A national addiction to bargains
There was a time, not that long ago, when the UK was seen as the world’s most important wine market. A market that everyone or almost everyone wanted to get into. This is now no longer the case.
The UK used to be known for its sense of adventure – the place to come to see the range of wine at a range of price and quality from all over the world. This has changed the UK has become very price driven – addicted to unlikely sub £5 bargains. With duty now at £2 a 75cl bottle and VAT (sales tax) at 20% there is only around 0.80p worth of wine in a £5 bottle of wine. The average retail price of a bottle of wine is now £5.03 mainly pushed up by substantial increases in duty since 2008.
Surfing special offers this afternoon on the Tesco site I could buy six bottles of Tesco Reka Valley Bulgarian Merlot for £20.34 for a case of six (the equivalent to £3.39 a bottle). Take away the £2 duty and around £0.68 in VAT, leaves just 0.71p for all the other costs – bottle, closure, transport not forgetting profit margins. How much is left for the wine? Does £3.39 really cover all the costs or is this wine being sold below cost price?
Since I started writing about wine in 1988 the supermarkets have become ever more dominant. In 2011 the supermarkets held 92% of the retail market, which accounts (Source: Evaluation of CAP Measures Applied to the Wine Sector.)
Back in 1988 there were large wine merchant chains like Victoria Wine, Threshers and Oddbins along with regional chains like Unwins and Fullers. All, with the exception of a small rump of Oddbins and the Nicolas chain, have now gone – some collapsing with substantial debts.
The contrasting fortunes of Prowein and the London Wine Trade Fair reflects, in part, the declining attraction of the UK. The 2013 edition of Prowein attracted over 44,000 visitors – 40% from outside Germany. The 2012 edition of the London fair had 14,000 visitors.
There is an interesting and revealing exchange of letters between journalist Tim Atkin MW and Dan Jago, UK and Group wine director at Tesco plc, on Tim’s site (http://www.timatkin.com/articles?915) . The exchange follows an article Tim wrote at the height of the horsemeat furore (http://www.timatkin.com/articles?892).
‘The price wars between Tesco, Asda and the genuine discounters have created a culture of false cheapness in the UK wine trade. These retailers see wine deals as a way to entice shoppers into their stores, with ludicrous “half-price offers” that are nothing of the sort. Tesco and the like often argue that they are listening to their consumers, but they are leading them too. And in reality, the people who have their ears are their shareholders, not their suppliers or shoppers.
The UK’s low prices have already driven many wine producers to other markets and helped to send a number of importers to the wall. Look at the mass defections from the London Wine Trade Fair to Prowein this year, but also look at the dwindling ranges on most supermarket shelves and their lack of quality and innovation. With the exception of Marks & Spencer, no one is taking risks.’
There is no doubt that Dan Jago is right that Tesco has some long-term relationships with its suppliers. But it is not a relationship of equals. A few years ago I was involved in producing the Tesco wine magazine. This involved a number of visits to Tesco headquarters in Cheshunt on the north- east outskirts of London. Visitors gathered in the reception area, which included a café. It was like watched bands of supplicants waiting for their turn to have an audience with a mighty medieval potentate.
I must have had close on a dozen meetings at Cheshunt. Never once do I remember being offered anything to drink – not even a glass of water. This was before the arrival of Dan Jago, so this may have changed.
The UK is still the world’s second largest importer of wine with a market worth just under £11.9 billion in 2011 and forecast to rise slightly to £12.7 bn by 2016. Despite the supermarkets’ dominance it does have a vibrant collection of small independent wine merchants – many with long-term relationships with their suppliers. However, if you are a producer who can sell everything you make in countries other than the UK, why would you want to break into the UK market?
Unwins – one of the casualties