Welcome to Government Watch, a weekly Restaurant Business column focused on politics, regulation, legislation, and other governmental issues of relevance to the restaurant industry. This week's edition looks at how the tariffs promised by Donald Trump on virtually all imports could affect a restaurant's sales and profits from wine.
Donald Trump has been harping since the start of his campaign about the payday he’ll bring American businesses by imposing tariffs on imported goods. And each time, the domestic wine business likely winces.
It’s already felt the damage surcharges can do to imported-wine buyers like restaurants. An Italian restaurant that boasts about its authenticity can’t suddenly swap out chiantis for California reds without alienating loyal patrons. Yet the cost of the imported vino is likely to be pushed so high that even a pricey fine-dining place won’t be able to pass along the increase, especially if patrons were paying far less in recent memory for the same selection.
A $20 bottle of wine would likely jump in cost to $28 or $30, said Harry Root, proprietor of the Grassroots Wine, a retail shop in Chattanooga, Tennessee.
“For small independent restaurants to lose that profit center, it would really, really hurt,” added Andy Fortgang, co-owner and wine director of the Le Pigeon and Canard restaurants in Portland, Oregon. He estimated that 50% of his fine-dining restaurants’ profits come from beverage sales.
Fortgang and Root were participating on a panel convened Thursday by the U.S. Wine Trade Alliance, a group opposed to levying any tariffs on imported wines. The group is unique in that its members are drawn from all levels of the highly stratified domestic wine business, from vintner to importer to distributor to restaurant and wine store.
Its mission is to fend off tariffs on wine imports, a motivation fired by the industry’s memories of what happened when surcharges were levied in October of 2018. The Trump administration had been angered by France’s subsidies of homeland aircraft builder Airbus. The payments enabled Airbus to undercut American plane producer Boeing on price.
The U.S. retaliated by levying 25% tariffs on wines, cheeses and other products imported from France. The taxes would remain in place until March 2022.
The impression at the time was that only the fanciest of French restaurants in the U.S. would be affected. That proved not to be case, according to Thursday’s panel.
The spike in the cost of French vintages indeed raised demand for wines from other regions, boosting their prices accordingly. Simultaneously, distributors felt the loss of the high margins they’d enjoyed on French wines and tried to make it up by charging more for domestics.
The trade painfully learned how the tariffs affected business in unexpected ways.
For one thing, substitution proved a myth. “European wines have qualities that differentiate themselves from American wines,” said Gregory Stokes, a master sommelier who left the restaurant business to open two wine shops and a cocktail bar in Columbus, Ohio. “So if you have consumers who have decided that’s what they want to buy, that’s what they’re going to buy.”
If it’s not there, they just won’t order wine, he stressed, and there goes that big bump in the check.
The conventional wisdom had been that patrons stunned by the high costs of wine would shift to beer or cocktails. But it’s not an even trade, said Fortgang. “Even if they have two beers instead, that’s less than $20,” a steep drop-off from the $60 they may have spent on a bottle of wine.
The panel acknowledged that cocktail prices have been climbing, but aired doubts that a wine drinker would readily shift to Cosmos and Old Fashioneds. For one thing, how’s a mixed drink going to pair with the food?
And even if a wine connoisseur does pop for a few Moscow Mules, the establishment may not reap the same profitability. Cocktails require more labor than serving a bottle of wine usually does, Stokes pointed out.
“It’s pretty scary,” said Fortgang.
He and others noted that wine costs had already been rising because of the inflationary pressures that have forced up the price of everything from restaurant food to gasoline. There was a consensus that a new round of tariffs could push those levels into what’s clearly a red zone.
“There’s no more room in the restaurant system for higher costs,” said Fortgang. “We can’t raise our prices. Customers will simply opt out.”
There’s a lesson in McDonald’s E. coli outbreak
If there’s any silver lining to McDonald’s food-safety crisis, it’s the strong case that’s made for two pending plans to better protect the public.
One is still merely in the proposal stage. It calls for fortifying defenses against E. coli and the like by uniting all the federal agencies that have a role in safeguarding the nation’s food supply. Right now, 16 different regulatory bodies are involved, from Immigration and Customs Enforcement (ICE) to the Food and Drug Administration. Despite pledges to cooperate, they still act in silos.
The drawbacks are usually illustrated with the example of a pizza. If a contamination were traced to the pepperoni toppings, the U.S. Department of Agriculture would have precedence, since it monitors meat and poultry processing. If the sauce was imported or made from imported tomatoes, ICE would have the lead. And if the culprit appeared to be something in the crust or cheese, the Food and Drug Administration is the authority.
The groups do collaborate, with state or local health authorities usually invited onto the team as well. But McDonald’s situation shows how seams are still an issue.
A month after the first of 75 patrons was sickened by food from the chain, we still don’t know what the suspect element was. The FDA, which has authority over produce, says the culprit was likely the slivered onions served atop Quarter Pounders, while the USDA, the meat expert, is looking at the beef patties used in the sandwich. There are essentially two lines of inquiry, with McDonald’s itself pursuing a third.
The other pertinent plan is the traceability initiative that’s slated to take effect on Jan. 1, 2026, but is widely expected to be delayed because of the complications of adoption. The Food Safety Modernization Act (FSMA) will require every link in the food supply chain, restaurants included, to maintain detailed records on what comes in the back door and then goes out to customers. The aim is to enable authorities to flag a problem and pinpoint the cause as close to instantly as possible.
The industry has gulped because of all the additional recordkeeping that could be involved. McDonald’s might have a different take at this point.
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