UK: E&J Gallo Winery forecasts tough 2010
E&J Gallo Winery will continue trimming back its range in the UK in 2010, as the trend for promotions and a "savage" tax on wine make the country a tough place to do business.
The country's wine market is unlikely to show much improvement in 2010, according to George Marsden, E&J Gallo's vice president for Europe, the Middle East and Africa.
Gallo is refocusing its UK wine range around five core brands, a strategy that began last year in an attempt to adapt to the tough market conditions.
The privately-owned wine giant reported a drop in volume sales in 2009, of which around three quarters was a result of the firm withdrawing ranges, the group told a briefing with journalists in London today (9 March).
Marsden said that an "explosion" of discounting in 2009 has damaged the UK wine sector. "2009 was all about three for GBP10," he said, adding that, in wine, "it is rare that you find a category with less than 80% on promotion. Clearly this is not good for the industry."
While Marsden conceded that discounting is, to some extent, a "self-inflicted" problem for the industry, he reserved special criticism for the UK tax regime.
A duty tax rise of around 20% in the last two years is "the single biggest threat" facing the wine industry in the UK, he said.
Marsden said that he, together with Constellation Europe head Troy Christensen and the Wine & Spirit Trade Association, have made their point forcefully to the Government, ahead of a further planned duty rise of 2% above inflation in the upcoming UK Budget.
"After 10 to 15 years of growth, we are at a tipping point," said Marsden. "We are at the point where you are going to start receiving declining tax revenue if you keep increasing the duty."
Tax and promotions are making the UK a difficult place to make money. Market research group Mintel has forecast that UK wine sales will fall by 2% in value up to the end of 2013, compared to a 4% rise in volume, due to the "inability to premiumise".
Gallo is streamlining its portfolio in the UK to focus solely on Turning Leaf, Gallo Family Vineyards, Redwood Creek, Carlo Rossi and Barefoot, the last of which is to receive a big push in the country in 2010.
Marsden said that the firm remains committed to the UK long-term.
"The UK, despite all of the challenges, remains the most dynamic market," he said.
Marsden indicated, however, that Gallo is prepared to sacrifice short-term profitability for longer term success in the UK. "Because we are a family-owned company [without shareholders], we can take a longer term view," he said, without specifying figures.
Strong demand for rose wine has continued to lighten the gloom in the UK, according to Gallo's UK and Ireland sales director, Mark Tinsley.
Rose wine sales in the UK grew by 15% in value in 2009, to GBP408m (US$613m). Volume sales rose by 13%, compared to 2008.
Gallo will look to build on the trend by introducing a rose wine-based cocktail in summer 2010. Named Rosito, the cocktail contains Gallo Family Vineyards White Grenache rose, ginger ale, fresh red fruits and ice.
United Wineries has confirmed a change of commercial director for its UK team....
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