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.
