Wednesday, August 22, 2012

Lifting the stone on the UK wine trade

Context is everything. According to Wine & Spirit Association (WSTA) and Nielsen statistics, UK at-home consumption of wine retailing at over £10 has risen by nearly a third.

This is great news, obviously, but before too many people crack open celebratory bottles of Prosecco, it's worth considering a subsequent paragraph on the same (Chris Mercer) Observer news piece:

Unless my maths are wrong, this means that these wines now represent 0.7% of the market. Even so, they still add up to around a million 12-bottle cases, which is a reasonably substantial amount of wine. 

Update: the WSTA has just told me that by their estimation, off-trade sales at over £10 amount to 1.2% by volume of the UK market (rather higher than my 0.7% but still small) and 3.2% by value. This would add up to around 1.66m 12-bottle cases. Around a seventh of the annual production of Yellowtail - for the sake of context.

If you want to sell a bottle of wine in the UK to retail at over £10, the blue slice of the cake is the bit you are looking to share with all those other producers with similar ambitions.

£10 ($15.78 / €12.66) may sound like quite a lot of money, but for anyone outside the UK - and a fair few within this country, it might be enlightening to know roughly how much of that price actually goes to the producer.

Well, firstly, as the excellent UK Wine Tax Calculator app reveals, the £10 bottle carries a tax burden of 35.7% (made up of duty at £1.90 and VAT sales tax of 20%). But it obviously also has to include a set of other costs. Shipping will amount to around £0.13 per bottle (this could be as low as £0.08 or less for UK-bottled wine in lightweight bottles, but these don't sell for £10). The distributor might take 15-25% (again, savings could be made here, but not on relatively slowly-moving £10 wine) and the retailer will pocket between 30% (for a supermarket) to 40% for the independent store most likely to be selling this kind of wine.

Put all these figures together and you find that the £10 bottle on sale in a nice independent UK wine shop probably left a European winery at around £2.40-2.50 (€3.50-$4). A UK supermarket in an unusually generous mood might pay a little more but this would be unusual and the higher price might well be offset by a request for marketing funds.

Given these diverse margins on which supermarkets, independents, importers and agents all work - and the fact that their demands may vary according to the sales volume and sales price of each wine - it is impossible to offer a precise set of formulae, but these two charts should help. They can of course be amended with an excel spreadsheet to accommodate different margins, costs and exchange rates. To the best of my knowledge, this is the first time they have been published online.

Note that the supermarkets and distributors may take a lower margin on lower-priced wine (as above). Also note rising transport costs based on the heavier bottles and cartons used for pricier bottles.

Note that the independent retailers take a higher margin than supermarkets and that distributors may also be more demanding on slow-moving, higher-priced wines.  In the UK, non-European wines are subject to a Common Customs Tariff which does not apply to wines from the EU.

If you were to extend the chart downwards to take into account the cost of the bottle, closure, carton, basic production costs and a profit for the producer, it might be fair to say that when a UK consumer doubles her retail expenditure from £5-£10, the value of the liquid in the bottle may actually rise by 8-10 times.

This has, however, to be taken in the context of the basic lack of profitability of much of the cheaper end of the wine industry. As I say, context is essential.

Update: I've just discovered that Juel Mahoney (@winewomansong) approached the same issue in Bibendum Blog with even more brutal figures (suggesting that by doubling a retail spend for £5-£10, the wine value rises by 25 times)


  1. V interesting Robert. Not sure it is 8 times, though? £5 on shelf is usually 1 euro ex cellar, while £10 on shelf is about 3 Euro ex cellar, so we are talking a multiple of about 3.

    And does Nielsen cover independents? This is where I'd guess a lot of £10+ wine is sold

  2. Thanks Jamie, my point about value is that the €1 and €3 both come in bottles with capsules, labels, cartons that have similar costs. Production cost will also be similar at this level, and the producer has to take a margin. Take all this into account and you could find that the €1 contains €0.20 of wine while the €3 might easily contain €1.60.

    I love hearing about the independents. There are about 700 of these (see recent OLN) which turn over £300-£500k (rather less than an average pub). They're certainly important to the UK picture, but any suggestion that they will be the saviour of wine retailing here is wishful thinking. Bear in mind that the additional 300 or so that we've seen appear recently have to replace the 3,000+ Wine Racks, Threshers, Oddbins, Unwins, Bottoms Ups etc etc that we've lost in recent years....

  3. What also is happening Robert is that there are less half price deals at the moment... and so those wines are sitting at full price. Supermarkets are going to be swaying trends not 300 Indies selling a small amount... Nielsen doesn't really cover them properly at all. I'd love to see an article from you on how we can get people to part with a bit more money and how producers can add value to wine to make people want to spend more. We need solutions and creativity rather than always talking about the doom and gloom of the UK market... Also - write an article on what is going on in the supermarkets ref big guys getting the outsourcing nowadays and smaller guys going bust....

    1. Interesting point!(s). And, watch this space...

  4. I agree with the piece Robert but the message has been made often before, at least within the trade. So it may well be that this is a rare message given to the public and by wine consumer journos as you say. But can we really see the supermarkets who sell 80% of wine in the UK trumpeting this basic value point you make? Of course not. And far too many wine journos I read seem to see their role as to 'hunt out the low price bargain for the consumer' In practice probably 97% of wine consumers are now well trained by the promo ritual of the multiple grocers, aimed as much at traffic building for general sales as actually selling wine. I take your general point too Catherine, but (because it's a bank holiday weekend?) I see no lack of BOGOFS (18 half price deals on Tesco right now) online or Laithwaites screaming '1000s of wines under £5etc etc. A start might be made by wine journos saying it is poor value, cheapskate and uncool to buy cheap wine. Will they?

  5. The value point was something of a sidelne, Tim. I was more interested in the noise surrounding what is - at 1.2% by volume and 3.2% by value - a strikingly small part of the UK market. The fact that 96.8% of the wine we buy - by value - cost less than €3/$4 at cellar door is what caught my attention. I'm looking for equivalent prices from other countries, but 15% of Australian wine retailing at over $20 (£13.21) is an interesting example, and I know that the US stats are also way higher than ours...

  6. Hiya Robert,

    Although I agree with the value / tax ratio debate, I'm interested in the base level numbers first utlised in the report. If as stated by WSTA 1.2% of the volume of wine consumed (at home) in the UK is noted as above £10 a bottle (lets say equating to circa 15m bottles of the 1.7bn total wine sales in the UK), when Champagne imports are circa 35m bottle's a year ( - and you don't see Champagnes for less than £10 / bottle - and considering even 50% of those are for home consumption, how do the numbers stack up (where we're not including Bordeaux, Bugundy, Rhone, Mosel quality etc)?

    Would be interested in WSTA's take on these figures and whether they include Sparkling Wine in their figures.



    1. I believe that these figures relate to still, unfortified table wine, but I'll check...

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