We all take things for granted: Turning on the light switch, filling up at the pump, opening the tap. Yet without these simple necessities, society would disintegrate overnight. And it seems we in the wine trade are soon about to re-learn this lesson the hard way.
Why? Bottles. Yes, bottles.
A very large percentage of wine is filled in to glass bottles. It is said that the invention of glass containers has been the single most important development in the history of wine. Imagine hauling home a 300 lb. earthenware “amphora” from your local wine shop, and you get the picture.
The wine industry has taken the plentiful supply of cheap glass bottles for granted. Outside the US and Australia, the glass bottle market has been very competitive, with oversupply the rule. There are lots of reasons for the surplus, but one basic challenge for bottle manufacturers is that once they flip the switch on a glass furnace, it cannot be turned off. It must run 24/7, 365 days a year. With every country in Western Europe producing wine, there have always been lots of manufacturers, competition… and supply.
Over the years, we’ve noticed a few anomalies with glass pricing: For example, in a low cost energy market like the US, low end wine bottles have historically cost nearly three times what they cost in Europe, where energy costs are much higher. It never made much sense until one realizes that the glass bottle business in the US is an oligopoly.
Graham was quoted in an article in wine.co.za last week about the shortage of glass in South Africa.
Taken in isolation, the ZA glass ‘shortage’ looks like the unintended consequence of one of the two glass manufacturers taking a furnace out of production to upgrade and add capacity. However, this is not a story exclusive to South African.
The reality is that furnaces are allegedly being taken out all over Europe as well. Coincidence? The way we see it, glass manufacturers are putting the squeeze on the wine industry. Glass prices are skyrocketing and the world’s largest glass manufacturer, Owens Illinois, with dominant market position in wine bottle markets of South Africa, Europe and many other countries, declared a 33% increase in earnings on 15% increase in sales. (Share price has tripled this year)
I am not a conspiracy theorist, but It is not hard to pencil out a carefully crafted plan, instigated by a couple of glass manufacturers to create shortages in the market and take massive price increases. This is just how it looks to me, and glass industry people are talking amongst themselves about it.
Take it from me, to have gone to all the trouble of producing a great wine, only to discover you can’t deliver it because of a shortage of something you had hithero always taken for granted- the glass bottle to put it in- is a mind-blowing experience.
To have your wine sitting in tanks without any way of getting it into consumer’s glasses, is an irony not lost on the bottle manufacturers.
It is a very bad situation for all wine producers. Mark my words, the biggest story in the wine trade this year won’t be about wine, it’ll be about shortages of glass bottles keeping the wine from getting to market.
There is much more to this story and I will try to post more on it.