Are UK consumers finally trading up?
Monday 11 July
The latest figures from the UK show the average price of a bottle of wine from its 10 major wine supplying-countries has risen across the board. Shock horror, even unfashionable Germany has managed a price increase!
Cause for celebration? On the surface, yes. It suggests the consumer is trading up, willing to spend more but look deeper and things aren’t as rosy as they first appear.
The average bottle price of a New Zealand wine is up from £6.01 to £6.07 per bottle in the UK off-trade, Australia has seen a 13 pence increase to £4.72 while the average price of a South African wine is up 40 pence to £4.39.
However, increased duty charges and a weak British pound vs. most currencies suggest that the increased costs in the value chain are not being passed on in full. Customers are paying a bit more for wine but it appears that it is suppliers that have to absorb most of the cost increases. This is a problem for profitability.
In South Africa, Australian and New Zealand, strengthening currencies and duty rises meant existing prices were unsustainable. In some instances average bottle prices have increased but total sales have fallen. South African sales have dropped by 15% in value in the past 12 months and 22% by volume.
Australia and New Zealand have increased sales volumes but how much of that is sold at huge discount, bulk shipped and made into supermarket brands? According to Wine Australia, in the past year 47% of all wine shipments from Australia were bulk not bottled. Is this a sign of Australia’s economic credentials (bulk shipping has a lower carbon footprint than shipping in bottle) or is it a consequence of its massive oversupply problems?
What is clear is that consumers are being forced to pay more for their wine in the UK, producer margins continue to be nibbled away. Profitability has to come before volume sales if wineries are to survive. But, as South Africa has witnessed, there’s only so much people are willing to pay.