Americans have been experiencing sticker shock at the gas pump for the better part of a year now. But most wineries probably did not expect the trickle-down effect of costlier fuel to be reflected in the price of wine bottles.

"Fuel is a key ingredient to making and shipping glass," said Erica Harrop, vice president of sales and marketing for Napa-based Saverglass, Inc. "Whether it is trucking the sand, firing the massive furnaces or shipping the finished bottles, glass manufacturing is dependent on fuel. Each time fuel costs rise, we are immediately and profoundly affected. For instance, we will be bringing over 20,000 bottles from our plants in France; that's just 1,500 cases, and we'll be paying almost twice as much for shipping."

Terry Sandoz, the business manager for California Glass, based in Oakland, California, broke the increase down by bottle. "In a normal year, 6 to 7 percent of a bottle's cost is attributed to the natural gas used to make it. But what we're seeing now is that same natural gas component being pushed closer to 18 to 20 percent of the bottle's price. That is a significant increase."

Vetri Speciali's U.S. sales office is located in Benicia, California, with the company's glass manufacturing located at three plants in Italy. Vetri's director of sales, Anne-Marie Ammann, said the company has experienced phenomenal growth in the past few years. "Our business is booming with increased and repeat business, to the point that we are considering adding more in the way of production," said Ammann. This is all despite the increases in fuel costs, which Ammann admits are worse than she's ever seen.

Amman laid out the following increases her company has incurred in the past 18 months to two years: a 25 percent increase in the price of natural gas used to fire the furnaces, and a 13 percent increase in energy (i.e., electricity).

And none of the above increases takes into account the poor exchange rate companies must deal with when doing business overseas. Amman states that Vetri has had to pass some of these extra costs onto its customers and has increased prices by an unprecedented 7 percent.

"The price for specialty glass has always gone up, about 3 percent a year," said Amman. "It is regrettable, but with the increases we're facing we've had to raise prices a little more this year. However, we are trying to make special deals with customers that will hopefully buffer some of the increases."

This sentiment was echoed again and again throughout the industry. Vitro Packaging, headquartered in Plano, Texas, is a multi-segment supplier of glass containers, including those for wine as well as for cosmetics, drugs and chemicals. President Lee Farlander said that there is no advantage to his company to producing their glass in Mexico. "Natural gas prices in Mexico are the same as they are in the U.S. because they are regulated based on West Texas crude," said Farlander. "What's important to note is that glass packaging is still economical, especially given the fact that it is the only material that can be completely recycled and turned back into glass packaging."

Bill Bronson is the vice president of Fairfield, California-based Diablo Valley Packaging. Bronson stated that in his 30 years in the business, he's never seen costs escalate so much or so fast. "We just try to sympathize with our customers because we know this has a huge effect on them," said Bronson. "We try and encourage customers to hold off on bottling to see if the prices will go down. If they can do it, they can sometimes stave off a big hit price-wise."

The Effect on Wineries

The impact of higher glass bottle prices on a small winery can be profound. Bargetto Winery, in California's Santa Cruz Mountains, makes about 40,000 cases each year. In business for 75 years, Bargetto specializes in cool-climate varietals that thrive in the mountain region. Because of their small size, they always feel a pinch when it comes to increased prices. "Prices go up every year, and with glass it's a regular occurrence," said John Bargetto, owner and vice president. "We've grown accustomed to shopping around for glass, labels and even which bank we use."

Bargetto went on to say that, unfortunately, it is necessary for them to pass some of their price increases along to consumers. "As we look at what we put into a bottle, we look at our costs and then decide what we need to charge in order to stay competitive. These increases add up, especially for a small winery like ours."

Sonoma-based Trinitas Cellars makes about 8,500 cases a year. Matt Cline, owner and winemaker at Trinitas and formerly of Cline Cellars, has the unique perspective of having worked at both very large and very small wineries. Cline said he's never seen increases like this.

