES Act
|April 16, 2020
|H.R. 266 - PPP and Health Care Enhancement Act
|August 8, 2020
|H.R. 133 - Consolidated Appropriations Act, 2021
|March 31, 2021
Round-three money provides a lifeline for small businesses, restaurants, and hotels with under 500 employees. Other qualifying entities include independent franchises and sole proprietors.
How many importers will access this new funding is hard to know.
As the pandemic slogs on, will consumers keep buying expensive wine? Over the past year, premium and ultra-premium wine sales grew more than the low end.
Consumers couldn’t enjoy wine at restaurants, so they decided to enjoy better wine at home with dinner. These diners tended to choose known brands, though, instead of trying something new. Experimentation was easier at on-premise locations.
Will consumers splurge on high-end wine when conditions improve? Yes, for those with the financial resources. But unemployment remains high, so other consumers may trade down. How this plays out remains to be seen.
4. Distributor Consolidation
Continued distributor consolidation puts pressure on suppliers, including importers.
As of 2018, 75% of the national alcoholic beverage market was controlled by 10 companies. Due to the massive changes over the past year, some small distributors have shut down or were bought out.
Large distributors have little incentive to carry smaller brands, which restricts access to customers. Importers need to take more control over their business. (see DTC below.)
5. On-Premise Sales
The ongoing COVID pandemic basically destroyed the restaurant industry. Importers sold a significant amount of business into restaurants and bars.
According to the Silicon Valley State of the Wine Industry 2021 report, last year may have surpassed the Great Depression as the industry’s worst year. Restaurants stopped ordering, sold off existing inventory, and will probably not carry large inventories in the future.
Through November last year, 2.1 million people lost restaurant jobs. Restaurant wine sales dropped almost 80% versus the prior year. Stop-gap measures such as to-go meals, walk-up service, and delivery are likely permanent.
Specialty importers are finding it increasingly difficult to move their wines through retailers. Importers have been squeezed by too much wine chasing too few outlets.
6. In-person Sales
The entire country learned more about online connectivity in 2020 than ever before. Reliance on technology is now entrenched. Many person-to-person interactions moved online.
For wine importers, in-person selling may no longer dominate their schedules. It’s inefficient and expensive. Many importers, including large ones, are laying off salespeople.
Digital sales are the future. E-commerce systems allow restaurants, bars, and wine retailers to find what they need online and order directly.
Salespeople will leverage technology to provide education and information. Virtual visits and tastings will become a greater part of an importer’s toolkit.
7. DTC Opportunities
Growing direct to consumer sales provides the best opportunities for importers. According to Drizly, 72% of customers intend to buy alcohol online in 2021.
Connecting directly with customers can make the difference between bankruptcy and survival.
Importers can connect with consumers virtually to build brands. With online wine tastings, wine dinners, and educational webinars, they can enter customers’ homes and create relationships.
Importers can build online relationships with trade buyers as well.
8. Industry Cohesion
The need for the industry to come together for the benefit of all has never been greater. But the three-tier system seems secure as the various sectors compete against each other for dwindling clients.
Opposition to the tariffs was the one bright spot in this otherwise dismal situation. But, addressing such issues as future demand given demographic changes requires everyone’s focus and cooperation.
Learn more about wine trends at bighammerwines.com.
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