Tim Atkin recently wrote a sensible piece on the average price paid for a bottle of wine in the UK. You can read it here . In it he looks at the fact that the average bottle of wine sold in the UK costs £5.34 – which means that there is a LOT of wine sold significantly below this despite increases in duty and VAT in that time. He quite rightly talks about the whole trade having to work together to increase the average bottle price, because, as he reports the wine trade is not long term sustainable at those price points.
What Tim tells us is that the trade needs to work together to encourage consumers to trade up – and while I do agree to a certain extent I don’t think that is the whole answer. The problem you see is that retailers lack confidence.
They lack confidence in their actual ability to sell a more expensive product.
They lack confidence in the quality of product they are selling to enable people to pay more money for it.
They lack confidence in the intelligence of their customers to understand the prices rise with increases in tax and inflation.
You see what has historically happened is this. 10-15 or 20 years ago £4.99 (as Tim says) would get you something reasonably drinkable, so customers bought it and bought it in droves – why wouldn’t they. £5 bought them something that whilst not mind blowing was a perfectly acceptable drink.
In 2000 duty on a bottle of wine was £1.16 in 2014 it is £2.05. In 2000 VAT on a £5 bottle of wine was about 75p. In other words the value of wine in the bottle was £3.09 including margins. Today that figure sits at £2.12 – now I’m not going into taking margins off and showing you get far less wine for the money – that’s a given.
What I am going to say is this – £3.09 worth of wine at todays rates – not including any allowance for inflation would now cost £6.17 a bottle. If you factor in inflation to the cost price you actually end up nearer £7.49 a bottle. (as a measure of this Jacob’s Creek Shiraz is now around £7.50 – £7.99 a bottle)
Now no consumer is going to take a hit from £4.99 to £7.99 to buy the same wine – and the big retailers understand that, in fact they are absolutely scared witless that if they increase alcohol prices that someone else will come in, undercut their prices and as a result take market share from them – and as a result look at wine and alcohol as a key market sector where volume is more important than profit in order to improve overall profitability across the store. And it is true, people are rarely swayed on which shop to do their weekly shop on the basis of the price of a loaf of bread, pint of milk or kilo of bananas. No the ‘average’ UK consumer picks the one they go to NOT on price but on how they feel that shop will actually do for them. If they think a shop will be cheaper for their shop they’ll go there even if they aren’t (consumers don’t price check their weekly shopping!). You have to give people a good reason to move – and cheap alcohol is one reason that really works for supermarkets – that’s why we see rafts of 25% off weekends and loss leading offers during the year.
But here is the think. If supermarkets were brave and not cowards they could have very easily increased the price of wine, but rather than that they have sought to bring new wines into the bottom price brackets every time the prices rise. That means the price concious consumer who buys the wine at £4.99 whatever it is just keeps doing the same thing, year after year without thinking about it.
A brave retailers would have said ok – so the price needs to go up 20p , lets let it go up 20p, and we won’t sell anything that we’re not really proud of. The reality is this, in 14 years a bottle of wine ‘should’ have increased by about £2.50. That’s 18p per year – which if supermarkets had taken the decision to move with the market rather than buck the system I think consumers would have taken.
So the blame for the low average price has to be born by the supermarkets doesn’t it? Well no not exactly – after all if people weren’t willing to sell wine at such a low price to the supermarkets those price points just wouldn’t sit any longer.
I think the trade will end up long term in a more sustainable position but it won’t be before those producers selling wine at prices that are not sustainable or profitable have fallen by the wayside. That will be sad, but I think it will be to the overall benefit of the trade.