A paper published by the Craft Wine Association[1] shockingly demonstrates that American wines are being pushed out of the marketplace in favor of imported wines.

The three-tier system which prides itself on offering diverse product offerings is skewing towards imported products at the expense of American wineries.

The report contains many shocking details such as Southern Glazer holding 60% of their SKUs from outside the United States, Wine.com’s, the largest online U.S. retailer, inventory consists of 70% of their wines from outside of the U.S. and Total Wine & More’s SKUs consist of 56.5% of product from outside the U.S.

From these stats, it can be deducted that some of the major players in the three-tier system are skewing their offerings toward foreign producers at the expense of U.S. wineries.

The U.S. producers, mainly the small and limited production wineries are at a disadvantage compared with their foreign counterparts, many foreign wineries are equipped with large marketing budgets.

What the aforementioned stats demonstrate is it is getting harder and harder for small American wineries to get retail shelf space through the three-tier system. According to the report, from 2000 to 2022, foreign imports to the U.S. increased 220%, nearly all of the growth due to sales through the three-tier system.

With the flood of imports, the impact is being felt in the U.S. market. Since 2013 there has been a 14% decrease in U.S. vineyard space, which means wine real estate is disappearing. As 97% of American wine producers are small to limited production wineries, a lack of shelf space for small American wineries will only enhance this problem, and the beneficiary of disappearing American wine real estate and other resources will continue to be foreign producers.

What is the solution?

The goal of the wholesaler is to deplete its inventory and sell everything out. Their choice is skewing towards offering more foreign wines. Why, because the foreign wines offer greater marketing resources and with no tariffs on wine from many foreign countries in Europe, the importers can import the wine at a relatively low cost. With bigger marketing budgets backing foreign wineries, it becomes difficult for small U.S. wineries to compete across the board.

The small U.S. wineries lack the marketing budgets and live in a different world. When was the last time you went to the liquor store and saw aisles broken down by country such as France, Italy, and Spain? When was the last time you went to the liquor store and saw aisles broken down by Michigan, Ohio, and Kentucky? With so many states producing wine in the U.S., the category is more fragmented.

There are two solutions towards helping U.S. wineries. 1. Make foreign wines more expensive and less attractive and 2. Provide more opportunity to U.S. wineries.

The first solution would revolve around making foreign wines more expensive, which would mean maintaining higher tariffs on foreign goods. The U.S. in the past has imposed tariffs on Chinese steel companies for dumping cheap products into the market.

This solution does not seem adequate, the anti-dumping actions were in response to a gross distortion of the marketplace by Chinese manufacturers. The same does not exist here. Further, artificially higher prices on foreign wine would only hurt consumer choice and the retailers that sell foreign wines.

The second solution is to create more opportunities for domestic wineries. DTC shipping has helped many wineries and their tasting rooms add to increased revenue. However, more must be done and restrictive state markets must open up.

In many states such as California, buoyed by wholesaler lobbying power, an out-of-state winery cannot sell its products to a retailer, while the in-state winery can be afforded this privilege. And in some states, wineries are not permitted to self-distribute their products to retailers whatsoever.

As the wholesaler lobby is strong, one should not expect a change in laws anytime soon. Remember this is the same lobby that fought for years to block winery shipping and only a U.S. Supreme Court victory in Granholm forced their hand. They will try their hardest to block enhanced market access to wineries that they will not even bother to serve.

But the irony of the whole situation strikes me as quite odd. The same industry, liquor wholesalers, that is providing increased shelf space to foreign wineries at the expense of American wineries, is the same industry that wants to block a lifeline for these American wineries potential survival and growth.

If we believe that the small American winery is an important part of America, then the laws should do everything it can to provide them opportunity and growth.

One shouldn’t dictate consumer and market choice, if foreign wines are preferred based on consumer choice, then let the market decide this. But when laws could change to advance the interest of American wineries without manipulating consumer and market choices, and when the states decide to maintain a hurtful status quo to appease powerful liquor wholesale interest, one must ask how important is the problem of the continuously shrinking American wine industry!

[1] [1] https://craftwine.org/imported-wines-are-taking-over-the-american-market/?utm_source=substack&utm_medium=email; All facts and figures are taken from this Paper