The UK wine market rot will hit global profits - says Rabobank

The UK wine market rot will hit global profits - says Rabobank

Tough conditions on the UK wine market will cut profits across the global wine sector as emerging countries such as China remain too far behind to pick up the slack, a report by Rabobank has warned.

Rabobank highlighted the UK as the major risk to global wine industry profits in its latest quarterly wine review, published today (2 November).

A potent cocktail of regulation, unfavourable currency rates, a stronger consumer shift to at-home drinking in the recession and regular duty tax hikes have damaged the value of the UK market. "Aside from being the largest market for many suppliers," said Rabobank, "the UK market has also traditionally offered some of the highest average unit prices".

It said that there was "little room for optimism" that the situation will improve in the short-term and added: "The challenges faced by this market will affect the profitability of the global wine market."

Wine companies will find themselves under pressure as the US struggles to regain momentum and emerging markets remain too small to offset decline in the UK.

"The average unit price of Bordeaux exports to China is roughly half the average price to the UK," said Rabobank. "For Burgundy, exports to China in H1 2010 are up nearly 40% over H1 2008, but this growth represents only 1% of the decline in sales to the UK," it said.

Duty tax on wine has risen by 25% in real terms in the UK since March 2008. Government plans to raise value added tax from 17.5% to 20% in January 2011 is expected to further damage consumption.

Rabobank said that a 75cl bottle of wine retailing for GBP4 (US$6.4) in the UK will return an average GBP0.61 to the supplier, compared to a supplier return of GBP1.14 for the same wine in 2002.