Generally, we are seeing modest price increases. Some wine prices have not changed at all and a few have gone up nearly 40% (mostly prestige labels like Termanthia from Spain and Qunitarelli from Italy along with top rank Bordeaux and Burgundy producers). Prices cannot be kept down much longer on many European wines and it appears the dollar will continue to be weak in the foreseeable future. Some estimate the dollar will fall to as low as $1.50 to the Euro (versus $0.84 three years ago!).

Furthermore, Americans are developing a thirst for good, inexpensive wines from Australia and other areas like Chile, Argentina and South Africa. Their currencies have not appreciated nearly as much against the dollar and the overall quality of wines around the world has improved tremendously over the past 5 to 10 years. Americans are seeking better values in domestic wines, too.

Since wine is a highly discretionary purchase, the double-whammy of the weak dollar and strong competition, especially from Australia, has put tremendous pressure on the European-related wine trade. Their major ace-in-the-hole is that nowhere else has anyone been able to duplicate the complexities and subtleties of fine European wine. For discriminating palates, there is no substitute for a fine Bordeaux, Burgundy, Champagne, Amarone, Brunello, Port, etc.

One final factor is the string of highly rated vintages in Europe over the past five years. The high ratings have caused prices to skyrocket for 2000 and 2003 Bordeaux, 2002 Burgundy, 2000 Barolo, and 2001 and 2003 Rhone wines.

What is the wine trade doing? How are fans of European wine adjusting their purchase habits?

Well, basically most of the importers and producers are absorbing much of the exchange rate costs by lowering their margins. Medium to small producers are hit especially hard since they depend on the American market to buy their wines. Many small Bordeaux producers are in financial trouble, often having to sell their wine for less than it cost to produce!

We have not seen large price increases - yet - on European wines because the trade has been absorbing much of these exchange rate-related costs. Profit margins are thin at present so at some point greater costs will translate to greater price increases. Small boutique importers have already increased prices because they do not have volume leverage. Larger importers are splitting the cost differentials with their producers but this has been going on for two years already. If there are middlemen between the producer and the importer, as is the case in Bordeaux, higher margins result and, therefore, prices increase accordingly. The much-vaunted '03 Bordeaux vintage is seeing futures prices on second growths approaching the $200/bottle stratosphere. The producer sees little of this; the spoils go to the middlemen brokers. So the upward pressure on prices will continue, especially for the prestige labels and highly rated wines.

Distributors are sitting on large, unsold lots of costly wines like 2002 Burgundies. One distributor told me "while we cannot do anything to turn the economic conditions that affect the dollar and euro, the supply and demand laws still apply. The growers, wineries and importers all know that if push comes to shove, they have to lower prices to keep the consumer interested and happy buying their wines. The questions these producers have to struggle with is how much and how soon do they start discounting. It is very tricky. As we have seen, some producers (wineries) have said 'no', and are just not represented/available any longer in our market. Others are trying to be attractive, without looking like they are dumping their 'precious' wine. "

Producers of pricier wines may have to swallow hard and re-price downward or re-position or re-label in order to sell them to the American market. Yesterday I met several producers of Chateauneuf-du-Pape, a prestigious appellation in the Southern Rhone valley. They were very concerned about slow sales in the US, yet 2003 Chateauneuf is much more expensive than the 2001's. Terrible storms during 2002's harvest cost many their entire crop of their top wines so they took heavy losses. These producers, and their importer, claim that their profit margins are too thin to keep prices at last year's levels.

Savvy consumers are adapting to this challenging wine world. Some are stocking up on "off- vintages". Others are buying the better Bordeaux estates' second wines, usually younger vines wine from less desirable parcels of the estate vinified like the grand vin. Many lovers of European are buying fewer bottles of their favorite wines. Most are switching to wines from the "New World" - Australia, Chile, Argentina and, of course, the good ol' USA. This latter trend is especially strong within the wine market's lower-mid tier, wines retailing between $6 and $12 a bottle. One of the world's most successful new wine brands, Yellow Tail, is from Australia. For this reason, some traditional European vintners are diversifying into New World wines from Australia (Rhone's Chapoutier), Chile (Bordeaux's Baron Rothschild), and Argentina (Los Altos is owned and managed by four Italian wine producers and merchants led by broker Marc de Grazia).

While there are still fine values to be found in Southern France, Spain and Italy, the flag-bearers of great Old World wine face an uncertain future in a fickle and dynamic market. Fewer and fewer Americans will be able to afford their traditional favorites and there will be much more unsold "great wine." Yet the wine must be sold; it just remains to be seen if the trade is willing to "dump their 'precious' wine," or take a longer term view and hold out, if they can, for the rest of the market to catch up.

About Arnie Millan

You may contact Arnie at: finedining7@hotmail.com or by phone at 206-612-6547.

Arnie has been a wine aficionado for nearly thirty years. During his first visit to France in 1973, Arnie toured several French vineyards and began to learn about wine from wine merchants and collectors. Arnie has been consulting to restaurants about wine since 1987. In 1997, he opened his own award-winning restaurant, Avenue One, in Seattle. Arnie is a Sommelier certified by the International Guild of Sommeliers. He recently appeared in the video, "Wineworks: The Complete Video Guide to Wine," available in selected wine shops and book stores. Arnie speaks fluent French and German. Arnie frequently teaches wine classes and conducts wine dinners and tasting parties, both public and private. He also consults for restaurants and private collectors/clients on the West Coast. Arnie is also conducting tastings for a division of Robert Mondavi wines.