Comment - Wine - The UK: Land of... What's the Opposite of Plenty?
Just over two years ago, Chris Losh suggested that the UK was poised to lose its place as the most dynamic wine market in the world. This month, he suggests, things have gone from bad to worse, with no end to the grimness in sight.
The last few months have been pretty turbulent in the UK. Giants of the high street have been going bust on a seemingly weekly basis, and a chill, grey mood of helpless entrenchment seems to have settled over the country.
I’ve been taking the temperature of the UK wine trade for over 15 years now, so I’m used to the low-level grumbling and the odd bit of sabre-rattling about the pernicious evil of the supermarkets/consumer behaviour/government duty levels (delete as appropriate).
But, 2013 seems to be something else again. Person after person I’ve talked to over the last month has used the words ‘tipping point’ or ‘crossroads’ to describe the coming year.
Let’s get the macro-economic stuff out of the way first: The UK economy is flat-lining. Growth is non-existent, and, perhaps more to the point, nobody – economists, the Chancellor, the public or the wine trade – seems to know where it will come from again, or when.
The Duty Escalator – supposedly a four-year plan brought in in 2008 to make duty rises more predictable – has, surprise surprise, been extended for another two years. To describe its effects as ‘damaging’ is a bit like saying that arsenic isn’t nice in tea.
Meanwhile, the Euro, which provided the only (feeble) bright spot on the horizon last year, isn't offering any relief, firming up from a mildly helpful EUR1.25 to the pound mark for most of last year to EUR1.15, and still falling.
So much for the wider economy. How about the wine drinkers?
Well, more bad news here. The head of drinks at one major UK supermarket told me a couple of years ago that an estimated 1m wine drinkers had migrated out of the category since the start of the recession. (That’s the first recession, not the one we’ve just had or the third one that’s scheduled for this year).
I’m sure many more have abandoned wine since then. Moreover, the drinkers who are left remain obstinately tight-fisted.
On one level, this is understandable. With prices rising and jobs uncertain, this is no time to be preaching the ‘trade-up’ mantra when it comes to that weekend bottle of Cabernet.
Yet, consumer notions of what a bottle of wine ‘ought’ to cost are now so out of line with the market realities of producing the stuff at a profit that it’s a wonder there are any wine companies left at all.
Much has been made over the last few months of the average price-per-bottle finally making it through the GBP5 (US$7.85) barrier. In fact, it’s done so, probably at least ten years too late.
A colleague of mine in the trade has crunched some numbers: From 1997 to 2012 compound inflation was around 50%. Add in increases in duty and VAT, and today’s supposedly semi-premium GBP5 bottle was 1997's GBP2.60 bottle of plonk.
The trade (including retailers) is now collectively paying for its inability to force people to pay the going rate for a bottle when times were good, wine was booming and people had the money to do so.
None of this is exactly new. So, why the feeling of a watershed moment?
The answer is the impending shortage of wine caused by the 2012 vintage. In October, I pointed out that this would inevitably to lead to suppliers more or less the wine-world over raising their prices.
Well, now the figures are starting to come in, and the trade is beginning to realise the enormity of the task before it. In a best-case scenario, retailers (and their customers) will accept the increases and sell the bottles through with negligible degradation of volumes.
It could happen, I guess, but it’s unlikely, to say the least.
The global export manager of one European company was (understandably) very rude to one UK retailer when they suggested he sell his GBP30 bottle of wine at GBP9.99, promoted for three months at GBP7.99.
"Why the hell would anyone bother doing business in the UK any more when there is no return?" he sighed. "We get better pricing from nearly all other markets."
The tightness of the UK buyer and consumer is, I suspect, so entrenched as to be irreversible. And, when the irresistible force of higher prices meets the immovable object of buyer parsimony, something will have to give.
I suspect that this year we will see a good many wineries simply abandoning the UK as not worth the trouble. There may still be some attraction to producers in having a presence in this most global of markets, but the days of having to be here at any price are long gone.
Many more will stay, but will simply bottle inferior products, in order to hit increasingly impossible price points.
How long the trade will be able to pass off this second-tier stuff to a public that’s already looking to cut back on expense is anybody’s guess. But, I’d suggest that any industry that bases its economic model on peddling inferior products at higher prices is in for a kicking.
Certainly, it will not turn around the contraction in the market, so the battle for share (rather than organic growth) will intensify.
The last six months have seen the demise of two decent-sized and one large wine company. All the indications are that we can expect more blood on the carpet before the year is out.
For the UK’s wine merchants, the current economic limbo was described by one contact as "like being in a long-term holding pattern, and every so often a plane runs out of fuel and crashes".
I’d say even that joyless assessment might be over-optimistic. This looks like an industry about to enter a tailspin.
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