Why UK wine prices are set to rise 5% to 10%

005225_bottles_6_twitHere’s a snapshot of how wine prices in general are likely to increase in the UK, given the fall in Sterling since June. As UK duty is a fixed £2.08 plus VAT per bottle for still wine, expect 5% on a £5 bottle – because the cost of the wine itself is relatively small – and up to 10% on bottles that sell for £10 or more. Beware the likely Toblerone effect in some cases (less spent on the wine inside, for the same consumer price) and note that these numbers don’t include any increases from producers.

005225_bottles_6_stage_1This is a calculation showing wine currently costing £5, £8 and £13 (see below) in a supermarket or retailer. Sterling has fallen from €1.30 in mid-June – not forgetting that it was as high as €1.40 a year ago – to around €1.15 this month, with a bigger fall of 15% against the dollar. Even the smartest merchants weren’t able to hedge euros or dollars at a cheaper rate indefinitely.

Notes and assumptions

For the £5 retail bottle, I’ve assumed bulk shipping by the container and distribution costs of 25p combined. The operating margin here is an agressive 20%. Note that bottling and packaging costs around 50p, so the value inside the bottle can be pretty low. (Yes, bulk wine from around the world can cost less than 40p a bottle.)

The average price paid for a bottle of wine in the UK – off premise, not in a bar or restaurant – is around £5.40. My friend Miles Beale, the Chief Executive of the WSTA (Wine and Spirit Trade Association), has been widely quoted as saying that the average bottle will go up 29p, so our figures are pretty close.

005225_bottles_6_stage_2£8 is the average spend per bottle at leading retailer Majestic (source: The Times, 18 November 2016). I’ve assumed shipping in serious volume by the pallet and distribution costs of 48p total, and a conservative margin of 25%. For the £13 bottle, I’ve taken shipping and distribution costs of 55p, and a margin of 30% to cover all other costs. Shipping from overseas has increased in line with currency movements.

These are ’off the shelf’ prices – none of the examples include the considerable cost of home delivery. For example, our first rate delivery company, London City Bond, charges £12.50 plus VAT for the first 12 bottles on a single delivery in England or Wales.

Buy more, get more?

005225_bottles_6_stage_widerOn the face of it, if you spend a bit more, you’ll get far more wine for your money. It is, though, all too easy to be bamboozled by offers and discounts, and many wines which should really be priced at, say, £7, are listed at £9+ prior to a special offer.

screen-shot-2016-11-30-at-8-50-52-amAlso, a retail margin of 25% is probably understated. After all, several UK supermarkets, such as Waitrose, Sainsbury’s and M & S, regularly have ’buy 6 for 25% off any wine’ deals. This would be the time to buy their wines if you shop there.

Beware the Toblerone effect

Trade buyers will, as ever, be under pressure to sell wine at certain price points. Here’s a message I received from the wine industry expert Robert Joseph last week.

“Just back from the Bulk Wine Fair (in Amsterdam). I’d be surprised if UK trade will be able to absorb much of these costs. Huge volumes are now already UK bottled (65% of total volume; 80-90% of Australian/South African) so there are few corners left to cut. The UK giants have to compete with Aldi/Lidl low margins, so there’s not a lot of fat there either. So, my money is on the average price hitting £5.75 next year, assuming there are no changes in duty, and there is no impact of UK inflation (which is likely to be at 2+% and should thus add at least a further 10p or so).

“The only way to avoid that (average reaching) £5.85 bottle – again assuming no cut in excise duty – will be to reduce the price of the wine.

“So… bye bye Pinot Grigio (bulk price of $0.50-1.10/litre); hello Euro white blends ($0.35-0.60). Bye bye Cotes du Rhone and Rioja. Hello Soft Spanish red. And maybe, hello Eastern Europe…”

As one of Australia’s leading wine producers, Neil McGuigan, also put it on a trip to London this month: “Brexit was a slap in the face and caused us a lot of stress due to the devaluation of the pound but you’ve got to get on with it.”

Pubs and restaurant prices

There isn’t the time and space to cover this in detail but, as a guide, multiply the top line by three. In other words, a £5 wine is like a £15 house wine, up around 5% by 70p a bottle, £8 is like a £24 wine on the list, up by around £1.80.

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