Retailers must up wine prices

22 February, 2008

You might not have noticed, but the UK limped past a significant milestone at the end of last year. For the first time ever, the average price of a bottle of wine rose above £4 to a ­vertigo-inducing £4.01. To be strictly accurate, the 75cl price had been there for some time - what was different in 2007 was that all wine (including bag-in-box and other sizes) went over £4.

Time to stage a 21-gun salute in Hyde Park? Or even just pop a few Champagne corks outside Vintners' Hall? Yes and no. It's certainly true that consumers appear to be trading up (the overall market grew by 4 per cent volume last year, but sales over £5 were up by 18 per cent), but wine is still dramatically under-priced and has been for some time, given its general quality in the UK.

I don't want to over-burden you with figures, but you might like to consider the following Nielsen statistics. Since the end of 1998, the average equivalent UK bottle price has gone from £3.45 to £3.55 (1999), £3.62 (2000), £3.68 (2001), £3.69, (2002), £3.64 (2003), £3.72 (2004), £3.85 (2005), £3.93 (2006) and finally £4.01 (2007). In other words, we are paying 56p more per bottle now than we did a decade ago. This is less than the rate of inflation. If you assume an average annual rise of 2.5 per cent (and that's being conservative), wine today should cost £4.51 per bottle.

What this doesn't take into account, of course, are duty increases, which amount to 37p over the past decade. Subtract that from our 10-year price increase and we are left with a paltry 19p. In other words, exclude the bit that has been trousered by the government rather than the trade, and we are looking at underlying deflation. No wonder producers and importers moan about how difficult it is to make money.

Such figures are unsustainable. If retailers continue to demand higher margins (which they have over the past decade) there will come a point when producers are being asked to sell wine at a loss here. There are already signs that some of them are turning away from the UK market, preferring to sell their wines in countries such as the US , which are less price-sensitive.

The situation could be even worse come March 12 if the Chancellor decides to increase duty by more than his customary 4p. At a time when fuel, packaging, energy, glass, transport and grape costs are rocketing (and the pound is struggling against the euro) a large duty hike will be disastrous for producers if, as in previous years, they are expected to absorb the increase rather than pass it on to consumers. This can only impact on the quality of what they put in the bottle.

The Wine & Spirit Trade Association has asked the government to freeze wine duty, but this is as about as likely as me being asked to join the track and field team for the Beijing Olympics.

But why not look at the Budget as a blessing in disguise? This might sound perverse, but if a 10p duty increase makes it almost impossible for producers and importers to make money, perhaps the supermarkets, which are responsible for 72.5 per cent of off-trade sales, should consider putting up their prices. For that, as the following statistics illustrate, is where the real problem lies.

The average price of a bottle of wine in a supermarket was £3.84 last year, compared with £4.89 in multiple off-licences and £4.25 in all other retailers. But in the, admittedly small, sector of the top independent wine merchants, bottle prices are closer to £8.

What this shows is that consumers aren't wedded to £3.99, or even £4.99, as price points. If the quality is there, they are prepared to pay more. Further evidence of this comes from Tesco.com of all places, where the average bottle price, albeit by the case, is £5.50.

So how come the off-trade is stuck at £4.01? The reason people spend so little on wine - remember that inflation alone would have taken us to £4.51 per bottle over the past decade - is that they can. Competition between supermarkets and, it must be said, over-supply in some sectors of the market have suppressed prices. As a consequence, we are trapped in the bargain basement.

Will this change on March 12? Not overnight, it won't. But it is in the long-term interests of retailers, as well as importers and suppliers, to raise prices. Otherwise they may end up with no one to supply them at the bottom end. Rather than giving a greater slice of producers' and importers' margins to the government, all in the name of maintaining artificial price points, retailers should charge more for wine across the board. They might not get to £4.51 immediately - or whatever the new post-Budget figure should be - but it's time they started to try.




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