Prescient bureaucrats in the health and excise departments are colluding to again raise taxes on wine to make up for revenue shortfalls created by their refusal to consider simple changes in the tax formula, which would yield multiple times the amount currently being collected.
Their rejection of Hong Kong’s eminently successful strategy on alcohol tax only feeds suspicion that once the cancer of corruption takes hold it cannot be excised, pun intended.
The second blow to consumer’s cash is creeping global inflation and its effect on the cost of producing wine. Until recently, a small family run winery making 300,000 to 500,000 bottles annually could break even by selling as much as 75 per cent of their wine in low price categories to assure cash flow for operations, while the remaining 25 per cent could be aged and sold at higher rates to provide a profit stream over the next two to five years.
Now increased costs of labour, packaging and equipment have narrowed profit margins in low price categories to the point where smaller wineries either raise prices or sell out.
Consolidation of many these independent wineries under international corporate beverage giants such as Diageo and Constellation has saved money in low priced production, but now even the big boys are wincing at increased costs. Family-owned low price giants like Gallo and Franzia Brothers in the US and Casella Brothers in Australia are faced with the same dilemma and have had to look at alternative means of profitability.
The Gallo’s entered the premium market years ago with multiple labels, while the Franzia’s famous “two buck Chuck” Charles Shaw varietals are now US$5 a bottle.
The Casella’s, who gained financial success with their Yellow Tail brand of Aussie varietals, are introducing new labels priced double or triple that of their low end market leader.
Chile’s successful Anakena winery, whose brands are best-sellers in Southeast Asia, announced they will gradually cease competing in low price markets rather than pursue costly expansion.
Instead they will maintain current production levels but focus on the premium market with upscale packaging and longer cellaring. Refrigerating a small room and buying now may be the average income consumers only hope.