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Tuesday, January 7, 2020

Trump's New Tariff Could Hurt St. Louis Small Business, Local Entrepreneurs Say

Posted By on Tue, Jan 7, 2020 at 1:46 PM

click to enlarge Time to buy your favorite bottles of European bubbly in bulk. - FLICKR/ VISITLAKELAND

Is there a wine equivalent of the Bat-Signal? If so, we need to find it, stat.

The reason: Soon your favorite bottle of Italian Prosecco, Spanish Tempranillo or German Riesling may cost twice as much as it does today. If you're not a fan of European wine like us snobs at the Riverfront Times, we have more bad news: Italian Parmigiano-Reggiano cheese, Greek yogurt, Scotch whisky and Mediterranean olive oil are also subject to the same potential price surges.



Prices are set to spike sometime after January 14 if the 100-percent tariff on certain European exports proposed by the Trump administration goes into effect. The punitive tariff is a sharp increase from the previous 25-percent tariff imposed in October, which applied to certain still wines imported from Europe (many from France, Germany and Spain) at fourteen-percent ABV or less.

The tariff harmed specific regions of Europe — in France, for example, regions like the Loire Valley, Burgundy and Bordeaux felt the squeeze, while in the country's Rhone Valley, where Grenache is the dominant grape used to make wines often more than fourteen percent ABV, impacts were lesser.

Why is our wine and cheese being targeted, you may rightly ask? The origin of the tariffs primarily stems from disputes between the U.S. and European countries over aircraft manufacturing subsidies. The 25-percent tariff was partially imposed as a result of the World Trade Organization ruling in September that Chicago-based Boeing had been subject to illegal subsidies paid to rival aerospace company Airbus, which is based in the Netherlands. The target of the tariffs are not European wine and cheese producers but other European Union exports to the U.S., such as aircrafts and pharmaceuticals. However, these comestibles are still caught in the crossfire.

Tariffs typically regulate taxes on foreign products to encourage or protect a domestic industry. In this case, the Trump administration's tariffs are partially targeting the aircrafts that deliver European wine and certain foods to the U.S. — but small business owners in America say they're the ones who will really pay the price.

In an op-ed published yesterday, Eric Asimov, the wine critic for The New York Times, lays out a compelling argument for how the proposed tariff will devastate the U.S. wine industry.

"Make no mistake, a tariff of that size, or any number close to that, would be catastrophic for Americans in the beverage and hospitality industry," Asimov writes. "A 100 percent tariff would double the price of wines in shops and restaurants, with disastrous ripple effects."

Specifically, the proposed 100-percent tariff stands to impact boutique wine-shop owners and wine distributors as well as small restaurants and bars. (You can find a full list of the goods subject to the proposed tariff on the U.S. Trade Representative's website.)

"The best way that I can describe it is this: You come into your local wine shop and you're going for a bottle of Champagne for a wedding or birthday, and this bottle of Champagne that you've had before that was $40 is now $80 or $100," says Aerin Soroka, commerce manager and shop/bar manager at the Vino Gallery (4701 McPherson Avenue, 314-932-5665) in the Central West End. "Everything is literally twice as much. Once our inventories are depleted of these products in the United States, we're not going to get more."

In Soroka's view, the proposed tariff won't help Boeing or punish or threaten commerce for Airbus — but it does stand to hurt the Vino Gallery and small wine shops, bars and distributors like it.

"We're paying for it; Europe isn't paying for it," Soroka says. "It's going to affect Americans. Who do you think owns distribution companies? They're American-owned businesses who employ Americans. We're going to have less choice, we're going to pay more for wine, cheese, cured meats ... trade wars are going to hurt us as consumers."

At the Vino Gallery, Soroka says that if the tariff is enacted the shop's selection will be cut in half, including vintages from age-old wine-growing regions in France, Italy and Germany.

"For me, I'm not going to have a vast inventory like I used to," Soroka says. "As the curator of a wine shop, I have my selection arranged by regions: You walk in and to your left is domestic [wine] and to your right is international, and it's all going to be effected. Half of my shop won't be there anymore, and it's sad — I love European wine. France has shaped wine culture in the world. When I took my sommelier exam, France was half of the book and the other half was everywhere else. That's how important it is."

Vijay Shroff, owner of the Wine & Cheese Place (multiple locations including 7435 Forsyth Boulevard, Clayton; 314-727-8788), says that if the 100-percent tariff goes into effect, it will undoubtedly impact the selection and prices offered at his stores as well.

