Presented earlier this month at the London International Wine Fair, here, for just-drinks members, is May's management briefing, just-drinks' State of the UK Nation 2012 survey. Here's part one of four.

Methodology

Prior to the wine fair, around 250 wine industry executives were contacted and asked to fill in the survey, which contains 15 questions concerning the current state of the wine market in the UK. We also sent the survey to visitors of pages containing wine stories on just-drinks. A total of around 90 responses came in, with the results being collated into this briefing, offered in four parts to members of just-drinks.

Introduction

These are tough times for the wine market in the UK, as the two headlines from our annual poll make abundantly clear: the highest levels of pessimism seen in the six-year history of the survey, and growing numbers of people disputing the UK’s historic claim to being the most important and dynamic wine market in the world.

That crown slipped for the first time last year, when more people answered “no” than “yes” for the first time. Well, this year, the naysayers have gained in number still further, pointing out that other destinations in Asia and northern Europe offer far richer pickings than the UK.

The levels of pessimism that run throughout this report have many causes: a promotional and discount-driven pricing culture; a consolidated retail market dominated by supermarket chains; rising excise duty, as the Government continues to try to wring more tax out of booze in general, and a macro-economic picture as dismal as the English spring weather, amid a double-dip recession and the knock-on effects of an economically fragile Eurozone.

Having enumerated all the reasons not to be cheerful, however, it’s more important than ever to restate the fact that, as many of our respondents are swift to point out, the UK remains a huge wine market with more diversity than many of its European neighbours, a wine culture that has grown massively in significance over the past few decades, and a consumer base that remains open to new ideas and new wine-producing regions.

These people are keeping calm and carrying on, eschewing hand-wringing in favour of a pragmatic mentality that makes them determined to cope with the market as it is, exploring ways for retailer and supplier to work together and find a way to make money and fatten up margins.

The bigger concerns revolve around where the market is heading. Price pressures enforced by tax increases and discount-hungry consumers are, it is feared, creating a narrower selection of big brand wines in the retail shop window. And that, in turn, could engineer a vicious circle of reduced consumer interest and curiosity, leading bored shoppers to explore the joys of rival drinks categories instead.

There’s a growing feeling in this year’s report that something needs to be done to engage consumers more on the subject of wine, whether this is done through product innovation, improved information flow at point of sale, or the greater use of the internet and social media.

Social media in particular is an area that comes under the spotlight in this year’s report. The conclusions? It’s clear that most of those surveyed view the likes of Twitter and Facebook as significant and established means of communication for their brands, even if some of them remain a little hazy on exactly why they’re doing it and, more importantly, what it’s achieving.

Other reasons to be cheerful? Oddly enough, some would pinpoint the Government’s plans for some kind of minimum pricing mechanism for alcohol. Although this would have little effect on most wine brands at the levels currently proposed, a higher minimum pricing level cannot be ruled out. And this, some argue, will actually help retailers and suppliers to trade consumers up through price points, building in increased margin along the way. Will it really happen that way? Others have their doubts.

Elsewhere, sparkling wine and rosé continue to be top of the pops in terms of sales-driving consumer trends, along with ever-popular Sauvignon Blanc. But, things are changing: there are growing signs that rosé and Pinot Grigio may have peaked, with Moscato and lower alcohol wines gaining in popularity.

In terms of producer countries, our respondents are increasingly backing Italy and Spain over previous favourites Chile and Argentina, perhaps swayed by the falling euro as much as by the quality of the wines. Meanwhile, on a wave of patriotic fervour driven by the Diamond Jubilee and the Olympics, English wine makes the top six for the first time.

Finally, it’s reassuring to see that some things don’t change: our closure question continues to polarise views, with passionate devotees of screwcap on one side and arch, pro-cork traditionalists on the other.

But, increasing numbers are espousing the “horses for courses” view, backing corks for certain sections of the market and screwcap for others – but often turning their backs on artificial corks altogether, for aesthetic reasons above all.

The Questions

I: Are you optimistic or pessimistic about the prospects for the UK wine market over the next 12 months? Why?

  • Optimistic: 47.5% (2011: 42%)
  • Pessimistic: 49% (25%)
  • Neither/don’t know: 3.5% (33%)

Our first question elicits a far more polarised response than in recent years. While levels of optimism have grown slightly, these have been outstripped by the highest levels of pessimism seen in the six-year history of this report.

To generalise, the pessimism is largely conditioned by a combination of negative factors: the fragility of the economic recovery as the UK slips officially into a double-dip recession; ever-increasing levels of excise duty; tough pricing policies from extremely powerful multiple retailers.

Many also recognise that there are opportunities too, but even the most optimistic still admit that conditions are far from ideal in the UK in 2012. Largely, positivity is reserved for the premium and above section of the market, where margins are generally fatter and consumers less fickle.

Comments

“Premium wine (GBP6.50 to GBP8.50) is currently the fastest-growing segment by value in the UK and has delivered an 8% increase in average price, compared to just 4% in lower mass wine (GBP4.00 to GBP5.00).

“We’ve identified that consumers are ready and willing to buy into premium wines, so tapping into this opportunity is key to the future success of the wine industry.” - Simon Thomas, deputy MD, Pernod Ricard UK.

“Genuinely optimistic – yes, we still have some huge challenges ahead, but the solutions to many are within the trade’s hands and, with the correct collaborative approach between producers, agents and retailers, there are genuine value opportunities to grasp.” - Dan Bolton, MD, Louis Latour Agencies.

