Minimum Unit Pricing and its effect on wine – An Irish case study – comment

After a decade of post-Financial Crisis economic misery and two years of COVID chaos, it’s safe to say that ‘more expensive drinks’ was low on the list of what most consumers were looking for from 2022. That’s what they got in Ireland, however, with the country becoming the latest to introduce Minimum Unit Pricing at the start of this year. As is the way with these things, it’s been on the cards for a while. The catalyst was a significant rise in per-capita alcohol consumption in the country during its 'Celtic Tiger' years, culminating in a peak of 14 litres of pure alcohol (LPA) per capita around the Millennium. It took almost a decade for the impact of this increased consumption to be felt in social and health issues, and a further ten years or so for plans to be debated, drawn up into coherent legislation (of which MUP is only a part) and then, finally implemented at the start of 2022. Was it necessary? Well, current consumption - at just under 11 LPA per capita - puts Ireland in the top ten of the 38 member countries in the Organisation for Economic Co-operation and Development (OECD). The Irish Health Research Board puts this as the equivalent of 40 bottles of spirits or 113 bottles of wine per person. Since a quarter of the population doesn’t drink, however, the actual figure amongst drinkers is certain to be far higher. The issue is not the sheer volume - there’s no shortage of medical research that shows it’s perfectly possible to drink two glasses of wine a day without any ill effects. Rather, it’s the pattern of consumption. Binge drinking is a big problem in Ireland - and has a serious negative impact on public health. MUP is seen as a broadly effective way of addressing the problem. Irish consumers might not like the fact that a bottle of vodka has gone from EUR13 (US$14) to EUR20, but the Government can legitimately argue - as it does with cigarettes - that it is doing this for their own good. Understandably, the vocal beer and spirits lobby in Ireland (as in Scotland, when MUP was introduced a few years earlier) was not keen on something guaranteed - indeed designed - to affect their volumes. But retailers, perhaps, were more sanguine. "The National Off Licence Association was in favour as the supermarkets would become less competitive," an Irish journalist tells me. "The supermarkets were in favour as it’s a cash injection, a profits windfall. And, the government was in favour as although no excise tax was being increased, the VAT take would rise." It was, he says, "a win, win, win for all bar the poorest consumers". How is this going to affect wine, which, after all, has been the big winner in the Irish market over the last 30 years, with sales tripling since the mid-1990s? On one level, not so much. A 13.5% abv wine still (just) makes it in under the key EUR7.99-per-bottle price point, and most established brands are operating at this level and above. Compare this to beer, for instance: Pre-Christmas, some big brands were on promotion at around EUR1 per can, whereas now their minimum price is EUR1.78. The move will still have a big impact on wine's lower end - particularly private label and 'Buyer's Own Brand'. Sources in Ireland tell me that in the run-up to Christmas, Lidl, Aldi and Tesco were all selling wine ranges at a barely credible EUR3.99 - not bad going, since excise duty is EUR3.19 and VAT over 20%. The 'Every Day Low Price' discounters, in particular, previously sold large amounts of wine at EUR5.99 and EUR6.99. It’s more likely that those ranges will simply be dispensed with rather than see price increases since consumers tend to equate big rises in familiar brand names with retailer gouging. Supermarkets are anxious not to look like they’re cashing in. This might not be the obviously terrible news for the likes of Wolf Blass or Santa Rita that it is for anyone producing a lot of BOB. But, it’s going to necessitate some big decisions on price positioning. Brands that only just make it in at the EUR8 cut-off will, obviously, find themselves unable to discount. And, if promotional activity is a key element of their strategy, they will need to up their price to the EUR10 level, in order to discount down to EUR8. Brand owners and export managers will have some big calls to make. Rumours within the trade are that the discounters, in particular, are looking at increasing their SKUs of lower-alcohol (9%-to-11% abv) wines, in order to still be able to hit their lower price points. An 11% wine, for instance, can sell at EUR6.52, while a 9% wine can get down to EUR5.33. Tesco, meanwhile, might look to use other levers to purchase, such as sustainability, rather than price. Both of these outcomes would undoubtedly be seen as beneficial by those who drafted the MUP legislation. So far, so tentatively good. But, it does raise two further questions. MUP might reduce consumption of cheap products, but is this, in itself, a good thing, or does it simply harm the poorest in society who, let’s face it, have had the worst of the last 15 years’ economics in any case? And also, could we see more MUP in the future? On the first question, the jury is still out. Figures from British Colombia in Canada showed a volume decline of 4% when MUP was introduced, which seems promising. Except that wine was more affected than the more 'bingeable' beer and spirits. This suggests that MUP might not be as effective at weeding out binge-drinkers as its proponents claim. Early figures for Scotland - where MUP came into effect in 2018 - suggest a small fall, but the impact of the pandemic less than two years later make meaningful conclusions difficult. A study by the American Association of Wine Economists in 2014 found "a large body of evidence" to indicate that "binge drinkers are not highly-responsive to increased prices or taxes, and may not respond at all". Analysis by the Swedish Public Health Agency, meanwhile, concluded that MUP could be an effective way of cutting back consumption - but (unsurprisingly) in the lowest income groups. As a tool for reducing alcohol harm and morbidity, then, it only works if the poorest members of society are the ones with the biggest problem. The Swedes, who have a high tax, high VAT, state-controlled drinks economy, clearly see no reason to add it to their arsenal of alcohol control. So, it will be interesting to see how MUP plays out in Ireland which, except for the state control of retail, is not dissimilar to Sweden. Interestingly, per-capita consumption in Ireland now is no higher than in 1989, and the fact that significant numbers of under-25s abstain from alcohol altogether suggests this could be a policy that is addressing the problems of a previous generation. Drinks companies are rightly suspicious, too, that once the concept has been introduced the rate will continue to rise. Scotland introduced a rate of GBP0.50 per unit, and there is already mounting pressure to raise this to GBP0.60 or even GBP0.70. Health concerns are gaining ground in the EU, and many people see alcohol as being on a similar course to tobacco 50 years ago. That said, the wine trade has been bemoaning over-low price points for more than 20 years. If nothing else, MUP has stopped that particular race to the bottom - even if it’s not in a way that the industry would have chosen.