Top U.S. wine executive: Let’s make wine so expensive no one will be able to afford it

tax wine
“Buy California wine — or else!”

No, that’s not a Wine Curmudgeon joke – it’s a proposal by the man whose company makes Kendall Jackson chardonnay

No, this isn’t a Wine Curmudgeon April Fool’s post. It’s as true as it is unbelievable: A top U.S. wine executive wants to tax wine so that most of us can’t afford to buy it.

Rick Tigner, the CEO of Jackson Family Wines (home to  the legendary Kendall Jackson chardonnay), told a wine industry meeting last week that California can no longer afford to produce cheap wine. Hence, the federal government should tax wine imports because “we need a better, higher pricing structure.” In other words, $10 European, Australian, New Zealand, and South American wine should cost as much as California wine — because, of course, California wine.

Yes, that was my reaction, too. Wine consumption is flat and young people don’t seem particularly interested in it. So the man who runs one of the most important wine companies in the country wants to make wine even more expensive? That makes tremendous economic sense, doesn’t it? Let’s price wine out of the reach of most consumers, and our business will be even more successful.

The story was so incredulous that I almost called the reporter who wrote it to ask him if something had happened during Tigner’s speech. Was Tigner struck by a bolt of lighting? Was there an invasion of body snatchers? Does he have one of those evil soap opera twins?

I wasn’t the only one who was dumbfounded. A European wine analyst told me she was surprised a leading wine company official would say something like that. A Napa wine marketer said it was just one more example of California arrogance — because, of course, California.

Tigner overlooked two things (besides the most basic laws of supply and demand):

First, 95 percent of U.S. consumers won’t pay more than $20 for a bottle of wine – perhaps my favorite wine statistic, courtesy of the Wine Market Council. So who is going to buy all the expensive wine that tariffs will give us?

Second, Tigner can complain that other countries tax California wine unfairly as much as he wants, but that’s irrelevant. U.S. wine exports measured by cases (mostly from California) are insignificant – barely more than 10 percent of what we produce each year. That’s because we drink almost all the wine made here, so there isn’t much left to sell to the French (assuming they would want it). In fact, U.S. wine exports are so trivial that two of our biggest markets are Nigeria and the Dominican Republic, countries not usually associated with wine culture.

So, no, taxing my $10 Gascon white blends, Spanish cava, and Italian red blends won’t save the California wine industry from itself. The only ones who can do that are part of the California wine industry, which tells us everything we need to know about how that will turn out.

8 thoughts on “Top U.S. wine executive: Let’s make wine so expensive no one will be able to afford it

  • By MItch Mackenzie -

    You missed the whole point. It’s not that we want prices to go higher so people can’t afford imported wine, we just want a fair playing field. The French and Italian government subsidies the wineries and growers in their countries. That makes them able to make wine at an unfair price advantage. That’s why we have a import business that has now 40% of the American market. The wine I sell the most of is around $19 and is from Mendocino grapes so I am not this arrogant winery with a $65 price point you seem to be angry at. My margins are very low and I have not increased prices in 10 years. Why should “Yellow Tail” be able to import wine from Australia with no tariffs when my $19 wines over there would be priced at $80? I would be all for having no tariffs on any countries but we can’t compete against subsidized wines on price. Many of these countries that brag about exporting 90% of their wines to the US don’t buy any American wines and have tariffs to ensure that. Don’t you think it would be better to have a fair game where American wines can complete? If this noncompetitive practice continues you will lose American jobs and wineries that are playing fair but having their hand tied behind their backs. I don’t think that is good for the wine business no matter where you make it. Competition is a good thing in all fields but both teams have to play by the same rules or it’s not a showing of skill of making a great wine at an affordable price. Is that not what we all really want and need?

  • By Mike Dunne -

    Well said, Mr. Curmudgeon. Even as a Californian I was taken aback by the overall thrust of his comments and the weak documentation to support his perspective.

  • By Shon Record -

    If what Mr. Tigner says about not being able to afford to make cheap wines is true, then I simply ask, “Why? Where is the revenue going?”.

    While it may be fair to say that other countries impose tariffs that discourage US wine sales in those countries, making all wine more expensive here at home doesn’t seem to be a great answer. If wine consumption is flat, making it more expensive would just drive more people away and take consumption into negative areas. Cheaper wines help welcome new consumers and help people transition to different wines. These wines should remain a staple within the industry no matter where their origin lies.

    Unless US wineries are just pouring out wine before it makes it out of their warehouses, I’m not seeing a lot of back vintage issues out there in the under $20 category. The wines are selling. Any winery would like faster sales, but you’re in a highly competitive global market with a commodity that has very little brand loyalty (wine has lower brand loyalty rates than liquor or beer but ironically KJ has some of the better rates in that field).

    So again I have to ask why. If you’re products are selling and mostly consumed in this country, where is your revenue being soaked up? Perhaps you should look at addressing that issue before you suggest that your revenue providers (the consumers) be asked to reach deeper into their pocketbooks. Historically speaking asking consumers to do that has rarely produced the results you want.

  • By James -

    Inflation hidden behind premiumization via taxation, har har har.
    Oh, california.

