As last month's alcohol duty rises kick in, independent retailers are being forced to make tough decisions. Should they absorb the Treasury's increases to keep key price points, or put up retails and risk losing more trade to multiples?
Supermarkets and specialist chains, which can use their buying power to squeeze suppliers, have so far shown no signs of moving prices post-Budget, but independents are feeling the pinch as wholesalers have passed the cost on.
Imran Younus, managing director of Luton-based wholesaler Barrel Booze, which supplies the independent sector,
says the business had been forced to put up its prices straight away. "We have held our prices for the last two or three years, but with the excise duty increases and raw material price increases over the last 12 months, we have had no
alternative," he says.
Younus says independents have more to lose than supermarkets from duty increases. "It stands to reason that
duties like this are regressive and it
always hurts the person at the bottom of the pile the most."
He adds: "This is one area where
independents have held their own.
Typically, the cheapest wine in supermarkets is £3.99, but independents are still doing three for £10. Now, we are
going to see all of those prices go up."
Cheshire-based Parfetts is also likely to put its prices up. Managing director Steve Parfett says: "Inevitably, we will have to do something. If the suppliers pass the costs on to us, we will have to pass that on to customers."
A spokesman for Bestway said the wholesaler has also passed on duty
increases to its customers.
Independent retailer James Halliday,
associate director of wine merchant Vineking in Reigate, Surrey, says:
"Every supplier has put their prices up. We have been forced to put the prices up on all our trade accounts, but we're having to swallow it in our shop, so it's hard to remain competitive."
Bharat Dalal, owner of Rosehill Off-licence in Oxford, says: "Any such
increases are detrimental to business ... we have to try to keep the prices as they are to stay competitive, so our margins are being squeezed. It's especially
important to keep our prices down as an independent retailer - we've got the Co-op around the corner."
Other drinks shop owners are confident that the value of their services justifies passing the cost on to the consumer. Mark Johnson, owner of Stockport off-licence Celebrations - OLN's Convenience Store of the Year 2007 - says retailers who have built up a clear point of difference from the supermarkets find it easier to put up prices. Johnson has a Tesco, Tesco Express, Sainsbury's, and a Co-op Late Store within a four-mile radius, but says business is booming. He will put up prices on some products and thinks other independent retailers should be brave enough to do the same.
"It's silly that we're all scared of putting it up. If everybody played by the same rules we'd be in a better position. It can end up with independents fighting each other and we shouldn't be in competition with each other. The important thing is for independent
retailers not to be frightened of a pricing structure that will make a decent margin. We work long hours and we deserve it," he says.
Johnson said his multi-buys on wine are likely to change from three for £10 to two for £7, but he wouldn't be concerned if shoppers looking for the cheapest wine went elsewhere.
"We've got a massive range, in excess of 600 wines in store. If someone wants a £2.99 or £3.99 wine, they don't care what they're drinking."
Richard Genders, who owns Bottle Stop in Cheadle, Cheshire, agrees: "I find it absolutely incredible that nobody will alter their prices. I do and I can't see why people don't put the 5p's on them and have some odd prices. What is the currency for? Why do we have pennies and two-pences if they are not used? I have a variety of prices and people have never made a comment about them. It could be the way forward, instead of a lot of boring £3.99 and £4.99. That's the secret of success these days: have a bit of a point of difference."
OLN columnist and independent retailer Zak Avery thinks retailers who have built a loyal customer base and point of difference are in a more secure position. Avery, who runs Beer Ritz in Leeds, says: "It's a slow process, and we're seeing how product prices filter through. What we do is adjust prices every few years rather than every year."
He says the shop is in a favourable position, with no direct supermarket competitors, and customers seem happy to pay more than supermarket prices for the convenience. "People trust what we're doing and know that we're not
trying to fleece them," he says.
Perhaps its time for independents to leave supermarkets to squeezing
suppliers and take a lead on passing duty on to the consumer.