"I didn't sleep a lot last night thinking about how to best game plan this," Shroff says. "We've been actively thinking about the what ifs. I think there's the potential for up to a 100-percent tariff on January 14 for all European wines, still and sparkling, plus Scotch and European cheese, and you know, we own the Wine & Cheese Place, so that's troubling."

Shroff adds that his business maintains a broader portfolio of products made in the U.S., Australia and South America, among other countries around the world, but that the new tariff would still be bad for business.

"The bottom line is that I cannot sell a bottle of wine for $15 on Sunday and $30 on Tuesday; it's not going to work like that," Shroff says. "And unfortunately the person who pays these taxes is the importer in the U.S. and they have to pass that cost on to a distributor who then passes it on to me, and the margins in our industry being what they are, they cannot support 100-percent [increases] ... We'd all lose money. And consumers aren't going to buy $50 Parmesan or $30 Chianti."

Shroff says for now his plan at the Wine & Cheese Place is to stock up on European inventory at pre-tariff pricing. If the 100-percent tariff does eventually take effect, however, he says the result will be a reduced selection of European wines, cheeses, Scotch and other items at his stores.

"We have seen, as a result of the 25-percent tariffs that were enacted in the fall, prices on Scotch for sure jumping quite a bit," Shroff says. "To get ahead of that, we've been buying a bit more inventory than we would normally have, because our end goal is to maintain our focus: good pricing, good service and connection with our customers, and we can't do that if suddenly all of our prices go up 100 percent."

While small business owners like Shroff reckon with the proposed tariff and its potential impact on retail sales, restaurant owners, sommeliers and chefs face more immediate concerns.

"It goes far beyond retail," Shroff says. "All of the restaurants that buy Parm, wine, olive oil, they're going to see these increases, too, and they don't have the luxury that I do, which is holding inventory and buying in volume. For them, the impact is going to be very immediate."

If your first thought upon hearing this news is that it could be good for the American wine industry, local industry pros are quick to poke holes in that theory. Only so much wine is produced in the U.S. annually, and wine isn't a product that benefits from hurried production, so if access to European vino becomes prohibitively expensive and demand for U.S. wine increases significantly and at a speedy rate, it's possible that many American wineries simply won't have the supply to meet that demand.

"Domestically, customers are saying, 'Well, won't you just sell more [wine] from California?' And unfortunately that wine is not even a grape yet; it's not even spring," Shroff says. "They can't just ramp up production — it doesn't work like that — and higher prices don't help anyone in the long run. I don't see this helping the domestic industry and it's going to be much harder on the smaller folks, especially distributors."

Shroff also notes that many companies in the U.S. wine distribution industry rely on a percentage of their business coming from European wine, and so what hurts American distributors also hurts American winemakers. If those distribution companies are forced to shutter, it leaves wineries — especially smaller ones — with fewer ways to get their wine into restaurants and stores.

"We also have the issues of labor costs and land costs," says Bill Kniep, owner of St. Louis-based Pinnacle Imports. "It is more expensive to make wine in America than it is in Europe, and especially with our recent discussions about immigration, it's very hard to get the labor necessary to farm and produce wine. As a result, the quality of domestic wine under $15 cannot come close to competing with the quality of these European wines under $15. So there's no way to directly replace all of the wine-by-the-glass in restaurants and all of the under $15 wines in stores in the country."

Pinnacle is one of the largest wine companies in Missouri, and the proposed tariff would be crushing for its portfolio, which Kniep has been building for two decades. European wines currently make up 51 percent of Pinnacle's revenue.

"The idea that this tariff harms the producers we work with is utterly preposterous — there's so much demand in the world for the kinds of wines that we import that they'll simply sell their products elsewhere," Kniep says. "Really the only people being harmed by this tariff are frankly American businesses and American workers."

click to enlarge Materials in Pinnacle Imports' new price book includes details about the proposed tariff. - COURTESY PINNACLE IMPORTS
  • Courtesy Pinnacle Imports
  • Materials in Pinnacle Imports' new price book includes details about the proposed tariff.

When the 25-percent tariff was imposed last fall, Kniep says that the American wine market took some hits, but it was a storm that could be weathered. No one knew how long the 25-percent tariff would stay in effect, so to ride out the storm, many wine distributors like Pinnacle absorbed the price increases equally with their importers and wholesalers.

