The just-drinks Interview - Dan Jago, UK & group wine director at Tesco - Part II
Tesco is the largest wine retailer in the UK
Earlier this week, just-drinks sat down with the UK and group wine director for Tesco, Dan Jago. Part one of our interview ran yesterday, while today (22 May), we hear Jago's views on minimum unit pricing, the launch of lower-abv wines and the state of the nation in the UK.
For the whole of the 21st Century, the wine world has been swimming in over-supply, as attempts to meet perceived demand 15 to 20 years ago came to fruition – and then some.
For a large wine retailer like Tesco, this over-supply was like music to its ears, as wine consumers in the UK were prepared to try anything, so long as it was reasonably priced. “When there's three times as much wine out there as the world could ever consume, then of course it played into our hands,” says Jago.
“It's a basic supply-and-demand situation. But, that's the same in every category. In wine, it became standard practice for a very long time.” For producers, however, these struggles began to cloud their judgement of other matters.
“Many producers lost the need to drive economies of scale and the need to be more objective about why they were doing what they were doing,” he continues. “It was more about needing to clear the tanks before the next stuff came in. That made it a buyer's market.”
Jago does not feel, however, that it was squarely the rise in demand from consumers and, subsequently, retailers that prompted the over-supply situation. “It was the people who planted the vineyards in the first place who were responsible for the over-supply, not the retailers," he argues. "It's our job to find the best quality for the best price in the market and to offer it to consumers. It's what we do.”
Today, even though the amount of excess wine being produced has become more manageable, Jago is all too aware of other hurdles that have come into play. “It's more in equilibrium now,” he says, “but there have been much more significant supply pressures on wine retailing: The cost of living has gone up; people's disposable income has gone down, their confidence in their future employment has gone down and their worries about health have gone up.
"All of those combined means that people will drink less alcohol and, when they do, they're going to have to pay slightly more for it.”
Talk of price leads us to the matter of minimum unit pricing: a measure that has reared its head in the UK in recent times, as the authorities look for effective ways to deal with the perceived problem of binge-drinking. Where does Tesco stand on the idea?
Dan Jago, UK & group wine director for Tesco
“We've said all along that we would like to have a really open debate with government about minimum unit pricing (MUP),” says Jago. “We believe there are some merits in it: It potentially provides a forum for understanding the role of alcohol. It could have an impact on sales, and if it does, we're prepared to accept that and understand that. So, we are supporters of MUP. That's a relatively contrary position, but the debate is open at the moment.”
I'm not at all surprised to hear this, seeing as any imposed price increases will doubtless financially benefit retailers more than the other parties. Jago is keen to clarify, however: “We did some fairly extensive research about what might be the potential impact, and the answer came back that nobody can be sure,” he says. “The view is that there would be a significant decline in total sales. As a result, there would be no net benefit for retailers at all.”
But, say that volume sales don't drop markedly: Surely the retailers will be laughing all the way to the bank?
“The extra value goes through the till,” Jago concedes, “but it goes to a variety of places. The projected decline in total sales value would mean that the profitability will be relatively untouched - there's no benefit to anybody. But, everybody's guessing – it's not precise.
“The alternative to minimum unit pricing is clearly taxation," he adds. "Already, over half the price of a bottle of wine and a can of beer, and three-quarters of the price of a bottle of spirits is tax. I think that leaving yourselves open to that increasing further is quite dangerous.”
One of the most pro-active moves by several wine producers to help curb excessive drinking in the UK has been to release wines with lower abv levels. The move has not been met particularly favourably by many within the wine industry, but Jago feels that such detractors are missing the point. “If you think of wine with a lower abv as being dumbed down, then you've lost the battle already,” he argues.
“If you think of it as wine competing in a category where there is a huge amount of choice – such as RTDs, RTSs, beer, cider, pre-mix spirits – that's a category that wine has fundamentally ignored for the last 20 years. There should be more of it, but think of it as a different category, rather than dumbing down.”
Also, financial incentivisation would help in this area, according to Jago. “In wine, you don't have the same luxury as beer, where you have tiered taxation bands based on abv,” he says. “I think that's a great shame: If you were taxed on every 0.1% above 8% abv, you'd find people working extremely hard to produce brilliant-tasting wine that would be lower in alcohol than it currently is. At the moment, there's no gain at all between 5.5% abv and 15% abv.”
Winding up, we turn to the London International Wine Fair, which is in full swing in the hall downstairs from where we are meeting. The event has suffered in recent years, with many wine producers preferring to head to Dusseldorf for ProWein or Bordeaux for VinExpo – occasionally to both – rather than visit the UK. Does this state of affairs speak as to the state of the UK nation for wine producers?
“I don't think producers have a lack of enthusiasm for this market,” argues Jago. “Yes, it's a tough market, because of our high taxation bands for alcohol. But, I don't think there's a lack of interest in the UK at all.
"The world has changed, and I think that's a good thing: Other markets are taking some of the responsibility that the UK has had for being the only market for imported wines in the world. The US is pretty tough at the moment; China is is extremely difficult. There's a global economic recession going on and things are going to be tough. It's how you deal with that and your attitude towards finding new ways to do business and doing them quickly rather than just grumbling about it.
“That marks out the winners from the losers.”
- Diageo's Q4/FY 2016 results - Preview
- Wine consumption and its health effects
- Can craft breweries compete in lager arena?
- Time to take stock of Constellation's Corona
- The Coca-Cola Co's Q2/H1 2016 results - Preview
- Diageo names new TR head as Doug Bagley exits
- AB InBev seeks single buyer for European beers
- SABMiller puts brakes on A-B InBev integration
- Gruppo Campari trials Negroni pre-mix
- Scotch drop hits Edrington as FY profits fall
- Global RTD insights - market forecasts, product innovation and consumer trends
- Adultifying Soft Drinks; Capitalizing on rising adult demand for non-alcoholic beverages
- Global non-Scotch whiskies insights - market forecasts, product innovation and consumer trends
- Global Scotch whisky insights - market forecasts, product innovation and consumer trends
- Global travel retail insights - market forecasts, product innovation and consumer trends