Lower euro = lower wine bill? Guess again

eur usd 5yr

The euro hit $1.28 this morning, down from $1.51 in December. Does the lower euro mean that European wines are likely to get cheaper on store shelves soon?

While European travel will definitely be cheaper today than it was six months ago, wine importing doesn’t always work like that. (As a backgrounder, I examined wine and currency hedging when the dollar was headed the other way a few years ago.)

I tweeted about today’s currency situation and importer Jon-David Headrick replied in two tweets, at first joking, “This is our big chance to raise Cour-Cheverny prices by 30%!” (Cour-Cheverny is a tiny Loire appellation making wines from the obscure romorantin grape variety.) He elaborated: “Prices should fall unless importers have made the time-honored “when the euro falls you can raise prices” deals with producers…”

For a longer reaction, I put the question to Victor Owen Schwartz of VOS Selections who has been importing and distributing European wines–including Greek wines–for 23 years.

Yes it is low today but you know it doesn’t make sense to price one’s wines on the lowest spot rate of the day; what happens when it shoots up, do we just raise the prices? the market would love that! The level of volatility in the euro has been terrible, it’s a moving target. As you say, it has been over 1.50 in the not so distant past so if I am buying wines today and paying in 60 days or so, where will the euro be then? All that being said, with everything that is going on in Europe, starting with Greece, I believe that the basic metric of the euro assumption of importers will be decreasing. Now will that translate into lower prices on the shelf? My sense is that the wholesale trade will use the extra margin to make better buying opportunities for their retail and by-the-glass customers (volume deals) but not necessarily lower their prices. In these cases from what I have seen, some restaurants and retailers pass on the savings, some keep it. Don’t forget that #1, we are coming off of some rather lean years and #2, we are all selling less expensive wines so we need to make money somewhere.

As to the Greek situation, he said that “the impetus for exporting will only be that much more important.”

Hit the comments with your thoughts on the situation, especially if you are in the wine trade.

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8 Responses to “Lower euro = lower wine bill? Guess again”


  1. Well If you import the wine and pay at 1.50, then you can’t really lower the prices until the next time you buy at 1.30. Which is the best part of being in a Wine Club/Society here they pass the savings on, they have a listed price and if the Euro/USD change we get a credit towards buying more wine!


  2. I remember when I could buy Chateau Ducasse Bordeaux Blanc for $12. Sadly, it is no longer that way and I doubt it ever will be again. Entre-deux-Mers, anyone?


  3. C’mon, guys–this is a non-issue. Every business involved in other currencies has to make best guesses about where exchange rates will at some future date, and the smaller or more marginal they are the more cautious they will be. In times of extreme volatility, those with long-term contracts can win, lose, win and lose again–on paper–before the exchange rate on payday settles the issue.


  4. [...] Lower euro = lower wine bill? Guess again [...]


  5. Well, the lower the euro the easier for us Saffa’s to travel… However, on a wine front South African wines have been doing so well in the EU/UK recently that the drop in currency may encourage wino’s to revert… we’re not finished yet and we have a whole lot more to show. So while the euro is still mightier than the rand, we hope to keep our South African wines mightier than the F… :)
    Enjoy your blog, will keep reading

    Regards
    Jen@cybercellar
    http://www.cybercellar.com


  6. As a long-time though now former importer and distributor, my experience – shared by at least most of my former colleagues and competitors – is that the volatility of the Euro-US$ exchange rate makes planning ahead and successfully serving one’s customers very difficult unless one purchases Euros as futures and exercises the nowadays numerous opportunities banks offer to “roll over” or otherwise extend the life of currency contracts. That being the case, a) the value in dollars of Euros with which an importer is currently paying his or her bills to European suppliers won’t reflect the current exchange rate; b) most importers will endeavor to adjust prices only moderately in response to currency fluctuations, reflecting the smoothing out or buffering of sharp fluctuations that is one of the intended benefits of purchasing currency futures. Naturally, spot purchases and discounting could also be useful tools, especially given some of the Euro’s current lows and especially if what’s being sold is particularly time as well as price sensitive, such as perhaps 2009 vintage French rosés might currently be.


  7. Naturally, a SUSTAINED change or trend in exchange rates should and almost inevitably will call forth a corresponding adjustment of prices, and if the Euro’s current level vis à vis the dollar continues or drops over the coming year, that will indubitably have a positive effect on the pricing US consumers see for European wine, though as long as there is world-wide economic distress, the effect of discounting at whatever level – whether by grower,importer, distributor, or retailer – is likely to be more significant than that of exchange rate, especially as long as merchants are anxious to lower their inventories and are chary about refilling their pipelines with high-end wines, just as growers are anxious to cajole them into so-doing.


  8. Interesting blog, congratulations. I’m broker in wines and concentrated grapejuices in Argentina , San Juan ; nice to get in touch with you and let me know about your interest in imports these products.
    Cordially
    Arturo (@arguti10) twitter


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