"Every year wineries are hit with energy surcharges that are tacked onto bills," said Cline. "But lately, we're also getting increases related to transporting the glass from the production facility. On a big bill, the extra charge can be as high as $200. That can really have an impact."

Trinitas buys some of its glass from Caliber Packaging in Cerritos, California, a division of Saint Gobain, which, as a privately held company, would not give out pricing information. However, according to Cline, the increases for glass prices have been dramatic. "Glass prices are up about $1.15 per case. This may not seem like a lot, but if you multiply it times the number of cases you plan to make, it's huge.

"You've also got to take into consideration the amount of inventory any winery has locked away," said Cline. "Right now, we've got 8,500 cases bottled and sitting in inventory. Because we are increasing our production, we're about to bottle another 11,500. Once that happens, we'll have more than 19,000 cases in inventory. At $1.15 per case, that's well over $20,000 tied up in glass alone."

Some large wineries, however, have been able to avoid the effect of higher glass bottle prices. At Sutter Home, Wendy Nyberg is the senior director of marketing. Nyberg said the winery hasn't noticed any measurable increase in what they pay for glass. "We've seen an overall increase in what we pay for raw goods, but nothing that would cause us to raise prices to customers," said Nyberg. She stated that Sutter Home and its owners, the Trinchero family, have long-standing relationships with their suppliers, like California Glass, that allow for more flexibility when it comes to pricing. In addition, because of Sutter Home's size—they also produce the Montevina, Trinchero, Trinity Oaks, Reynolds and Fre brands—they buy in higher quantities than some of the smaller, boutique wineries, giving them another distinct advantage when it comes to buying raw goods like glass.

However, Nyberg notes that, "Manufacturers are in a tough spot right now. They don't want to lose business by increasing prices, but they don't want to go out of business by undercutting themselves. It'll be interesting to see what the next six months brings in terms of pricing."

The Outlook for glass Bottle Prices

Glass vendors are looking for ways to combat the increases in fuel prices they are facing. Saverglass buys futures in the fuel industry and, according to Harrop, tries to anticipate what will happen on a global basis. "We do not want to have price increases due to what is happening in the world." To that end, both Saverglass and Vetri Speciali are constantly looking at alternative sources of fuel, including natural gas, electricity and propane.

Another company, Vinocor, is addressing the cost issue by importing glass from China. "We just took our first delivery a few weeks ago," said Alberto Olivera, Vinocor vice president. "Importing glass is complementary to our existing business, and the glass we've obtained from China is good quality at a good price, even considering the cost of shipping."

Olivera noted that Vinocor is specifically targeting mid-size wineries. "We're not trying to attract a lot of attention," said Olivera. "We're not out to compete with the big guys like St. Gobain and Owens." He went on to state that Vinocor is by no means a pioneer in importing glass from China—Owens recently bought a plant there—but perhaps in the market segment they hope to serve, they are doing something that has not been done before.

Still, other companies are toying with alternatives to glass. Demptos Glass, in Fairfield, California, is one of those companies. David Schwandt is the director of sales and marketing at the glass distribution company and said that what he's seen recently is just "ugly." "In the short-term, there is almost nothing you can do to combat what's happening," said Schwandt. "In the long-run, however, you can look at things like downgrading packaging, or alternatives to glass bottles like plastic or the bag-in-a-box concept. But this is all a big question mark because, if a winery wants to use glass, they are facing significant increases everywhere they look. Unfortunately, this situation really squeezes the winery selling wine for less than $15 a bottle because the margin is thinner—there is potentially less profitability."

It seems that, for now, all manufacturers and distributors can do is keep tabs on what's happening in terms of prices. Cal Glass' Sandoz has a link to the Nymex index on his company's website. Here, interested parties can watch the minute-to-minute fluctuations of commodities like crude oil, natural gas and heating oil.

"No one is just sitting by blindly," said Harrop, referring to the price increases. "But, at some point, there is nothing you can do but watch and wait." wbm