Drink & Be Merry: Wine Prices to Rise

The signs, at best, have been wretched. The price of oil has shot up, and the dollar has plunged to new lows. For lovers of European wines in particular, it’s a recipe for skyrocketing prices.

So far, though, what has seemed inevitable has yet to occur. Price increases have been modest at best.

But the bad news may simply have been delayed. In three to five months, many in the wine trade say, the pressure will become irresistible, and prices for European Union wines will rise.

“It’s like a huge bubble that’s about to burst,” said Joshua Wesson, a founder of Best Cellars, a wine retail chain based in New York, which was recently acquired by the Great Atlantic and Pacific Tea Company.

Importers and distributors of European wines say they have essentially held the line on prices for months, even though they have had to pay more as the dollar has sunk and their own profits have eroded. Their reason? The fickle nature of wine consumers.

The beer and spirits industries are built on consumer loyalty to brand names, but aside from a few successful brands like Yellow Tail and Santa Margherita, wine consumers buy for different reasons, like price.

“When the price of your favorite Pouilly-Fuissé goes up you go to a different Mâcon,” said Gary Vaynerchuk, director of operations at Wine Library, a big retail store in Springfield, N.J. “The culture actually induces you to go out and try other things.” With the holiday season accounting for an enormous percentage of annual wine sales, importers and distributors have been especially loath to raise prices significantly at this point in the year. But that’s likely to change in 2008.

“They’ve held back because they haven’t wanted to lose market share,” said Mr. Wesson, who is now A&P’s senior director for beer, wine and spirits.

“That’s good and wise of them,” he said, “because there’s so much product out there and very little loyalty. But almost to a man and woman in the wine business, that ability to hold back price increases has to come to an end, because no one anticipated the dollar would be as weak as it has become.”

How high might prices go? Bill Deutsch, chairman of W. J. Deutsch & Sons, which imports wines ranging from Georges Duboeuf to high-end Bordeaux like Château Léoville Barton, estimated that wines tied to the euro would increase in price by 10, 20 or even 30 percent.

“I think the prices that consumers have seen these past couple of years will be a fond memory in about three to five months,” he said.

Price rises, of course, are nothing new to wine consumers. The price of Bordeaux shoots up when critics laud a particular vintage, as they did the vintages of 2000, 2003 and 2005. In between they may come down, but rarely to pre-hype levels. Prices for Champagne and Burgundy have never been as high as they are now. But those sorts of increases result more from higher demand than from currency values.

Domestically, prices for Napa cabernets have climbed steadily, as has the price of pinot noir, simply because consumer demand is so great. In fact, California vintners are so desperate for pinot noir that they are now turning to other countries for wine, which they bottle in California.

“We see bulk shipments coming in like crazy from southern France and everywhere that were previously all California,” said Eileen Fredrikson of Gomberg, Fredrikson & Associates, a wine industry analyst in California. “They need it, and they can’t get it anywhere.”

This use of European imports may raise the domestic price of pinot noir, which is already high because of the demand, but in the near future many other California wines may be seen as better values, especially in relation to European wines and those from Australia and New Zealand, which have also been buffeted by the fall of the dollar.

“This will be an enormous opportunity for California,” Mr. Vaynerchuk of Wine Library said. “All of a sudden a $7 Bogle to some people will seem attractive.”

Of course, the American wine industry has problems too. The price of labor has climbed, and the rising price of oil affects the cost of transportation in the United States as well as in Europe, although shipping costs add more to the cost of a European wine.

Producers of moderately priced European wines who depend on the American market will most likely be hurt once retail prices are increased in the United States. Looking ahead to that moment, David Bowler, a small importer and distributor in New York, said, “It’s definitely painful in areas like Pouilly-Fuissé and Loire Valley reds, which are not so popular to begin with.”

Bigger companies with more financial wherewithal may be a little more cushioned. Mr. Deutsch, the importer of Yellow Tail, said his partner in Australia, Casella Wines, hedged its bets with currency purchases, so its prices will remain stable for the near future.

Mr. Deutsch, who has been in the business for 47 years, said the only time he could remember similar pressures on wine prices was in the mid-1980s, when the dollar was also weak. But sales were affected only briefly.

When wholesale wine prices rise, prices in restaurants can be expected to rise as well, though a bit of a lag may occur as restaurants sell off wine they bought when the dollar was stronger.

Ronn Weigand, publisher of Restaurant Wine, an industry newsletter, said that restaurants were already stocking up on wines that would offer better value to consumers.

“The little wines of Portugal, of France and Italy, and especially the wines of Spain,” Mr. Weigand said. “I’m sensing nervousness not just about the economy but about the political situation worldwide.”

Not everybody is mired in pessimism. Adam Strum, the editor and publisher of Wine Enthusiast Magazine, said he believes that wine is a better value today than ever before, because improvements in winemaking techniques and an increase in competition have kept prices fair.

“The leap in quality that’s being delivered in wine, and the competition — those two factors offset the decline of the dollar,” he said.

Meanwhile, those who don’t want to pay higher prices might consider building up a supply now, or looking for values elsewhere. One possible place to turn is Argentina, which is among the few winemaking countries whose currencies have lost ground against the dollar. Portugal continues to be a source of great values. Eastern Europe is rapidly rebuilding its wine industries, and wines from Slovenia, Hungary and the Czech Republic may be good values even if they are tied to the euro.

So may less celebrated areas of France, Italy and Spain, like Campania and Sicily, lesser areas near the Loire and the Rhone Valley or unknown Languedoc wines like picpoul.

“This is a sommelier’s dream,” Mr. Wesson said. “They won’t have to try so hard to convince anybody to try picpoul. I would be going long on picpoul.”

By Eric Asimov.