Minimum pricing: The devil in the detail

Scotland’s minimum pricing bill was relaunched at the beginning of November – but the actual price per unit was absent. Tom Bruce-Gardyne considers what it may be and what impact it could have on the industry.

When the Scottish government relaunched its minimum pricing bill on 1 November 2011, one rather crucial detail was missing. Nowhere in the small print was any mention of precisely what the price per unit would be.

The only figure we have is from last year – namely 45p a unit. “That is the starting point,” says Campbell Evans, of the Scotch Whisky Association (SWA), “but there’s no indication where the end point might be.”

The SWA is by far the most powerful lobby group within the Scottish drinks trade and has long opposed minimum pricing on principle. It argues it is likely to prove illegal when challenged next year.

“For it not to be, the Scottish government would have to overturn three decades of jurisprudence by the European Court of Justice,” says Evans. If he is wrong and other countries follow suit, the SWA claims some £600 million of Scotch exports could be lost.

We should know the amount by next April, once Sheffield University has completed a fresh study on the issue, after which it will probably become law in October. For the moment, trade bodies like the SWA have been asked to give their views on the likely impact all the way up to 70p a unit. If it ever got that high, the cheapest bottle of Scotch would cost £19.60 in Scotland, by which point all Scots, with the possible exception of Sir Fred Goodwin, would be buying their whisky over the border or online.

For now 50p seems a more realistic guess, which translates into £4.87 for a wine at 13%. Richard Cochrane, Bibendum’s off-trade director, believes it will not have much impact after the next Budget when the duty escalator is set to push the average bottle price over a fiver. Yet plenty of wine is sold below the average and Nielsen estimates that half of wine currently sold in the off-trade would be affected, even at 45p per unit (see table).

Jeremy Beadles, CEO of the Wine & Spirit Trade Association (WSTA), accepts that this probably won’t cause a huge surge in cross-border shopping and Carlisle won’t become the new Calais. But he dismisses claims by the Scottish government that alcohol fraud will not escalate unduly as “either disingenuous or naïve”.

He continues: “That has been the experience of Sweden, Norway and Finland. Why would Scotland be any different?”

The WSTA says the internet is now the fastest growing channel for alcohol sales based on feedback from its members, and that it will only increase north of the border. According to a Mintel report in June, 10% of Tesco’s £2 billion wine sales now go through Tesco.com, while those through its “by-the-case” website are growing rapidly.

When Holyrood banned volume discounts on alcohol on 1 October, the firm’s online customers in Scotland were told not to worry. With Tesco’s wine club based in Daventry, all multi-buys still apply north of the border.

For this the supermarket giant was slapped down by Scottish politicians and health campaigners in the press for “brazenly flouting the spirit of the law”. No mention was made of the big brewers who have been happily driving a juggernaut through a gaping loophole in the new rules. So long as the cans in in your 12 pack are not the exact same size as the single-can offering, you can volume discount to your heart’s content.

With wine, Cochrane believes the law of unintended consequences will kick in now that the artificially inflated prices which allow offers like “three for a tenner” have suddenly evaporated in Scotland. “If £10 for three bottles is too much, £3.33 for a single bottle is suddenly much more affordable.

“The big test will be this Christmas. I don’t believe sales will go down; I think they may well go up.” Meanwhile Majestic Wine has been forced to drop its individual bottle price to the two-bottle price down south. Whether the chain’s English customers will now start flooding into Scotland remains to be seen.

It has certainly made life more difficult for national retailers, who in Cochrane’s words “have had to adopt a two-pronged initiative north and south of the border”. There are clearly administrative costs involved and as night follows day these are likely to be passed onto the suppliers, reckons Giles Cooke MW, marketing director at Alliance Wines.

He feels that still wine sales will not be unduly affected, but those buying cases of Champagne and sparkling wines for a party will be encouraged to head for the border “just like the traditional booze cruise to Calais for your daughter’s wedding”.

Glenn Caton, MD of Laithwaites Wine UK, agrees, though his Champagne sales are “not massive, partly because of the way the big brands are aggressively promoted on the High Street”. In all, the changes in Scotland could give his company quite a boost. “Traditionally our business has been mail order, but we see online as a big opportunity. We will never be able to match the convenience factor of the supermarkets, but I’m sure it will encourage new consumers to give us a go.”

There is certainly no love lost between the grocers and the current regime at Holyrood, which recently unveiled plans to impose a £110m surcharge on big supermarkets who sell drink and tobacco. The retailers had understood that the so-called “polluter pays” levy had been abandoned by the SNP, until the economy improves, so its reappearance has caused much gnashing of teeth at Tesco Towers.

Fortunately there were no hidden surprises in the minimum pricing bill, though Beadles spotted a subtle change in wording with the stated aim now being “to reduce alcohol consumption and therefore the impact of alcohol misuse”.

This was probably the agenda all along, but now they have come out and said it. Quite what level of consumption would satisfy Nicola Sturgeon remains to be seen, but things should become much clearer when the unit price is finally revealed.