Presented earlier this month at the London International Wine Fair, this month's management briefing for just-drinks members, is our State of the UK Nation 2012 survey. Part one can be found here, while part two continues with the survey's questions.

IV - Name the three best and three worst things about the UK wine market, with reasons.

Best

  • Market size/product choice: mentioned by 65% of respondents (2011: 88%)
  • Openness to new ideas: 40% (28%)
  • Breadth/competitive nature of market: 25% (25%)

Worst

  • Discounting/margins/pricing: 70% (65%)
  • Excise duty: 33% (36%)
  • Retailer consolidation: 22% (47%)

Some shifting in the numbers here, but the main positives and negatives about the UK wine market remain similar: people like its size, diversity and openness, but decry the transformation of consumers into promotion junkies, ever-climbing tax levels and the consolidated retail sector.

Hovering just outside the top three, in terms of the best things about the market, is the wine trade’s structure, expertise and knowledge, mentioned by a number of respondents as a continuing plus compared to other markets around the world.

Independent retailers are also name-checked as crucial to driving innovation and consumer interest, while low pricing – seen by many as the bane of the industry – earns credit from some respondents for continuing to drive sales volumes.

On the downside, responses were more fragmented beyond the obvious bugbear of pricing and discounts. The dearth of good-quality, engaging consumer education and communication very nearly broke into the top three responses, as did the perceived growing demonisation of alcohol as responsible for all manner of social ills.

V - What would you most like to see change in the UK wine market – and why?

  • Promotions/discounts/pricing: mentioned by 33% of respondents (2011: 27%)
  • Power of retail multiples: 10% (10%)
  • Consumer education/communication: 10% (n/a)
  • Excise duty: 8% (18%)
  • Wider range of products: 8% (n/a)

Beyond the predictable top two answers, there were some subtle movements here. The declining popularity of the excise duty response perhaps reflects a growing acceptance that – in the medium term at least – the government’s inflation-busting escalator mechanism is here to stay.

Instead, we have a number of people arguing that improved consumer communication is needed, both from brand owners and suppliers, and from the retailers themselves. The need of consumers for accessible and unintimidating information about wine has never been higher, several respondents say.

Finally, growing numbers also argue that the range of products available to most consumers – ie through the supermarkets – has become far too narrow and needs to be expanded in order to drive renewed interest in the category.

Comments

“The UK wine trade should look a bit more at what is happening in other markets around the world and take inspiration from other industries for ideas and innovation.” - Gavin Partington, WSTA.

“More pragmatism about the genuine opportunities this market still has to offer and less self-defeating complaining.” - Anne Burchett, Sopexa.

“Principally, we’d like to see less of a focus on price alone in-store. We appreciate that promotions have a role to play in driving footfall, however, if retailers are open to consumer-facing mechanics, beyond a purely price-led approach, they can unlock the huge value potential of premium wines.” - Simon Thomas, Pernod Ricard UK.

“We need to understand that the wine market is now polarised between beverage alcohol and finer fare. Efforts need to be made to separate these via packaging and marketing (eg put cheaper wine in Tetra-Pak, pouches, BiB etc) and to encourage real trading up.” - Robert Joseph, DoILikeIt?.

“The promotional obsession of retailers and consumers, so wines are bought on merit.” - Adam Wyartt, PLB.

VI - What impact will the duty measures announced in this year’s Budget have on the market?

  • Trading down: mentioned by 22% of respondents (2011: 44%)
  • Reduced sales: 20% (42%)
  • Rising prices: 7% (n/a)

An increasingly fragmented response to this question this year, albeit still led by the obvious potential consequences of rising duty levels: trading down, leading to still narrower margins for suppliers; and falling sales.

Some highlighted the potential for rising prices, with positive and negative consequences. The potential to move consumers up in terms of price points could be used to swell margins, a few believe, while others fear that rising prices for low-level wines could drive people out of the sector altogether.

One previously popular response to this question fell out of the reckoning altogether in 2012: not one of those surveyed now believes that rising duty levels will have little or no effect at all, with everyone acknowledging that either prices have to go up, or quality has to go down – or both.

Comments

“Lambs to slaughter springs to mind. The emotional subject of price points will be used by the big boys to drive down their cost price, no doubt.” - Nick James, Pol Roger.

“Raises price points but puts further pressure on supplier margins – consumers have no increased spend, so retailers will not readily accept further cost increases that they would have to pass onto the consumer.” - Lisa Duckenfield, Cellar Trends.

“Will accelerate the rate of decline, as any economic recovery will be anaemic and will not compensate the ‘feeling poorer’ consumer outlook.” - Peter Darbyshire, MD, PLB Group.

“More of the same – those margins just keeping getting slimmer! It is the everyday consumer who is harmed and ultimately the trade as the level of choice within key price points gets squeezed and the consumers’ journey of discovery gets cut short.” - Dan Bolton, Louis Latour Agencies.

VII - What impact, if any, will possible future minimum pricing measures have on the market?

  • Improvement in margins/quality/pricing: Mentioned by 28% of respondents (2011: 15%)
  • None/minimal: 26% (56%)
  • Falling sales: 8% (n/a)

There appears to be a degree of confusion about the Government’s plans for minimum pricing – a large number of our respondents seemed unsure of the exact effects, with many voicing fears about how the policy might evolve as future governments potentially increase minimum pricing levels.

While many still believe that it will have little effect on the vast majority of wine sales in the UK, this could change depending on the pricing level eventually introduced.

Meanwhile, a growing number of our respondents see the introduction of minimum pricing as a positive development, potentially killing off deep discounts in the supermarkets and, they hope, allowing independent retailers to compete on a more level playing field.

Comments

“This could be a sensible measure if it stops binge drinking, but must be done in conjunction with education. From a global perspective, it is very hard to find a single example of where highly-taxed alcohol has helped reduce misuse of alcohol.” - Adrian Bridge, The Fladgate Partnership.

“Depends on the levels. The proposed figure will have little impact. Fifty pence per unit would have more. If we go down that route, there will be a fast growth in 5.5%, wine-based beverages, most of which will probably be flavoured in some way.” - Robert Joseph, DoILikeIt?.

“Mildly negative on wine, hugely negative on beers and spirits.” - Adam Wyartt: PLB.

“Offering mid-sector wine, we don’t foresee this being too much of an issue. Will just need retailers to adjust their promotional strategies.” - Lisa Duckenfield, Cellar Trends.

“The Government’s intention to intervene directly in the market by imposing minimum prices on alcoholic beverages is deeply disappointing.

“A policy of minimum pricing will affect all low-income consumers, including those who drink responsibly. There is no evidence to suggest that such a market intervention will target binge drinkers, let alone deliver the reductions in abuse drinking and anti-social behaviour that are asserted in the strategy statement.” - Simon Thomas, Pernod Ricard UK.

For part three of this four-part briefing, click here. Part one can be found here.