Sunday, February 08, 2015
If the euro falls, can the price of French wine be far behind?
Do businesses have an ethical responsibility to pass on savings to the people buying their products?
That's what, G.L, a reader in the Northeast U.S., wants to know. G.L. and his wife spent four months traveling in Europe this past spring. When they left Europe to return to the U.S. in July, the euro was worth around $1.36. Now, eight months later, the euro's value has dropped significantly, to roughly $1.13.
"That's a drop of 17 percent in six months," writes G.L. "And yet the cost in the United States of a French bottle of wine hasn't dropped at all." To G.L., this doesn't sit right. Shouldn't his local wine store drop prices to reflect the weakening of the euro, he wonders.
From a business standpoint, even if a wine shop did decide to lower its prices because its inventory presumably cost less to stock, it would take some time for those lower prices to register. The bottles on the shelf presumably were purchased when the exchange rate between the U.S. dollar and the euro was higher.
Granted, if G.L. and his wife wanted to, they could hop a plane, return to France and get a better deal on their wine than they did when they were there six months ago. But the added cost of the airfare would obviously outweigh any cost savings, and 3,400 miles would strike many as a long way to go to save a few dollars on a bottle of Languedoc-Roussillon wine.
Certainly, once G.L.'s local wine shop starts stocking French wine it purchased at the better exchange rate, it might be able to pass on some cost savings to customers. It would be a nice thing to do.
But is it unethical not to do so? No.
The wine shop is free to charge whatever price it wants on the products it stocks. If customers are willing to pay the same price they've been paying over the past year -- even though their dollars might go further in Europe this month than six months ago -- then the wine shop owner stands to earn a bigger profit than before. This would not be unethical.
If G.L. and other customers are unhappy about the local wine shop's failure to drop prices reflecting the stronger dollar (or weaker euro), he and others are free to shop around to see if other stores offer French wines at better prices. Eventually, if every other store drops its French wine prices slightly and G.L.'s local wine shop does not, it stands to lose business and profit.
This principle holds true for most any business selling products that can also be purchased elsewhere. There's nothing wrong with a business making money, just as there's nothing wrong with customers shopping around for the best price.
As for G.L.'s question about the weakened euro, the right thing for the wine shop owner to do is to stock wine customers want at a price they're willing to pay. And the right thing for G.L. to do is to decide how much he's willing to pay for the wine he likes to drink. Tchin-tchin.
Jeffrey L. Seglin, author of The Right Thing: Conscience, Profit and Personal Responsibility in Today's Business and The Good, the Bad, and Your Business: Choosing Right When Ethical Dilemmas Pull You Apart, is a lecturer in public policy and director of the communications program at Harvard's Kennedy School.
Follow him on Twitter: @jseglin
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