“Conditions will remain extremely difficult not only for the next 12 months but beyond. Global economics as well as national politics are combining to create an unprecedented squeeze on all sectors of industry, not least of which the drinks trade.” - Adam Wyartt, head of Old World brands, PLB Group.

“My opinion remains very much the same as for last year. Duty has increased – amplified by VAT – so price points have even more pressure aimed at them than ever before.

“Social pressures on alcohol – and it doesn’t matter whether you are dealing with top-end products such as ours, it’s still alcohol – are increasing by the day, but the Government’s approach is foolhardy. It is attacking on price and not hard-nosed policing and correct use of the courts.” - Nick James, MD, Pol Roger Ltd.

“I am optimistic. Despite the issues over taxes and health, the core market of consumers is not about to give up drinking wine. The choices in the UK are some of the best in the world, which helps to keep consumers interested.” - Adrian Bridge, CEO, The Fladgate Partnership.

II - What is the most important issue facing the UK wine market in 2012? What should be done about it?

  • Retail pricing: 40% (2011: 32%)
  • Duty increases: 19% (16%)
  • Minimum pricing: 7% (n/a)
  • Consumer education/communication: 7% (n/a)

Quite a range of responses here, but retail pricing, its causes and its effects remain top of mind for many in the industry, along with the Government’s continued use of the duty escalator mechanism to increase excise tax above the rate of inflation.

Concerns over minimum pricing and the education of and communication with consumers are also growing in significance, reflected by their first appearance in this list, replacing broader worries over disposable income and macro-economic trends.

Many expressed fears that rising tax levels and minimum pricing proposals would only increase the pressure on pricing, with retailers unwilling to enforce widespread price increases on a still recession-battered public.

This, in turn, might lead to an even more reduced offer in the major retailers, impacting on consumer interest in the category, and making consumer communication and education still more important.

Comments

“This has not really changed in the last ten years: i.e. the misguided attacks on the various sectors that make up the route to drinking consumers… Better consultation between Government and drinks trade, such as seems to exist between them and the financial services sector, is vital.” - Adam Wyartt, PLB.

“The most important issue facing the trade this year will be prices, following another excise duty increase, minimum price proposals and the weakening of sterling against some currencies (although the Eurozone crisis could result in a weaker euro and cheaper European wines for UK importers).” - Gavin Partington, communications director, WSTA.

“The power of the multiple grocers and the use – or should we say abuse – of promotional pricing gives a totally unfair playing field for the trade as whole.” - Nick James, Pol Roger.

“The constant knocking of the London International Wine Fair – it is a critically important date in the UK trade calendar that puts us – the UK trade – on the global map. The trade needs to park its differences of opinion and support the event. Producers need to encourage their importers to attend and retailers should in turn support the businesses that invest in the event.” - Dan Bolton, Louis Latour Agencies.

III - The UK is often described as the most important and dynamic wine market in the world. Is this still true? Why (not)?

  • Yes: 36% (2011: 42.6%)
  • No: 48% (43.4%)
  • Unsure: 16% (14%)

One year ago, this was the headline for the report: for the first time, those answering no to this question outnumbered those who said yes. Twelve months on, there appears to be no way back, with very nearly half of respondents admitting that the UK is no longer the dream destination for most of the world’s wine producers. Only five years ago, 80% of people believed it still was.

There’s a continuing recognition that the UK remains an extremely diverse and large market, driven by strong levels of consumption and an openness to new products and regions that comes partly from not having a sizeable wine production sector of its own.

But, more companies are realising that they can make more money elsewhere, most notably in the emerging markets of Asia, but also in Latin America, northern Europe and in the recovering economy of the US.

Beyond financial concerns, there are also fears that a narrow retail sector and declining numbers of SKUs on the shelves are “dumbing down” consumers, undermining their latent desire to try new wines and making wine simply less interesting – not helped by a perceived (by some) lack of innovation in the trade.

Comments

“A: While there is potential for – limited – exposure by ‘new’ regions/countries, a growing number of important wines are no longer here. Or very hard to find.

“B: The spirit of innovation is stronger elsewhere in countries such as Finland and the US.

“C: Very few people are making sufficient profit here.” - Robert Joseph, DoILikeIt?.

“The UK remains one of the most diverse and rewarding wine markets for the consumer and this will not change, but I think we all realise that the world isn’t flat any more and that there are a lot of interesting changes happening in other markets that we can all learn from.” - Dan Bolton, Louis Latour Agencies.

“Producers of mid- to low-market wines may now feel that, commercially, the UK is not as exciting as it once was, due to the increasing A&P support required to retain listings within the large retailers. Producers may well be turning their attention to new emerging markets where higher margins and lower support are needed.” - Nick James, Pol Roger.

“The UK is certainly one of the most dynamic markets in the world due to the intensity of the competition, but the tax and price pressures here are diminishing the attraction of this market to some producers.” - Gavin Partington, WSTA.

“It’s the most varied – not sure about the most dynamic. Until the balance between brand building and discounting activity is re addressed, dynamism will not return.” - Lisa Duckenfield, wines & Champagne group marketing manager, Cellar Trends/Grupo Faustino.

“It is still partly true for three reasons: actual volume and global value achieved; because it has a mature wine-drinking population and marginal production capacity; and finally because of the leading global role of some of its influencers.” - Anne Burchett, Sopexa MD.

For the second part of this briefing, click here.