Wine: high margins point to the ultimate price bottle neck

Scarcity contributes to the mystique of fine wines. But only when the wine rather than the bottles is in short supply. French and Portuguese wineries say they cannot find enough of the latter.

Perhaps it is time for oenophiles to start gushing over the lustrous finish of their favourite plonk bottle, instead of the fruity top notes of the contents.

Two questions apply. Is there evidence of a shortage? If not, are there pointers to a price bottle neck that might be responsible for the grumbling instead?

Wine still dominates demand for bottles, accounting for nearly half of the volume produced. But wine sales in Europe have fallen a fifth by volume in the past three years, according to data from Statista.

In contrast, production of glass containers rose nearly 7 per cent by volume in the first half of 2022 compared with the same period of 2019. So there is unlikely to be a real shortage.

Some kinds of bottles may be harder to obtain, however. For example, finding enough typically larger Burgundy bottles in certain colours, such as “dead leaf” green may be a problem.

Winemakers complain about rising prices in a concentrated market. There may be more than sour grapes in these gripes.

Paris-listed Verallia and O-I, which is quoted in New York, dominate the output of wine bottles in France. Their costs have risen, especially for energy, accounting for almost a quarter of the total last year, according to FEVE, an industry body.

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However, wine bottles are getting lighter to reduce shipping and distribution costs. In the UK, weights have dropped at least a fifth to 450 grammes in recent years, says trade group British Glass.

Moreover, bottle makers evidently have pricing power to pass overheads on to customers. For example, Verallia has been doing nicely. Since 2017, its revenues have expanded at a compound growth rate of 7 per cent. In that time, Verallia’s operating margin has jumped from 11.1 per cent to 18.8 per cent in 2022. That is a strong level of profitability given relatively low-tech products.

Capital should chase profits. The question for winemakers to ponder over a glass is whether this will now occur in bottle making. If not, margins may remain persistently high in this important supply industry. That would leave winemakers asking whether there are structural impediments to competition.

The Lex team is interested in hearing more from readers. Please tell us what you make of complaints of a bottle shortage in the comments section below.