Wine Club Newsletter - April 2018
China Response Hits California Winemakers
Interesting article from New York Times . . . sometimes in business, outside forces can prove to be quite challenging. GP
Growers have spent years cultivating Chinese market
Cabernet isn’t the most obvious pawn in a trade war between the United States and China. Airplanes and their parts are the leading U.S. export to China. Soybeans and wheat grow in Trump country. But China’s selection of wine as a target of retaliatory tariffs did not surprise Michael Honig, a winemaker in the Napa Valley, where the tariff would hit hardest.
“The reason the government realizes they should penalize us is, we are branded,” said Honig, the president of Honig Vineyard and Winery. “It’s hard to go after a wheat grower, because who is a wheat grower? It’s a commodity. We are not a commodity.”
The news was an unwelcome turn of events for Honig and many California winemakers, who have spent years trying to carve out a place in the hearts of wealthy Chinese consumers. That hard work has earned them a prized sliver of what is becoming one of the fastest- growing markets for wine imports.
China’s imports of American wine reached $82 million last year — not including bottles entering duty-free through Hong Kong — a seven-fold increase in the last decade. But growing visibility may have turned Napa wine into easy prey.
“Wine is something people can relate to,” said Jim Boyce, who has been covering the industry from Beijing for a decade on his blog, the Grape Wall of China. “It’s like putting a tariff on Chinese dumplings. It’s something you can feel on an emotional and personal level.”
The 15 percent tariff, announced Monday, on top of existing tariffs and taxes, is a gut punch to winemakers marketing their wares to the mushrooming legions of young, recently wealthy Chinese.
It is that group, one or two levels below China’s ultra-rich, that holds huge potential for California vintners. Those consumers are far more numerous than 1 percenters. And more crucially, they’re the ones driving the recent blossoming of a wine culture in China in which bottles are actually consumed rather than simply traded among elites as trophies.
Honig and his business partner and wife, Stephanie, have spent a decade wooing that clientele, making a trip a year to China to pitch sommeliers in top restaurants and hotels. He has recently expanded beyond the obvious stops in Beijing and Shanghai, visiting cities like Guangzhou, in southern China.
“There are people who want to spend the most, but there are also aspirational buyers,” Michael Honig said. “You may want to buy the Rolls-Royce, but you can afford the Mercedes.” And that’s his sweet spot.
His most popular cabernet goes for around $25 a bottle wholesale, and he sends more than 500 cases of it every year to a plucky Shanghai importing business started by two brothers with dual citizenship.
With existing tariffs and value added taxes mixed in, the total charge tacked on to California wine was already close to 50 percent. After the importer factors in shipping, takes its cut and passes the bottles to a hotel or retail store, which takes its cut, the Napa red ends up selling for the equivalent of around $100.
An extra 15 percent charge would be brutal. “No one wants to overpay,” Honig said. “If all they’re looking at is two different bottles side by side, and we are competing with Australia and Chile, that’s a big competitive disadvantage.”
Chilean and New Zealand wines face no Chinese levies, thanks to free-trade agreements. Australian bottles will enter the country tariff-free next year.
BY NATALIE KITROEFF
New York Times
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