NEWS ANALYSIS – Pressing Issue

Price compression in the UK wine market has created a situation where bottles prices are at rock-bottom – and even the best efforts to raise them will fail until the global oversupply situation is addressed at all levels believes Fionnuala Synnott

Wine producers, under pressure to boost margins in an increasingly competitive market, have fallen into the trap of selling too much wine in a very narrow price band.

Now, after a decade of rapid growth, the overall market for wine in the UK has slowed down with red and white wine sales more or less flat. Yet prices still fail to reflect market reality. In fact, UK consumers are paying less for their wine than before. Since 2000, the average UK price point has gone up by a mere 32p, failing to take inflation or rising duty into account.

This deflationary wine market is often blamed on UK shoppers’ love of a bargain or Gordon Brown’s duty hikes.

But it is really due to an imbalance between supply and demand. At a recent press conference, Federico Castellucci, secretary general of the International Vine & Wine Organisation, said consumers have a wide choice of wines at very reasonable prices due to the global oversupply of wine.

Despite reports of possible falling yields in Australia, which has driven many promotional deals in the UK market thanks to its nine million hectolitres surplus, the global oversupply shows no signs of abating. OIV statistics reveal that total world wine production is expected to rise by 3m hl to around 280m hl this year. This increase bolstered by wine left over from 2004, when total production came to nearly 300m hl, which means that there is a current world surplus of around 43m hl. Retail wine prices are therefore unlikely to rise any time soon. 

Much has been made of recent harvest reports from Australia with optimists claiming that poor weather conditions mean the end of the Australian oversupply. Although this is good news for the wine industry as a whole, one vintage is unlikely to resolve the problem for good, given the volume of wine that is left over from previous vintages. Although Australia is working hard to move away from its cheap image by using some of its excess output to produce quality wine, it is important that the Australian surplus is not replaced by an oversupply from another country such as Chile or South Africa.

Building a sustainable wine market and breaking consumer spending patterns is going to be quite a challenge and it certainly doesn’t look like it’s going to happen before Christmas.

Tesco’s price list shows half-price deals for the likes of Kumala and Hardys running into January 2007.

Concern about the aggressive pricing policy used by UK retailers is not new and it is obvious that the industry needs to move away from the current BOGOF mentality if it is to build a sustainable business model for the future. However, blaming retailers will not solve the problem and producers must take responsibility for offloading their excess product on the UK market.

There has been much debate within the industry regarding how to get consumers to trade up and pay more for their wine. Now is the time for less words and more action. 

© db December 2006