Hey everyone, we’re back with another (groan) tariff blog. Trust me, it’s not one that we really wanted to write, or expected to write so soon after our last one on the 25% import tariff. That said, we’d be remiss if we didn’t mention this one. It’s something that has huge potential to completely upend the industry and will have far-reaching consequences, not only for us but for the tens of thousands of other people in the importing, distribution, and customer-facing side of the wine industry. Honestly, for you as well since it’s not just wine, but all kinds of products from the EU.
Last time we wrote about this, a 25% tariff on still wines at or below 14% from France, Spain, Germany, and the U.K. had just been implemented. They targeted two SKUS which left out higher alcohol wines and sparkling as well as focused only on countries that hosted Airbus factories initially.
Here’s exactly how this impacted our costs:
Right now, we buy our wine from our producers with delayed payment terms. An example of this is an $8,000 pallet of wine that left the vineyard on January 1st with Net60 payment terms. We’d have to pay the grower $8,000 on March 2nd. This gives us crucial time to turn that wine into the dollars we need to be able to pay it, since we don’t get paid for the wine until someone buys it.
The 25% (and pending 100%) tariff is on the value of the wine, and due when it goes through customs. To keep it simple, let’s assume that’s 30 days after the wine leaves the vineyard. In this example, it would be $2,000 (25% of $8,000) due on January 31st.
It hurts our cash flow, a lot. We’re a tiny customer-funded business that is still getting its foot in the door, and having to pay an extra 25% on the value of the wine that we didn’t have to before, PLUS before we’re even close to selling the pallet, is a tough pill to swallow. That said, it’s something we believe we can manage with the current regulations - more 14%+, more sparkling, and a higher focus on exempted countries like Italy, Austria, or Portugal.
The 100% tariff that’s currently being considered would be a disaster. Going again to the above example, it would mean we’d have an $8,000 bill due the second the wine lands in customs, and then we’d have another $8,000 due to the grower 30 days after that. It’s like paying for the wine twice, and both before we’ve monetized any of it. To put it simply, we don’t have that kind of cash on hand, and we’d bet that most other small importers that are bringing in specialty wines don’t either.
What would happen from there? Everything would get unavoidably more expensive or lower quality. There’s just no way around it. On the importers end and the end of distributors and restaurants that want to keep selling, already thin margins would get thinner. Some importers will likely just cease operations and people will lose their jobs. On your end, the wines will get more expensive, even if businesses throughout the chain absorb as much of the cost as we can (like we did with the most recent wines we imported from France that were on the water before the tariff went into play).
We love our producers, we love our customers, and we love this industry. We’re not going away any time soon, but we are looking into a few different options about how we can help mitigate the impact this will have on our business. We’re going to keep our pricing where it is, and hopefully the full 100% tariff being considered on all EU wines won’t be fully implemented. Keep an eye out for some big changes coming up soon!
If you do want to make your voice heard, we’d strongly encourage you to click the link below and leave a comment with the U.S. Trade Organization, whether your in the industry or a consumer. We’d strongly encourage you to write your own, original comment opposing these tariffs.