The only way is up for the UK drinks trade

In what was an Olympic year for Britain, how did the UK drinks trade fare in 2012?

Perhaps the most significant milestone occurred at the end of the year, when the average price of a 75cl bottle of wine in the UK off-trade inevitably broke through the £5 barrier to £5.03 – a figure that is expected to rise to £5.10 by the end of this year. According to Accolade Wines’ 2012 WineNation UK report, 60% of the £5.03 cost now goes to the Exchequer.

Interestingly, since 2002, 80% of the rise in wine prices has been due to tax increases. Excise duty currently stands at £1.90 per 75cl bottle of still wine; a figure that has risen by 60% in the past nine years, with the rate standing at £1.19 in 2003. Whack on to that VAT at 20% and it’s no wonder the average price of a bottle of wine has tipped over the £5 mark. The industry shelled out a staggering £16 billion in wine tax last year, equivalent to £316 per adult living in the UK, and yet there is still a vast amount of wine on sale for under £5 a bottle, illustrating the willingness of the supermarkets to operate at a loss to generate sales; a practice the UK government is keen to stamp out.

Sparkling and fortified wines had an even tougher time of it, with excise rates currently fixed at £2.43 for a 75cl bottle of sparkling wine and £2.53 for a 75cl bottle of fortified wine. Spirits fared the worst of all in the excise lottery, with a 70cl bottle above 37.5% abv carrying a £7.04 excise cost. And all of these costs are before customs duty is even taken into account for wines and spirits imported into the UK from outside the EU.

STILL DRINKING
Despite price increases, Brits displayed an unquenchable thirst in 2012, splashing out £40.7 billion on alcoholic drinks last year, with annual consumption figures currently standing at 27.9 litres of wine per person and 106 litres of beer. As it stands, the drinks trade is helping to keep 650,000 people in employment in the areas of drinks production and retailing, expanding to 1.1 million in the wider drinks industry. In terms of wine consumption per country, the UK is currently in sixth place behind China at number one, the US at number two, and France, Italy and Germany in third, fourth and fifth place respectively. As far as spirits consumption goes, we’re way down the list in 14th place, with China, Russia and India taking gold, silver and bronze. Our thirst for Australian wine showed no sign of waning in 2012, with Australia leading the UK wine imports at 25m cases, and Italy, France, the US and Spain following close behind.

The off-trade experienced both highs and lows in 2012, with Nielsen reporting that volume sales were down 6.1% on 2011, while value sales were flat. Bucking the trend, spirits performed comparatively well over the Christmas period, up 1.7% in value, but down 3.5% in volume, putting the category ahead of total drinks sales. Meanwhile, beer, cider and RTDs had a tougher time of it over Christmas, with year-on-year volume sales down 8.5%, 7.2% and 16.4% respectively. “While the off- trade had a tough year in 2012, there were some pockets of strong growth, notably for sparkling wine, British wine and golden rum,” says Helen Stares of Nielsen, adding, “Wines over £7 a bottle also performed well, with volume growth up 19% on a year ago, showing that even during a recession, premium products can beat the market.” This positive trend for trading up hints that consumers might finally be catching on to the benefits of upping their bottle spend, which may be the result of a developing “treat” culture, where consumers increase their bottle spend on wines to enjoy at home with friends, justifying the extra few pounds on the savings made through not going out. Though this development wasn’t to the detriment of the on-trade, as consumers also upped their drinks spend for their “big night out”, treating themselves to premium wine and spirits on the occasions they did decide to dine out.

Winning the off-trade sales battle by a considerable margin was Spain, with volume sales up a healthy 14% on last year, making it the fastest- growing country category in the UK, proving that Spanish wine can deliver on quality, diversity and price. Low-alcohol wine also put in a strong performance in 2012, with sales up 27% by value and 20% by volume, with 92% sold in supermarkets. Total off-trade drinks sales for 2012 stood at £14.7bn, with wine (excluding sparkling and fortified) accounting for £5.3bn, spirits £3.5bn, and beer £3.5bn.

MINIMUM PRICING
While the off-trade had reason to celebrate in 2012, the threat of minimum pricing continued to loom large. Last November, home secretary Theresa May proposed a higher-than- expected 45p minimum price per unit of alcohol as part of a 10-week consultation on a range of measures to cut crime and reduce alcohol consumption, the results of which will be announced later this month. The Home Office consultation covers five key areas of action: a ban on multi-buy promotions; a review of the mandatory licensing conditions; a minimum unit price of 45p; a new health-related objective for alcohol licensing; and cutting red tape for responsible businesses. Policing minister Damian Green said at the time of the proposal: “These measures are not about stopping responsible drinking but designed to tackle the minority who cause alcohol-related crime and disorder in our local communities.”

