If you are one of those Bay Area types that likes to drink Fernet Branca, or a cocktail aficionado who enjoys a Scotch manhattan (a Rob Roy to be precise) made with premium imported Italian vermouth, or really anyone who enjoys imported French, Italian, German or Spanish wine and spirits, get ready because prices are going to go up. Maybe by a little and maybe by a lot.
A 25 percent tariff was imposed last October on primarily French, Spanish and German wines, as part of a battle over European Union subsidies to Airbus. That 25 percent might be going up to 100 percent and might impact many other imported wines and spirits. This potential new tariff is designed to primarily punish France for its digital services tax on big tech companies, such as Google, Facebook and Amazon. President Donald Trump and the Office of the United States Trade Representative have called the French tax “discriminatory against American companies.” So now the U.S. is contemplating a 100 percent retaliatory tariff, and this new round of tariffs might be far broader in their scope; including many more products from all over Europe.
“I have heard that some old Macallan Scotch might be going up almost 40%, so you will be soon looking at $400 bottles of Scotch,” says Jason Sims, Managing Partner of Bungalow 44 in Mill Valley and the liquor buyer for several other Real Restaurant properties. “We don’t know how it is all going to play out. It is supposed to fully kick in in February.”
“The tariffs on French and Spanish wines under 14 percent (implemented in October) have not had that dramatic of an impact yet, because that product is just starting to get into the pipeline now,” says Glenn Schulman, Director of Sales at Maisons Marques & Domaines (importers of Louis Roederer and others). But all the shipping containers that have landed in the last month are only now starting to trickle in.
“An albarino that cost $11 isn’t going to get blown up if it costs $11.75,” says Schulman. “But the 100 percent tariff piece is going to be a whole different situation.”
Important to note that the foreign companies who produce the imported products don’t, and won’t, pay any of the tariff. Those costs are paid solely by the importers. And eventually those costs are passed on to the consumers.
“It’s about margins,” says Steve Melchiskey, President of USA Wine West, with home offices in Sausalito. “We import wine from everywhere that produces it and sell it mostly to wholesalers and distributors.”
He explains that each tier in the market chain takes its margin: importers, distributors and retailers. Meaning that a 25 percent tariff can mean an actual 50 percent increase in bottle price. Melchiskey believes a 100 percent tariff would be a disaster.
“The United States is a wine producing nation that cannot produce enough wine to support its own consumer demand for it,” he says. “We already have to import about 30 to 35 percent just to meet the demand of the U.S. market.”
Schulman sees both sides of the argument (Roederer Estate in Anderson Valley is connected to Louis Roederer in France). “Because I make my living primarily selling imported wines, and the fact that all of this is coming as a result of commerce in a whole different sector of the economy: digital tech, intellectual property, airlines, the building of airplanes, makes it an acute concern.”
Part of that both sides discussion is best exemplified by Roederer. Schulman explains that imported wine price increases will put pressure on domestic suppliers too. Roederer Estate only produces 100,000 cases of domestic sparkling wine annually.
“The pressure on that supply will be tremendous, so the inclination will be to raise the price. Is that fair to our loyal customers of 30 years? No, I don’t think so.”
He gives an example: “Maybe Scotch drinkers will turn to bourbon. But maybe they won’t. Because, like champagne, it is a whole different experience.”
And people are mindful of those different experiences. “People who want Fernet, want Fernet, not another amaro,” says Sims. The Bay Area is one of the largest markets for Fernet Branca outside of Italy and premium imported vermouth is in much demand. “Carpano is the biggest name sweet vermouth in the business by far, and Macallan is probably the number one call for single malt scotch. Certainly, for us it is,” he adds.
Sims is taking no chances, buying nearly 60 cases in anticipation, but noting that not all small businesses can do that.
“People who have been charging $7 or $8 for Fernet, trying to keep it fun and industryish, well, they are not going to be able to do that anymore.”
Uncertainty is fueling the problem. “It could be a disaster for all of us in the import side of the business,” says Melchiskey citing an evaporation of market share and potential mass layoffs. “To tariff something consumers actually need here (because we have to import it anyway) isn’t helping the U.S. wine business because they already sell everything they make. All you do is end up hurting the consumer. It’s a desperate time because we don’t really know what’s going to happen.”
In the meanwhile, we will have to wait and see. Might I suggest a shot of Fernet Branca? Or a Rob Roy made with single malt scotch and Carpano Antica? You just might want to get them while you can still afford them.