The major factors driving up the prices of US wine

Around the world, wine prices have been rising. Imbibers in the US – the largest wine-consuming country in the world – are especially feeling the price squeeze on certain domestic bottles. "There's been kind of an unprecedented move upward in price recently," says Andrew Adams, editor of Wine Business Analytics.

An inflation economy certainly plays a role; prices are, of course, rising across the board on all sorts of goods and services. But Adams and other wine-industry experts also point to other factors, including broader international economic concerns, restrictive pricing mechanisms in the US and extreme weather, all combining to drive up prices of wine and even leave many aspects of the industry's future uncertain. 

Raw materials, consumer perceptions

Winemakers – especially small vineyards – are among the many manufacturers who have felt the squeeze of supply-chain issues in the wake of the Covid-19 pandemic.

In the US, winemakers rely on glass manufacturers in Europe, a region where the cost of natural gas – a key component in the production of glass – shot up following the Russian invasion of Ukraine. With the price of glass up as much as 20% in the US past year, winemakers in the US are spending more to bottle their products.

Adams adds costs have ballooned for other packaging materials as well. "It's also the labels, the printing costs, corks, capsules – everything has gone up fairly dramatically in price."

Labour costs have increased at the same time, which means it's also more expensive to get fruit off the vine and into bottles, explains Cameron Hughes of Cameron Hughes Wine, a California-based winery that specialises in high-end blends. "Picking grapes costs more, grape contract prices over the past five to 10 years have gone up precipitously," he says.

Many of these additional expenses have been passed onto the consumer at the till.

This was especially the case during the pandemic, when some winemakers offset rising costs by raising prices as alcohol sales spiked, and consumers tolerated paying more amid inflated demand. Yet even though demand has fallen since the pandemic, drinkers are now conditioned to seeing higher prices – and are still paying them, leaving little necessity for winemakers to drop them to move product, especially on high-margin bottles.

Additionally, in the wine industry, says Adams, a bottle's price point is inelastic in a way many other sectors are not. It's an important signal to the shopper – consumers often believe a lower price point is indicative of lower quality. Even if consumption falls – a supply-and-demand event that generally leads to lower costs – he says dropping wine prices in lock step can change consumers' perception of the wine itself, in ways that largely can't be undone when demand rebounds.

The wholesaler's role

The US wine industry has a "three-tier" distribution system, which significantly impacts how wine is priced. Regulated by the US government, this approach dictates that producers, such as brewers, distilleries and vintners, must sell to distributers or wholesalers. This intermediary tier then sells to retailers, including liquor stores and restaurants, where consumers purchase the product.

Much of the wine market is controlled by the three major wholesalers, who wield outsize influence over wine producers and sellers. Since winemakers depend on these wholesalers for widespread distribution, they are often beholden to wholesale pricing trends. 

"Once your foot is in the door in an account, you're going to want to keep that placement," says Ottavino's Sekhar, especially as a smaller winery, which needs to have the marketing exposure. "And so, when you're pushed on price, you're likely going to bend to that."

As wholesalers dictate pricing in an uncertain economic climate, wine producers face razor-thin margins on lower-priced wines. This means they are increasingly incentivised to focus on producing and selling mid- and high-priced wines to recover their costs – the consumers of which are generally less price sensitive, and also less likely to drop wine for other spirits. 

Additionally, Hughes says that as younger consumers are increasingly favouring alcohol and spiked seltzer to wine, producers have responded by making fewer entry-level priced bottles, leaving higher-priced wine as the main option on the shelves.

Climate considerations

Should consumers expect these inflated prices to be the new normal – or perhaps expect to see their totals at the till keep climbing?

The answer, of course, depends on the international economy and supply chain as well as wholesale pricing trends. However, there's another wild card in play that makes foretelling the future of wine – both what consumers pay per bottle, and what's inside the bottle itself – even less certain: climate change.

Predictability has traditionally been a major factor in the wine industry's success and viability. The ability to correctly forecast yields and flavour profiles one year to the next not only plays into pricing, but also is essential to maintain the quality of product mandated by distribution contracts. It's even integral to keep up essential, revenue-driving vineyard tourism.

Now, in the grape-growing regions of the US, as in many places, climate change is causing erratic weather patterns that are keeping winemakers from predicting how their harvests will turn out – a ripple effect that extends to price and beyond. As extreme weather events become more common in winemaking regions – like 2020 and 2021's wildfires, 2022's record temperatures and 2023's unceasing rain – those days of consistency, say many vintners, may be over.

"I romanticise some of the stories I heard when I was first starting out as a winemaker. The old timers were saying, like, 'Oh, we always picked the Wednesday after Labor Day'," says Sekhar. "That's not how that works at all anymore. Now, [grape varieties] come in whenever they want to come in, and they come in at different sugars and different ripeness, and the flavour comes on at different alcohol levels."

As climate change continues, nearly every element of the consumer experience with wine is up in the air. That could be the highest price of all.

-bbc