Minimum pricing developments have progressed further in Scotland – last month, the Scotch Whisky Association (SWA) set out its case in a legal challenge to the introduction of a minimum price for alcohol in Scotland, which would see a 50p minimum price per unit introduced. If the Scottish government’s minimum pricing proposal were to become law, a 70cl bottle of vodka would cost over £13, while the cheapest bottle of wine would be £4.69 and a four-pack of lager £3.52.

In setting out the SWA’s case at the Court of Session in Edinburgh, Aidan O’Neill QC argued that minimum pricing would hit poor drinkers and not tackle alcohol misuse, highlighting the fact that health statistics show the problem of hazardous and harmful drinking is most common among the richer sections of society. “Therefore a pricing measure that targets cheap alcohol is one that can be avoided by the rich. What this measure does is it targets poor drinkers,” he said. He also argued that minimum pricing would cause a “distortion of the market” in the EU. Around 15% of the output from Bulgarian wine producers is consumed in Scotland, hence an introduction of a 50p per unit minimum price would, O’Neill said, “absolutely, undoubtedly affect Bulgarian wine producers”

While Westminster supports the Scottish Parliament’s policy on minimum pricing, questions have been raised in Europe about the proposal. The European Commission and several European Union nations have submitted legal questions about the legislation and found that the measure was “disproportionate”. Meanwhile, Miles Beale, chief executive of the Wine and Spirits Trade Association has hit out at the UK’s minimum pricing plans. “It’s hard to understand why the government is pushing ahead with the consultation now, when there is a wall of opposition in Europe, a legal challenge in Scotland, a lack of any real evidence to support minimum unit pricing, opposition from consumers and concerns raised from within the cabinet itself,” he argued, adding, “Minimum unit pricing will unfairly punish millions of consumers and businesses in the UK, while doing nothing to tackle the root causes of alcohol misuse or associated crime and disorder.”

DANGEROUS DRINKING
Though against the idea of minimum pricing, Beale acknowledges the seriousness of alcohol misuse in the UK, though stresses that there is no single solution to the problem.

“Alcohol misuse is a serious and complex problem for a small number of people in this country, but there is no silver bullet. A wide range of policies are required to address problem drinking, including improving education, better enforcement and building on what already works,” he says. The importance of education on the dangers of certain alcoholic drinks hit the headlines in December when MPs discussed a ban in using liquid nitrogen in drinks following the serious injury to 18-year-old Gaby Scanlon, who had to have her stomach removed after drinking a “Nitro Jägermeister” cocktail containing the ingredient. “There are lots of laws and regulations surrounding the drinks we consume, but how many people know of the dangers of liquid nitrogen? I do not support greater vigilance; I support an outright ban. If we take this opportunity now, we will prevent other young people from going through the shock, pain and disruption that Gaby Scanlon did,” David Morris, MP for Morecambe and Lunesdale said during the discussion. In reply, parliamentary under secretary for health, Dr Daniel Porter MP, defended the drinks trade: “The drinks industry has made a core commitment, through the public health responsibility deal, to foster a better culture of responsible drinking,” he said.

Meanwhile, Andrew Opie, food director of the British Retail Consortium, agrees that retailers have been making a marked effort to tackle the ongoing problem of alcohol abuse in the UK. “Harmful drinking has cultural causes and retailers are tackling those with collaborative working on clear labelling and targeted awareness campaigns that help customers drink responsibly. Most people already drink less than the recommended limits. There is no reason why they should be denied access to discounts,” he says. In fact, Brits are buying less wine on promotion than they did a year ago, with sales down 5.5% on last year, while the total amount of alcoholic drinks sold on promotion in the off- trade fell from 64% in 2011 to 56.4% last year.

EXPERIENCE COUNTS
So what lies ahead for the trade? In line with 2012, 2013 will not be an easy year for either the on- or off-trade, with tough economic conditions, further regulation and rising duty rates making the UK market a more difficult and competitive place than ever to sell wine. On the flip side, 2013 will be full of opportunities for those willing to take a few risks and listen to what their customers really want. With London leading the way in food trends, and now seen as the culinary capital of the world, there are many untapped sources of revenue in new openings and forward-thinking restaurants. Meanwhile, on the high street, if given a valid reason to trade up, customers have proved they are willing to part with more cash on their wine spend, on the condition that they will be rewarded in terms of quality. It will be the year when retailers, restaurants and bars that provide an experience win out, be that in the form of a theatrically served cocktail, or exemplary and informative customer service. Those who adapt their offerings to the UK’s ever-changing, fast-paced marketplace with not only survive but thrive.