just-drinks' State of the UK Nation 2011 – Part III
Presented earlier this month at the London International Wine Fair, here, for just-drinks members, is a bonus briefing for May, just-drinks' State of the UK Nation 2011 survey. Part two can be found here, while part three continues with the survey's questions.
VIII - What impact will the duty measures announced in this year’s Budget, coupled with the recent VAT rise, have on the market?
- Trading down: mentioned by 44% of respondents (2010: 44%)
- Increased drinking at home: 43% (35%)
- Reduced sales: 42% (28%)
Subtle changes on last year here. The fear of trading down remains consistent, borne out of the concern that rising taxes will simply lead to poorer quality wine flooding the supermarkets in a bid to maintain price points. The consumer reaction to this deterioration in quality could have far-reaching consequences for the sector.
The changes include a perception that more people will drink wine at home, which is potentially good news for retailers and supermarkets in particular, but less positive for the UK’s beleaguered on-trade.
More significantly, a much higher proportion of respondents now believe that the tax increases will have a direct effect on sales volumes, rather than simply shrinking margins and/or wine quality.
These three answers were clear leaders in the popularity stakes, but others that attracted a fair share of votes included “no effect at all” – because the increases wouldn’t be passed on to the consumer – consumers leaving the wine sector altogether; and, on a positive note, a welcome rise in prices to wean consumers off lower price points.
“It will slow sales of the low-value wines, but have less impact on the better-quality wines, which may not be such a bad thing.” - Paul Symington, joint managing director, Symington Family Estates.
“Higher duty and VAT will force higher price points, which should help us to recover lost margins and hence be able to reinvest in building the Faustino brand image.” - Lisa Duckenfield, group marketing manager, Cellar Trends.
“It will create a further depressing spiral of suppliers being squeezed to meet retail price points with consequent diminution of wine quality. The trade needs to encourage consumers to trade up where they can find better value.” - Alun Griffiths MW, wine director, Berry Bros & Rudd.
IX - What impact, if any, will the government’s recently announced plans for minimum pricing have on the market? Why?
- None/minimal: 56%
- Improvement in margins/quality/pricing: 15%
Another new question for this year, and one that elicited a strong response. While a number of people bemoaned the likely negative effects of what is perceived as another anti-alcohol measure, most pointed out that the current measure is unlikely to have anything but the most minimal effect.
In fact, the government’s plans are not strictly speaking minimum pricing at all, but a ban on selling products for less than the sum of duty plus VAT. In other words, there is no protection of margin whatsoever, and the vast majority of wine products in the UK are entirely unaffected by the measure.
Apart from the fact that this does little to ease the situation for hard-pressed producers and suppliers hit by wafer-thin margins, there is also a fear that it may simply be a precursor to a more stringent minimum pricing system which affects the sector more seriusly.
“Very little as the formula is based on duty and VAT only. It does not take into account the cost of the actual product.” - Lynn Murray, marketing director, Hatch Mansfield.
“The obvious one will be a decrease in consumption, at least for a while. It might have an impact on the overall wine quality, but I’m not too sure about this.” - Jérôme d’Hurlaborde, export director, Northern Europe, AdVini.
“None. Minimum price proposed is only duty and VAT, so it will only stop below-cost selling. This is a positive step at least, but the effect will be confined to the very bottom end of the market.” - Alun Griffiths MW, wine director, Berry Bros & Rudd.
X - How far has the retail wine sector recovered now from the economic downturn? How do you expect this to develop over the next 12 months?
- No recovery: 33%
- On the rise: 33%
- Don’t know: 31%
Opinions don’t come much more divided than this. Precisely the same number of respondents believe the UK wine market has experienced no recovery from the downturn, as believe that it is once again on the up. Factor in a similar number of “don’t knows” and you have a highly confused picture of where the market is currently heading.
One thing is clear: only 1.6% of respondents think the market has recovered to the levels experienced in pre-recession 2007.
Asked about the year ahead, optimism is in short supply, with most respondents expressing the belief that improved trading will be hard-won, and likely to be experienced only by the most dynamic, innovative and proactive companies out there.
“Very few wine retailers make any profit, so the market can hardly be said to have recovered. I see no overall growth in 2011 as consumer spending will be curtailed and margins will be severely squeezed.” - Alun Griffiths MW, wine director, Berry Bros & Rudd.
“Some deep discounted wines will not be able to continue the level of support indefinitely, which could force a change in wines available to the consumer.” - Lisa Duckenfield, group marketing manager, Cellar Trends.
“Those new proactive companies within the independent sector have done relatively well. Value is not just about price, but more about the quality/experience. Those with poor staff and a poor range have suffered. The UK independent retail trade has fallen by 8% whilst the multiple grocers rose by 2%. The market overall is pretty static, so it could not be stated that the retail sector has recovered – more that adjustments have been made within the total sector.” - Nick James, managing director, Pol Roger Portfolio.
“I’m not sure the retail wine sector has recovered from the economic downturn. Going forward, as with any economic downturn, the innovative companies who operate the most efficiently and effectively will survive and thrive, but one thing we do know for sure is that things will never be the same again.” - Maria Jose Sevilla, director, Food & Wines from Spain.
XI - What are the three most significant consumer wine trends in the UK in 2011? Why?
- Pricing/discounts/value for money: mentioned by 40% of respondents (2010: 48%)
- Rosé: 31% (43%)
- Sparkling/Champagne: 19% (26%)
The same top three responses as last year and in the same order, but 2011 saw an increased fragmentation of answers to this question, including a broad spread of trends from increased online sales to rising at home consumption, and even complete abstinence.
The top three reflect the ongoing concerns over pricing and promotional mechanisms in the multiple retailers, alongside the two dominant consumer trends of the past few years.
What’s next? To judge from the popular responses that didn’t make our top three, lighter styles of wine – both white and red – feature strongly, as do lower alcohol wines.
“The demand from retailers, and consumers, for lower alcohol wines [is] a significant trend – not necessarily low alcohol in terms of 5% or so, but around 11% to 12.5%, far removed from the hefty 15% wines of the past. Over the past few years our winemaking team has worked to bring down alcohol levels, recognising the need for a stylistic shift within the Australian wine industry.
“Another trend is increased popularity of sparkling wine versus Champagne. Due to continued economic uncertainty we have seen a trend toward more affordable, quality sparkling wine from Australia, New Zealand, Spain – and, of course, Prosecco from Italy.” - Paul Schaafsma, general manager, UK and Europe, Australian Vintage.
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