‘Global wine shortage’ and what the UK pays – part 2

Bottles washed, dried then filledAs a follow-up to ‘Global wine shortage’ and what the UK pays – part 1, here are a few thoughts about the likely impact on UK consumers.

Supply and demand

  • A balance between global supply and demand would be welcome. The biggest threat to many good wine growers’ financial stability is that there’s too much wine on the market.
  • Over or under supply has to be viewed region-by-region. In Bordeaux, we’re about to see the impact of a small, generally inferior crop in 2013. In the bulk wine market – we’re talking a euro a litre – stocks of 2011 and 2012 (the best of the three) will be swallowed up.
  • Elsewhere, as Dan Jago, Director of wines, beers and spirits at Tesco, puts it, ‘there’s a lot of wine around that doesn’t have a home to go to.’

The UK and the rise of ‘Own label’

  • It’s fair to say, on this evidence, that UK supermarkets and major retailers are expert at extracting the best price – after all, the UK is a hugely competitive market.
  • The average UK retail price of just over £5 contains mostly tax (£2.84). At a fixed £2 per bottle duty, plus 20% VAT on the wine and the duty, a £6 bottle contains £3 of tax. That leaves £3 for the wine, packaging, shipping, distribution and margins.
  • I think there’ll be an even stronger move towards ‘own label’ brands in the UK, away from the unsustainable fakery of ‘half-price’ offers on brands.
  • The UK sells more ‘own label’ brands than elsewhere: 50% of retail brands sold in the UK are ‘own label’, compared to just 5% in the US.
  • Tesco’s Finest wine range has risen to 139 lines, Marks & Spencer’s wines are almost all ‘own label’, the inexpensive Aldi Exquisite range has been quite well received, and so on. As ‘own label’ wines are attractively priced and discounted less, that has to be welcome. Consumers know where they stand – brand wise, price wise, quality wise.
  • ‘Own label’ brands are used not just by supermarkets and retailers but also by agents and importers for the UK restaurant, bar and pub trade.
  • Champagne and ‘fine wine’ apart, you’re increasingly unlikely to see the same label from a supermarket or major online retailer in a bar or restaurant. Unlike in Spain, for example, where you know where you are with brands that span both on and off-premise.
  • So don’t feel embarrassed if you don’t recognise the wines labels on a restaurant or pub wine list. You’re not supposed to, and even wine experts can be clueless on this one.

Smaller producers

  • There is a huge diversity of wine available in the UK. The relative freedom to import and sell wine allows for a surprisingly healthy independent sector, despite the high rate of duty on wine. (The US, by comparison, has a mandatory three-tier system – importer/distributor/retailer – that foreign producers have to sell through.)
  • It’s probably unfair to expect many independent merchants to compete with supermarkets at lower price points. Even an £8 bottle – which most Brits still think of as a superior drop – means that the cost price of the bottle to a retailer or merchant is around £1.70 to £2.20, and bottling alone accounts for about 60p. It’s hard to make magic in a glass for that.

Richer pickings elsewhere?

  • Producers of all shapes and sizes are increasingly frustrated with the deal and discount-obsessed UK market. There’s nothing new there but they do have plumper fish to go for now in the Far East and the US.
  • China came from nowhere in 2007 to become the largest export market for Bordeaux wines in just 5 years – although choosing the right partners to work with is essential. Other wine regions and countries are now joining the party.
  • The US offers a tremendous opportunity, even if the distribution system from State to State takes a bit of figuring out. It’s no surprise that smart home delivery specialists from the UK, like Laithwaites and Naked Wines, are on the case.
  • Simon McMurtrie, CEO of Direct Wines (Laithwaites, Averys and The Sunday Times Wine Club), hit the nail on the head: ‘When we sell exactly the same wines in the US for more money, customers say what good value they are. In the UK, people say they’re expensive.’
  • Social media, especially Twitter, is bringing producers closer together, folks, but that’s another story…

Happy Thanksgiving 😉

This is sent to friends on our mailing list.