Unless you don’t own a television or radio, and choose not to read anything at all, you surely know about the ‘devaluation’ of the U.S. dollar (formerly known as the almighty dollar). Even if you don’t plan on renting a villa in Tuscany this summer, it will still impact your life in various ways. Most importantly perhaps, is how it will affect which wines we buy.
The Euro has increased in value vis à vis the U.S. dollar approximately 50% in the last 2 and a half years. Fifty. What this means to American wine purchasers who opt for European wines is simple – huge price increases. On the ultra-premium side of the business (i.e. the 2005 Burgundies and the 2005 Bordeaux futures) the pain is already being felt – how does $6,000 to $9,000 as the futures price for ‘first growth’ claret sound? If your tastes and budget are at a lower altitude, the good news is the importers of these types of wines have worked to keep the increases at bay, either by buying currency futures when they saw this coming or by eating some of the increases, or both. But this only delays the inevitable, and our day of reckoning is upon us. So… you know all those delicious, cheap little Pinot Grigio’s and Chianti’s we sell? Try north of $10 now as a starting point. Thought Champagne couldn’t go any higher? Think again; one of our brands will go from $20 wholesale a bottle earlier last year to almost $30 wholesale by next summer (when we buy our next shipment) et cetera, et cetera.
Add to this inescapable fiscal phenomenon some production and demand issues. Australia has been our vinous bread basket for the last half decade or so, quenching our thirst for flavorsome, varietal wines at modest prices. However, the Aussies have been experiencing severe drought issues of late, which means markedly lower production. Three years ago, they were so backed-up with wine, some wineries were pouring certain wines down the drain, and now for 2008, the word allocation has been used!! Their dollar has advanced against ours as well – ‘double whammy’ the Aussies would say. Gee, even the Canadian dollar has pummeled ours, so if you like those Ontario ice wines, prepare to pay more. The other half of this bitter pill is demand for premium wine in emerging countries. Asia most notably, but Eastern Europe and South America as well. We were told by one importer that should demand slacken here due to pricing issues, ‘no problem, we can use the extra cases for Asia’. Ouch.
The Good News is that we still have a warehouse full of stuff at the old acquisition costs. We still have lots of ’05 Burgundy, ’04 Piedmonts and Tuscans and Champagne in all price points. The wisest among you will beef up your inventories of some of these wines. Good wines age well, and you can charge a ‘premium’ for many.
Maybe Better News is that this means that our American wines will be better values than they perhaps have been of late. Think about it – a Sancerre for $30 retail or a Napa Sauvignon Blanc for $16? A Napa Cabernet for $20 or a satellite-appellation Bordeaux for $32?
It has long been acknowledged that our top wines are the equal – in quality and price – of the best of the rest of the world. At lower price-points we’ve sometimes had some ‘splainin to do. Not anymore. One-stop shopping in the U.S. wine aisle is a viable option more than ever before.
One more ripple from the dollars free-fall – the price of oak barrels. We’ve long heard wineries whining about the price of French barrels approaching, then surpassing the $1,000 mark (that would be each, by the way). Well for 2008 $1,200-1,400 for premium French oak will be de rigueur.
What this means to us is the super-premium wines will see unavoidable $ increases, and the not so super-premium wines will increase the use of ‘oak alternatives’ (known as oak-alts in wine country). Look for a complete discussion on this in the next issue.