Coronavirus quarantines stall China's high-end glass plants at critical time for US wine business

The human tragedy of the global outbreak of the novel coronavirus that has shuttered ports and factories across large areas of China starting in late January also came at a bad time for North Coast vintners that had been buying more bottles there in recent years.

That's because the first quarter of the calendar year is a big ordering season for smaller wineries that want to have glass in place in time for bottling in summer months leading up to the wine grape harvest, according to John Shaddox, chief commercial officer for North American glass operations at Ardaugh Group, the largest domestic maker of glass bottles for the U.S. market. Larger wineries tend to have longer-term agreements for deliveries of bottles throughout the year.

Since the shipment of bottles from Chinese glass plants at the end of January, embarking on ships in early February, Napa-based Global Package, a packaging design and sourcing firm for “middle market” wineries, was having trouble reaching factory personnel about new orders.

“Things are back in production again in China,” said Erica Harrop, Global Package president, on Feb. 21. “We're getting our emails, production and shipping organized again. But to have that in February when we're supposed to be scheduling for the summer, that was really hard.

“There are a lot of inquiries right now, and we're trying to guy people as fast as possible to make the best decision, so there is a lot of inquiries now about alternatives.”

M.A. Silva USA imports from Changyu Glass and Wendeng Wensheng Glass, two of China's largest wine bottle makers, as well as other plants in China. Because of the logistics route for its products, the Sonoma County-based supplier of corks, bottles and other wine packaging tries to plan for the time, resources and processes needed to have reliable deliveries, according to CEO Neil Foster.

“So far all of these investments have allowed us to maintain throughput and delivery timelines, through seasonal festivals and holidays, trade issues, and recently the impact of the Covid-19 outbreak,” Foster said in an email. “We are in constant communication with our customers and manufacturers across the globe, coordinating and planning, to ensure this year's bottling is as smooth as possible.”

He noted that the international trade situation also is a factor in flux these days.

The spread of the COVID-19 virus arrived after U.S. tariffs on Chinese goods such as bottles last year jumped to 25%. Then in October, the U.S. Department of Commerce announced investigations on whether to levy antidumping and countervailing duties on glass containers from China after petitions were filed by a group of U.S. manufacturers, whose members are Anchor Glass Container Corporation of Tampa, Florida, and Ardagh Glass Inc. of Chicago. Such exports to this country were estimated to be $370.8 million in 2018, and margins achieved by the foreign suppliers is alleged to be 40.45%-255.68%, the agency said.

The Commerce Department on Monday published in the Federal Register its preliminary finding of countervailing subsidies to Chinese glass suppliers of 22.6% to 315.7%. That sets in motion an order for Customs and Border Protection to suspend liquidation of entries (delay before the usual settling up of import duties) and collect cash deposits for the countervailing duty. Commerce has to make a final determination on that duty by mid-May.

The department is expected to make a decision on preliminary antidumping duties before the end of April, Shaddox said in an email.

And it's also coming at a time when vintners are pouring more resources into marketing, including changing up not just the bottle label but also the physical package itself.

“At least our client base is looking to buy up,” Harrop said.

Middle-market vintners are small- to medium-sized wineries that make under 100,000 cases a year of wine that retails for $25 to $50 a bottle. Over the past several years, more have been looking for alternative sourcing for fine wine bottles that are not on the upper end of heavyweight - over 1 kilogram (2.2 pounds) for standard 750-milliliter bottles - but have design features slightly upgraded from molds for bottles founds on many a store shelf, according to Harrop.

“But they're not radically different: not the skinny (bottle) neck, not the bowling pin, not the 3-pound bottle,” she said.

Foster said Chinese manufacturers tend to offer additional options such as price, custom molds, production runs and delivery timelines.

“Over the past five to ten years, enhancements in manufacturing technology, QA processes, and creative integration have brought North American wineries a new swath of options to consider,” Foster said.

By going to emerging markets for high-quality glass containers such as China, vintners have been able to get higher-than-standard-quality bottles for $8 to $15 for a case of 12 empties, or 53 cents to $1.25 a bottle, according to Harrop. By comparison, pricing on European bottles for fine wine can be $16 to $18 a case.

“Below $50 (per finished bottle at retail), you cannot afford glass that will cost you $20 a case,” Harrop said. That would work out to be $1.67 a bottle. “It wouldn't be good economic sense.”

But vintners as their brands get more established in the marketplace also have reasons for looking for alternate bottle sources beyond cost considerations.

“Regardless of sales or financial maturity, many North American wineries recognize the value of purchasing glass bottles that are manufactured in the U.S. in an effort to protect their brand and their business,” Shaddox said. “They know that purchasing from a U.S. glass manufacturer will allow them to experience a higher level of service and increased flexibility, as well as a stable supply of quality glass.”

But Foster has seen established “titans” of the U.S. wine business as well as new independent vintner of various scales and financial footing seek domestic, European and Asian bottle suppliers - wherever the best expression in packaging of brand value can be sourced.

“It's good to note that at our current production output thresholds, domestic manufacturers can't meet the demand of North American wineries,” Foster said.

Global Package went to Chinese bottle suppliers several years ago in creating the Elegant Light Line of lower-cost alternatives to popular European bottle styles: variations on the high-shouldered Bordeaux style commonly used for varietal wine made from varieties popularized in that French region, such as cabernet sauvignon and merlot, and the sloping-shouldered Burgundy style for pinot noir and chardonnay.

As North Coast vintners have matured in their market presence, they've been looking to “trade up” their packaging, Harrop said.

“ ‘Trading up' is not necessarily by weight,” she said.

Two new features one of her suppliers is offering are for vintners concerned about environmental impact and another for wineries wanting a more modern bottle look. Estal of Spain early this year launched the Wild Glass line of bottles that are said to contain nearly 100% recycled content, compared with the standard 40% to over 50% in conventional bottles.

“It takes a lot of energy to make glass, and the more recycled glass that is used there can be less energy used,” Harrop said.

The trade-off for high recycled content is variability of color in the glass and potential for blemishes such as small bubbles or washboard look, like what glass looked like about a century ago, she said. Though more recycled glass is used, the resulting cost of these bottles are higher ($16-$18 a case), because the production process is special and requires dedicated time on Estal's furnaces.

The first production run of Wild Glass bottles was in October, and another is planned for March. Europe is the first market for these bottles, but interest from large wine groups could bring the bottles stateside soon, Harrop said.

Ardaugh recently appointed a chief sustainability officer, John Sadlier, and is looking to accelerate its sustainability programs worldwide.

“We invest in our production facilities to ensure energy efficiency and a reduction in emissions,” Shaddox said. “We seek to optimize the use of secondary packaging materials and manage waste appropriately, by limiting the use of landfill and water usage.”

Foster said more vintners are seeking sustainable options for packaging.

“Many wineries are looking at the full consumption life cycle, focusing on the recyclability of their packaging program post-consumption, as well as upstream,” Foster said. “More are starting to look at additional innovative ways to drop their carbon footprint throughout the consumption cycle.”