EU wineries will be making a mistake if they leave the U.S. market

How’s your Spanish? The headline of the article above in the Spanish business paper, El Economista from the other day reads: “Spanish wine sinks in the US due to tariffs and wineries are already preparing for withdrawal from the market”. The article goes on to say that many Spanish wineries are considering leaving the U.S. market altogether. The same expressions of giving up on the American market are being heard in France too. In either case, it would be a mistake.

Here’s why:

• We don’t know yet whether the tariffs will be increased. Now is not the time to overreact. It is a time to plan.
• The only consistent thing about the Trump administration is its inconsistency. If increased tariffs are imposed, we don’t know when, what percent (anything up to 100% has been discussed) and we don’t know how long they will last.
• Trump may only be in office for another year. If re-elected, then for longer but that’s a question we won’t know the answer to for ten months.
• Wine producers that leave the U.S. market should not plan to come back because other players, whether domestic or otherwise will fill their space. The U.S. consumer wine market has leveled off. Millennials are not buying as much wine as their Baby Boomer parents did. Those wineries that stay in the market and focus on building sales among millennials will benefit. No one should have an expectation that they’ll be able to come back into the market after an absence and start near where they left off.
• There will be an opportunity to acquire additional market share by staying in the market. There will certainly be a drop off of wineries who have better, stronger markets available to them elsewhere, but where do you find them? With Brexit, the UK market is in turmoil. There will also be some wineries that can’t sustain their business with lower sales, absorb some of the increase or are already buried in debt but those that can’t continue for a year probably will fall by the wayside anyway.
• Wine prices globally are going to go up regardless. Both the Pound and the Euro are hovering around their 10-year low and while the Chinese market appears huge, it is subject to political instability. Additionally, you can expect the Chinese to figure out how to make great wine in large quantities to compete with anything from Europe. If you don’t believe that, you haven’t been following technology news.
• Wines with over 14% alcohol content have been exempted so far. If that continues, there’s an opportunity to make small changes in composition to get over 14%. There also may be different rules by selling into a non-penalized country like Canada and then reselling from there.

The point of all this is that there are options now and there are likely to be options later. Giving up on the American market is not a strategy for success. It’s a reaction to something that is unlikely to have long-term permanence and would be a mistake.

Jon Stamell is CEO of Oomiji – a platform, with European wine clients, that makes personalized connections between brands and their customers. Contact jon@oomiji.com to learn how Oomiji can help you.