"We were able as a wholesaler to go to the importers and the wineries and say, 'Guys, we hope this is a very short-term situation; we don't want to lose market share, and if we share this tariff equally, then we'll be able to minimize or eliminate the impact of a price increase in the market," Kniep says. "So two-thirds of that 25-percent tariff was being paid by American businesses and one-third by the producer. The tariff was manageable in the interim to save market share, but it hurt our profitability pretty dramatically."

The potential 100-percent tariff, though, would shutter many small distributors and present huge challenges for medium and even large ones, Kniep says.

"The 100-percent tariff is an atomic bomb that completely eliminates all of the exemptions and makes it impossible to sell all of those wines," Kniep says. "What I'm most concerned for is small businesses — restaurants, grocery stores on the Hill, places that could really cease to exist when this tariff goes into effect. Restaurants, in particular, make the vast majority of their profit with beverage sales — food is close to a break-even to get people in the door, so it's going to be devastating to restaurants. That's where the numbers get so scary."

Pinnacle has been posting updates and information about the proposed tariff via its social media, and its industry-specific January 1 price book, delivered to clients, shared information about how to contact the Office of the U.S. Trade Representative about the tariff. Themed "It's 2020, Not 1920," the materials aim to get the word out about the impact the proposed tariff will have among industry pros, including describing the 100-percent tariff as potentially "the worst catastrophe since Prohibition."

(You can email your U.S. House Representative here to share your thoughts on the proposed tariff as well as leaving a comment with the U.S. Trade Representative here. Public comments about the looming Airbus tariff can be submitted until January 13.)

"What does St. Louis do without the Hill?" Kniep asks. "The Hill doesn't exist in six months or a year when these tariffs go away. That's something that you really have to stop and think about: This is not harming Europe at all. If I don't buy [European wines] for a couple of years due to this tariff kerfuffle, when I come back to these producers down the road, they'll be obligated to honor what they've been selling to countries in the interim, and Missouri will lose access to those products."

If that happens, Kniep fears the ripple effect it will cause for restaurant owners in Missouri and across the U.S.

"The restaurant industry operates on such a knife's edge; it's such a difficult industry, margins are so thin and there's so much competition that this is unbelievably disruptive," Kniep says. "We have this incredible food-and-wine scene in St. Louis that's far outsized for the size of our city. We're nationally known as this great independent restaurant market, and I don't think that can continue if this [tariff] is enacted and stays in place for an extended period of time.

"I think we'll lose a lot of treasures, both old-school places that people have been going to for generations and brand-new, cutting edge places that are making national news. It's terrifying to me that we could lose the hard work of tens of thousands of people who have built businesses in our city, let alone across the country."

At St. Louis-based A. Bommarito Wines, president and owner Tony Bommarito Jr. says he's most concerned for consumers who soon may not be able to afford their favorite bottles of wine.

"I think ultimately it's the consumer who will be hurt," Bommarito says. "It's the consumer who will decide what they're willing to pay for certain wines. Already with the 25-percent tariff that's in place on some French products, it's caused us to narrow our offerings. When products go up that much — in some instances we don't have to pass it all along — but I don't think the market is there. At 100 percent, I don't think a consumer is going to be willing to pay twice as much for a product as they had before."

Bommarito has also shared his thoughts on the 100-percent tariff and its potential impact on the consumer market in America in a letter to the Office of the U.S. Trade Representative and encourages people with similar concerns to do the same — including restaurant owners, retail shop owners and wine lovers.

"The reality is that the number of products that will be available for restaurants will be affected," Bommarito says. "There's a handful of restaurants that jump to mind that serve exclusively products from a particular country, and those are conversations we've started to have with restaurateurs: This could happen, and if it does, we're going to have to work with you guys and what direction you want to take your wine programs."

As wine industry professionals and restaurant owners scramble to find solutions to the possible tariff, those in the business are also reckoning with the reality that products they love may soon be out of reach. For Soroka, who has dedicated her livelihood to wine and wine education, the thought that Americans may soon be priced out of European wine is devastating.

"Champagne is Champagne for a reason; Barolo is Barolo for a reason," Soroka says. "There's something called terroir, and the best way I can describe it is that a Pinot Noir from Sonoma, California, tastes vastly different from a Pinot Noir from Willamette Valley, Oregon, and it has everything to do with the soil, climate, amount of sunshine, elevation ... so many factors. You cannot replicate a Burgundy in America; you cannot replicate a Bordeaux. It tastes different depending on where it's made in the world. That's the most exciting part of wine to me — that it tastes different, and that's the point."

Follow Liz Miller on Twitter at @lizzaymillah. We are always hungry for tips and feedback. Email the author at liz@riverfronttimes.com.
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