Can bullish optimism and higher average spend save wine from a Brexit bust?
Wine writer James Lawrence asked whether Britain’s wine trade is in for a boom or bust in a post-Brexit environment, based on conversations with the trade and new data from Wine Intelligence.
Here’s what he found.
With referendum result and the ensuring market turmoil on top of escalating overheads and competition from online/supermarkets threatening the off-trade, it’s of little surprise that there’s not much festive cheer on the high street at the moment.
The Oxford Wine Company’s Ted Sandbach said he is putting off putting up prices until after Christmas as customers won’t tolerate rises at this time of year - although an increase is inevitable.
“We will basically have one large rise in April and the customer will have to pay - and they will, after the shock has died down,” he says.
The true cost of Brexit to the trade is one that Richard Halstead, chief operating officer at Wine Intelligence, has spent months analysing.
“Firstly, retailers should understand that, regardless of the eventual deal that the government manages to negotiate with the EU, Brexit will cause further price inflation. The currency fluctuations and rising prices have, of course, already been felt by the trade and would likely get worse, presuming that Brexit goes ahead in 2019,” he says.
He continues: “Moreover, there are other costs inherent to Brexit, that have received less media attention. For a start, employment costs are likely to rise, as will excise duty and taxes on alcohol. The government’s finances will undoubtedly be in a poor state following our planned departure from the EU, and so the Treasury will be desperate to claw back any revenue it can. Alcohol will be a soft target and I’m convinced that future budgets will contain significant duty rises on alcohol. Also, the government has been debating a VAT cut for retailers, but now that Brexit is seemingly going ahead that is likely to be shelved.”
Yet despite the well-publicised rise in inflation, it’s not all doom and gloom for the off-trade.
Wine Intelligence’s recent report - UK Landscapes 2016 – indicates that while the number of regular wine drinkers has decreased to around 28 million people, the average spend per person has risen considerably over the past 12 months.
Moreover, their research shows that UK wine drinkers are less influenced by promotion offers than before, and are becoming more involved in the category.
“It is this demographic that can potentially save retailers from the worst effects of Brexit,” notes Halstead.
“Middle-class consumers who are more concerned with drinking quality wine or sourcing their favourite varietal, and won’t immediately abandon the category because of price rises as they are more insulated from the financial effects of Brexit.”
Wine Intelligence’s findings are supported by several UK independents, who report that the middle market for wine remains buoyant. “Now, more than ever, our strength is the middle range - £8 - £15. Of course we sell some top-end but the majority is middle-market,” says Sandbach.
Mark Flounders, wine buyer at Vagabond Wines agrees, pointing out that consumers are increasingly displaying loyalty to certain styles of wine, such as Kiwi Sauvignon, and are unlikely to shun their gooseberry fix because a £16.95 bottle suddenly costs £19.65.
There is no denying that businesses are potentially in for a rough ride over the next few months, but many indies are being bullishly optimistic, and have already begun to find their footing in this new epoch.
“I’m actually not that concerned about price rises from our suppliers, as it just encourages me to either scour through the portfolios and find the gems or cut them out where we are able to source directly from the producer,” Flounders says.
“There are still wineries out there in Europe with great value products, if you have the determination and ability to find it.”
Read the full story here.