Diners already complaining about “tip-flation” and inflation may be in for a shock if their favorite glass of cheap vino starts selling for the price of a rarified vintage. Meanwhile, restaurant owners and importers worry people may just stay home, which could ruin an already unstable wine industry.
The Trump Administration on April 2 slapped a 20% tariff on goods coming from the European Union, but earlier threatened as much as a 200% tariff on wines. And while earlier threatened tariffs have been rescinded or reduced, uncertainty has led to a lot of stress in the hospitality industry because they say that a 200% tariff will put many of them out of business. Even a 20% tariff will be hard to swallow.
“This is a troubling and personal thing for my family. I’m in the restaurant business, and my wife is in wine sales. It has the opportunity to put her job at risk,” said Kenny Lyons, vice president of the Neighborhood Dining Group, which owns Marbled & Fin, Husk, Minero, the James and the Delaney Oyster House.
“As for my job, I don’t think people understand the significance of how it’s going to affect our business. Guests are going to come into a restaurant looking for Sancerre or Pinot Grigio. You expect it to be $10 a glass and now it’s going to have to be $30 (with a 200% tariff). That’s just not a sustainable situation for restaurants.”
“You’d be crazy not to be concerned,” said celebrated local chef Jason Stanhope. “This is only going to drive the cost of dining up. The reality is, the consumers are the ones who are going to feel it.”
Uncertainty is part of the problem.
“We’re all just trying to figure out what’s real and what’s not real. Tomorrow this could all go away, or it could become a nightmare,” said Mike Lata, chef and co-owner of FIG and The Ordinary.
Lata said his restaurants source locally for food, but that becomes an almost insurmountable challenge when it comes to wines because of South Carolina’s climate.
Razor-thin margins
Champagne, which is French, and other wines form the profit backbone of the restaurant industry. Most agree the food side of the menu makes little profit.
“The margins are so thin already, so that’s going to put pressure on other systems in the restaurant,” said Andy McLeod, Fleet Landing’s executive chef. “Labor and food costs become more important. Alcohol is typically the biggest margin. (With tariffs), some of that would have to come back to the consumer and guests, unfortunately. I think you’ll see menu prices going up a lot.”
Alcohol tariffs will be another blow to an industry already teetering.
“The average cost to operate a restaurant has gone up between 25% to 30% since the pandemic, but at most you’ve seen a 10% increase on menus,” said Susan Cohen, president and CEO of the S.C. Restaurant and Lodging Association. “Restaurants average a one-digit profit margin. Around 97% of diners are using credit cards, and restaurants are paying about four percent in credit card processing fees. And then a lot of restaurants are just hanging in there trying to compete with the wage war. Everybody’s just exhausted with the increased pricing of everything we have these days.”
A three-tiered system
But restaurants are just one part of a three-tiered system to get wine to consumers.
When Prohibition was repealed in 1933, the 21st amendment to the Constitution established a system of importers, distributors and, finally, consumers or restaurants. This was supposed to give states more control over regulating alcohol. But what that means in practical terms is that tariffs will affect a whole line of businesses, not just restaurants.
“My immediate concern is that this would be a business-altering, family-altering-sort of bill for us to have to pay,” said Harry Root of Grassroots Wine, who said about 60% of the wines he sells comes from the European Union. “There’s not an option not to accept the wine coming in because you’re contractually obligated to it. Medium term? With so much uncertainty, we’re unable to confidently order the product we’ve built our 25-year-old business on.
“The European product that our customers choose to serve their patrons would categorically become unavailable There’s no remedy or room in the import business to eat those costs, so they would be passed directly to the restaurants we serve and subsequently to the consumers,.”
It’s not just a matter of canceling orders. Many importers like Root ordered wine months ago. The wine that will be slapped with a tariff is already on its way here.
“For our business, we’d be looking at a tariff in excess of $600,000 just for wine already in transit that we can’t stop,” Root said. “So for a small business that employs 25 people in the state of South Carolina, that would be devastating.”
“Buy American” won’t help
Some may say everyone should just “buy American” when it comes to wine. But it’s not that simple. Restaurants that specialize in cuisines from Europe have wine programs that mirror their menus.
“It would be odd to have a French restaurant without French wine. I don’t even know how you’d do that,” said Steve Palmer, CEO of the Indigo Road Hospitality Group.
Root agreed, saying, “We’ll see European wines becoming inaccessible. And, subsequently, restaurants would lose the opportunity to serve the wines that fit the needs of the culture.
“You can’t very well have a tapas restaurant without Spanish wine, and these wines will literally triple in price. That’s going to mean less business for the restaurant because the consumer is not going to pay that much.”
Lata added, “There’s simply not a diverse enough domestic supply of wines, both in variety and value. Old World styles are a big part of our business model. It’s not like steel. We make steel in this country, so we could get American steel. But wine is about the terroir. There’s plenty of decent stuff in the States, but they don’t come at the same price,”
That price differential is something most people don’t realize. There are plenty of affordable wines like Prosecco or Pinot Gris coming from the European Union, where viticulture is a multi-generational tradition and winemakers have presumably paid off their startup costs long ago. These wines can be less expensive than American wines.
But American wine producers also count on exporting to Europe, where they will be hit with retaliatory tariffs. Furthermore, they will lose access to distributors like Root, who would no longer be able to stay in business and sell their wines.
“We represent about 80 domestic producers,” Root said. “Any tariffs, but especially 200%, jeopardizes our business. If we fail, all 80 of those producers lose access to the market.”
Pivoting is new normal
If Covid taught the restaurant industry anything, it’s about how to scramble and juggle in dire circumstances. Many in the industry are already looking ahead and trying to plan.
“I think we’re going to try to pivot as much as we can. Our wine-by-the-glass program will probably shrink because it won’t be realistic to have as many wines by the glass,” Lyons said. “This is going to require us to have some dialogue with our guests.
“They will not understand why these wines disappeared off the list: ‘What do you mean I can’t have Sancerre or Pinot Grigio, and you only have Pinot Gris from Willamette and it’s 200% higher in price?’ I don’t see any way else but to have that dialogue and see that they understand.”
Palmer added, “I think there will be some trial and error for sure. Maybe you skinny up the list and find more value-oriented wines. At the end of the day, we’re going to try different things and let our customer tell us what works and what doesn’t.”
Max Kuller, owner of Estadio, said he’s lucky to be small enough to buy smaller quantities at a time, and that his first option is to stay loyal to his suppliers, but he might “get creative” with sourcing his wines.
“There are a lot of smaller distributors who want to get a foot in the door and have wine in their warehouses,” he said.
Root said he is actively lobbying through the U.S. Wine Trade Alliance, which he helped found right before the pandemic. The nationwide group has about 5,000 members, including importers, distributors and some restaurant groups. Root has visited South Carolina’s senators in Washington twice and expressed optimism that they understood the implications of the wine tariffs.
“This tariff has a great argument for its inefficiency and there are clear and obvious reasons why (wines) should be removed from the tariffs list,” Root said.
Kuller said he hopes people will push back against the tariffs.
“I hope people are going to be furious and say, ‘We want wine at reasonable prices!’ and there will be pushback and things will change,” he said.
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