  • By Mitch Mackenzie -

    How would Mr. Record feel if the shop down the street got the wine for less than him? How about $5 a bottle. Would he say that was OK? That guy got a better deal so good on him. Everyone would say how come you don’t have the wine as cheap as the shop down the street? They would say: In his words “Why? Where is the revenue going?” That is the point guys that you are all missing. It has to be a fair playing field. If you read my article before I said my margins are very low. They are, and US a business can’t be expected to compete with subsidized business from other countries. That is unfair competition and no we are not all rich. A lot of small wineries will go down through unfair competition practices. OK. So be it with wine shops that don’t get the same fair deal on price.
    I don’t want to kill imports by tariffs. I don’t like tariffs. I just want an even playing field were the value and quality of the wine wins out over government dumping and cheating in the marketplace.
    As I said before:
    “Competition is a good thing in all fields but both teams have to play by the same rules or it’s not a showing of skill in making a great wine at an affordable price. Is that not what we all really want and need?”
    What is wrong with that everyone?

  • By Robert Shields -

    If you feel that if old world wine producing country’s are subsidising their wines WHY oh WHY don’t you go after your government to provide subsities so you can compete on this level playing field you keep mentioning. I shouldn’t have to pay for YOUR expensive acerage of Napa and the gigantic estate buildings that you put up. Just make a good bottle of plonk at a price I can afford on my budget. Simply said.

  • By Shon Record -

    Mr. Mackenzie I don’t believe that anyone has missed the point about having a level playing field. The objection is the method suggested for making it “level”. But if we are going to throw scenarios out there, let me put one out there for your side of the argument and see how you would feel.

    My home state of Texas has made many strides in winemaking over the years. As a result the wines here are in higher demand. But this comes at a time when there’s not nearly enough acreage of land under vine to support this demand. One of the drawbacks to this is that a Texas wine, made from Texas grapes, tends to be on average twice the price of wines of the same varietal coming out of California and other countries.

    What if we as a state were able to say that we wanted to put an extra tax on California wines, making them less accessible, in an effort to level the playing field with Texas wine sales? Would that be fair to the consumers of this state? How would California react?

    Of course this wouldn’t happen. I’m just making a point. The broader point being that using consumer’s wallets to level the playing field isn’t necessarily the answer.

    Perhaps I was to vague in my original question about where the revenue goes. It was not intended to insinuate that California wineries must be wasting money. Labor and production are huge expenditures in the winemaking business. That alone can run margins thin. Combine that with taxes, regulation costs, and no subsidy help from the government and it becomes a huge uphill battle for small, independent wineries. But making all wine more expensive through taxation likely wouldn’t help.

    Many of these other countries that subsidize their wine trade have wine deeply embedded in their culture. Their governments do this because wine trade as a whole is very important to them. The task for you and other wineries is to convince our government that it’s just as important here and worth the subsidies. What are we as a people subsidizing now that is antiquated compared with our current culture? Could winemaking replace one or more of those?

    My apologies if this has turned into more of a ramble. I’m coming from the perspective of 20+ years in this industry with experience in the retail, distribution, and supply sides. I’m not unsympathetic to your woes. I just question, like many others, if taxation is the answer and am concerned that using such a tool would do more harm than good.

  • By Mitch Mackenzie -

    Mr. Record. I think I understand your position better now and I think you make some good points. You tried to look at both sides in your response and I appreciate that very much. It was not a ramble in my book. Usually most correct answers are a combination of both sides and I think we both struggle with this.
    I guess my side is I see the amount of momentum that the imports have in the market place because of price. I worry about survival. I have to compete against them here but I do not need to sell in their country. I just used that as a point to demonstrate the unfair trade balance in wine. Part of the economic argument but a different issue.
    I like your example of the Texas wines. It made me think. Maybe wine was not meant to be successful in Texas because of the land restrictions. It’s too expensive to make. We have lots of good land to grow grapes in CA so we have as you said an advantage. You certainty have no problem with Cattle or Oil. Cattle doesn’t work for us because the land here is too expensive. We slowly in many areas stopped farming cattle so you won that one fair and square. However, Suppose Saudi Arabia tried dropping Oil prices lower than you could produce it for. I feel like we would have the same argument about it but maybe not. Maybe Texas would just realize that it can no longer compete in the world oil market and stop. I have a feeling that a lot of pressure would be put on the Feds to do something and with that much money around, it would be done.

    I guess if all were equal I would agree that we (CA) need to bring our costs down to be competitive or go out of business and that is how capitalism works. That would take years for the prices to adjust. It would also take years for the government to start subsidizing if at all. In both cases the damage would be done and most small wineries would have perished.

    I just don’t know how to bring our costs down that low given the price that I see the foreign wine come in at with the subsidies they get. I don’t think we can convince CA to give us more money in subsidies. They are certainly willing to tax us more:>) Does CA have a good name justifying more money? In some circles yes but in the ring of greed, foreign wine wins. If a restaurant can buy a bottle of wine for $4 vs $12 for a CA wine and charge the same price per glass, we lose with that kind of price difference. So really there are only three choices, small CA wineries go out of business, we find a way of lowering costs (including unlikely subsidies), we make their wines more expensive in tariffs equal to the subsidies. If you have another answer for how we can fix this, I am all ears. Maybe we are just doomed to go the way of the Dodo bird. It just doesn’t seem fair that they get a cost break and we don’t but we are expected to match price.

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