Comment - Filling the minimum pricing void
Drinks industry taking shots at itself
Plans to introduce a minimum price on alcoholic drinks in the UK are hanging by a thread due to a lack of political support, but the drinks industry cannot agree on what should happen next.
Scotland's ruling National Party suffered a potentially fatal blow to its minimum pricing plan today (31 August) after the country's main opposition party, Labour, confirmed that it would not support the proposal. Labour will join minor opposition parties to block minimum pricing in Scotland's Parliament.
Further south, the UK Coalition Government in Westminster has made it known that it is "not interested" in setting a minimum price per alcohol unit on drinks sold in England and Wales. Its stance has infuriated the majority of the medical profession, not to mention some local councils across England.
Legal advice on minimum pricing has been shaky for some time. The Scotch Whisky Association has repeatedly said that the policy would break international trade law and the UK's competition regulator, the Office of Fair Trading, has strongly advised ministers against it.
What we now face in the UK are skirmishes on policies that might be implemented instead. Those skirmishes, however, are taking place as much within the industry camp as in the wider field. This is a result of too many in the industry defining themselves for too long by what they stood against, rather than what they will stand for.
Diageo and several other multinationals continue to officially deny any link between pricing and consumption. But, this goes against a significant body of evidence compiled by health groups all the way up to the senior echelons of the World Health Organisation.
Bearing that in mind, and taking into account the chaotic state of many town centres (not to mention hospital accident departments) in the UK on Friday and Saturday evenings, some kind of Government action on pricing and availability looks unavoidable. Many drinks companies and industry associations have begun to realise that they need to work out what policies they will be prepared to accept.
The primary battleground, then, has become the definition of a 'below cost' price on drinks. Ministers are keen to introduce a ban on sales below this level. The secondary battleground is the taxation system. Officially, the previous Government removed taxation as a 'lever' for affecting alcohol consumption in 2004, yet real-terms tax rises of more than 20% on spirits, beer and wine over the last two years suggests a different story.
As the debate on availability and pricing has progressed this year, disunity within the drinks industry has become much more pronounced. The on-trade seems certain that it can paper over the cracks in its category by getting in a hit on the off-trade, which it blames for the majority of cheap drinks on offer.
Meanwhile, the brewers want duty cuts on beer to reflect its low strength. Yet, Diageo and the Scotch Whisky Association have this week called for duty tax rises on beer and wine so that it is taxed at an equivalent rate to spirits. And, everyone outside of the cider industry wants tax to rise on cider so that it is at least equivalent to beer.
In terms of an effective lobbying agenda, this disunity could cost the industry. The UK Government of the day has a long and glorious record of playing the 'divide and rule' card. It has already knocked a few holes in the sector.
Diageo's results last week spelt out one strong message, as far as M&A nut Richard Woodard is concerned. Let's watch him clap his hands and jump up and down as he tells us what he heard....
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