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Soaring cost of glass bottles has some California North Coast wineries seeking alternatives

California North Coast vintner and wine grape grower Clay Shannon is looking for alternatives to his hefty glass bottles after seeing those costs rise 20% to 50% — if he can find them.

In the past year, the costs for bottles alone has added another $10 to $12 to each 12-bottle case for Shannon Family of Wines.

“That’s a kick in the teeth,” Shannon said. “And the availability is difficult.”

What his Lake County wine group has been experiencing is in line with glass bottle price inflation for other U.S. vintners, according to a Rabobank report released earlier this month. Pricing for the packaging is up by as much as one-fifth, though some producers have encountered much less cost pressure, wrote Stephen Rannakleiv, the report’s author.

By comparison, inflation for consumers was up 8.5% overall in March from a year before to a 41-year high, and inflation for manufacturers generally was up 11.2% annually in March by a record amount, according to the latest federal figures.

Higher prices for the empty bottles are partly an outgrowth of soaring fuel cost, itself one of five significant disruptions in the global wine supply chain since mid-2021, according to Rannakleiv, a global beverages strategist for RaboResearch. Higher fuel prices come on top of big jumps in freight costs, which reached a head last fall as demand rebounded from the pandemic faster than the supply chain. The other challenges have been labor, crop production and geopolitics, he wrote.

Natural gas is a key fuel for glass furnaces, and in the weeks since the Russia-Ukraine conflict flared up, prices for natural gas in Europe, a key source for high-end bottles, have jumped by 550%, the report said. Fuel has accounted for 10%-20% of the cost to make bottles in the U.S. and 30%-40% in Europe. The countries caught in the conflict are also a key source for aluminum, from which screw cap bottle closures and certain capsules are made.

Rannakleiv told the Business Journal that a bottle producer in Spain had seen a 1,200% increase in its natural gas cost in 2016-2020, forcing the supplier to double its prices. Because of the higher proportion of glass cost in cost of goods sold for European fine wine producers, that bottle price hike hits them harder than it would for that glass coming to the U.S.

“Europe exports much of what it produces in high-end wine all over the world,” Rannakleiv said of Old World vintners. “If cost of glass is up by 50% and freight costs have gone through the roof, how do you maintain export volume around the world? Maybe there will be a discussion that to survive with the most expensive glass in the world they may not need to ship glass around the world.”

Some vintners have talked about raising retail bottle prices because of the rapid rise in costs. Executives at The Duckhorn Portfolio in Napa Valley discussed such a move during an analyst conference call late last year.

The maker of the Duckhorn, Decoy and Kosta Browne brands told the Business Journal that grapes are the most significant cost of goods it faces, but that is layered into its pricing strategy up to three years back. However, the company has seen an increase in cost from its glass bottle maker, so Duckhorn has factored in its existing bottle inventory and doesn’t expect the bottle increase to be reflected in cost of goods for the majority of the current fiscal year.

“In response to the current sustained inflationary interval, we are accelerating the timing of certain planned price increases,” CEO Alex Ryan wrote in an email. “This said, we have a thoughtful pricing strategy for our wines that is designed to enhance the long-term growth of the business while maintaining top-line momentum. We do not expect to deviate from this long-term strategy, although the timing of some of those increases has been and may continue to be hastened by the broader environment and our goal of keeping a healthy margin profile in line with our cost structure over time.”

In the report, Rannakleiv advocates for exploring lightweight alternative packaging and moving as much as the supply chain as possible closer to the consumer. Doing that could reduce costs and help reduce a winery’s total greenhouse-gas emissions, something becoming increasingly important to retailers and consumers.

“Wineries are often faced with the choice of economic sustainability or environmental sustainability,” he said. “If oil prices are going to be structurally higher going forward, then maybe they can balance reduction of greenhouse gases with financial sustainability.”

Shannon already has been looking into lighter-weight glass bottles because European markets have been requiring such moves. That could also help with increasing the number of cases that can be hauled by truck to stay under highway weight limits and helping distributors and retailers to increase worker safety, he said.

“Our goal is to get under 500 grams per bottle, which is pretty significant,” Shannon said. Just a decade ago, makers of fine wine were moving bottles up in weight — closer to or even over 1 kilogram — as part of the marketing of a luxury product. “We can’t do that overnight. We have inventory and materials we ordered for a long time because of the shipping crisis.”

Right now, Shannon Family of Wines is also looking into alternative packaging such as boxed wine — a plastic sleeve filled with 1.5, 3 or more liters of wine and finished with a spigot and packed inside a cardboard box.

“We’re trying to find something that’s compostable,” Shannon said.

Boxed wine has historically been seen as packaging for lower-priced wine, often for brands that would sell for under $10 per standard 750-milliliter bottle. But just as wine in aluminum cans has made the move from low-end novelty to a go-to container for more premium wines targeting younger adults, some are seeing an opening for fine boxed wine.

Tablas Creek Winery in California’s Paso Robles region earlier this year announced it would be test-releasing in a 3-liter box an amount of its Patelin de Tablas rose wine that would normally retail for $112, or $28 a bottle, General Manager and second-generation owner Jason Haas said on the xChateau podcast April 7.

But with much less packaging cost, the winery offered it in a test to its club members for $95, or $60 more than a previous 3-liter box high price mark in the industry, containing $7.50-a-bottle wine.

Tablas Creek transferred 100 cases of the wine into roughly 300 boxes, and they sold in four hours.

The winery has been a recognized advocate for regenerative agriculture, which among other practices seeks to use methods such as sheep grazing to control weeds and rebuild soil nutrients. Tablas Creek had moved to lighter-weight bottles in 2010, shaving 10% off its carbon footprint. It estimates that boxed wine could reduce the footprint from packaging by 84% and the operation’s whole impact by 40%

But Haas said on the podcast that ultrapremium boxed wine would be a hard sell at such prices in distribution.

And Rannakleiv told the Business Journal that feedback he’s received from vintners about bag-in-box for high-end wine would be a tough sell.

“You can’t force bag in box and these things on consumers,” he said. What Tablas Creek did well in that regard was to have a conversation about this move with its club members.

Back in Lake County, as Shannon ramps its bottling line back up to meet demand from reopened restaurants for wine by the glass, the company is filling its own kegs to use at the tasting bar in The Merchantile, its new wine shop and store in Kelseyville.

And installing keg taps has roared back to life for Tap’D Solutions, a division of Sonoma-based Free Flow Wines, amid pandemic reopening of on-premises consumption venues, according to CEO Rich Bouwer.

“We’re getting more calls for installs in restaurants and tasting rooms for wine and beer,” Bouwer said.

The company’s canning business has picked up too, after passing 1 million cases produced last year. That’s expected to rise even higher as contracts come in to replace bottles with aluminum cans for wine on airlines, Bouwer said. The latest is for The Wine Group to put cans of wine on Delta flights.

Jeff Quackenbush covers wine, construction and real estate. Before coming to the Business Journal in 1999, he wrote for Bay City News Service in San Francisco. Reach him at jquackenbush@busjrnl.com or 707-521-4256.


Update, April 14, 2022: Comments from Alex Ryan, CEO of The Duckhorn Portfolio were added.

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