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The Grapevine

The WSTA's views, distilled.

A win for the industry and a win(dfall) for the Treasury: duty collections increased following duty freeze

Last November’s Budget was in many ways a strange affair. With the prospect of an RPI duty increase in the region of 4% and a need to sure up public finances, I think it’s fair to say we all expected the worst. As it turned out, all that worry was for nothing as the Chancellor stood at the dispatch box and announced a freeze on all alcohol products “recognising the pressure on household budgets. And backing our Great British pubs”. As a result of this decision, the wine and spirit industry is estimated to have saved £247m in tax liabilities and were also saved the burden of price changes at Christmas, a crucial trading period for our members. 

But it turns out the Treasury benefited anyway, as we predicted. The latest duty collection figures from HMRC show that from December 2017 and April 2018, duty collections increased by 2% on the same period last year, in real terms that is £86m. For the WSTA members specifically, the increase was 2% or £67m, meaning that the wine and spirit industry accounted for 78% of the increase. Wine collections have so far increased £33m (+2%) and spirit collections increased £34m (+2%). Overall, wine and spirit duty collections are at record levels, with a projected £7.7bn in revenue for the financial year 2017/18, up £140m from the previous year.

Historically, wine and spirit products tend to account for more than their fair share of increased duty payments, as shown above. That wine and spirit products account for nearly £4 in every £5 of added revenue from alcohol duty collected by HMRC probably points to increased wine and spirit sales for the festive period, particularly sparkling wine and the last market report shows that gin also had an excellent Christmas period, and an excellent first quarter of the 2018 for much of the industry.  

In the slightly longer term, wine and spirit duty collections continue to increase to record levels. The wine industry paid £4.3bn (+6% on 2016) in duty in 2017 whilst the spirit industry paid £3.5bn (+6% on 2016), with total alcohol duty payments totalling £11.6bn, up 6% on 2016. In real terms the increase amounts to £695m extra duty payment on 2016, 75% of this increase came from the wine and spirit industry, showing again that the two categories over-index in terms of shouldering the burden of duty collections.

There is more to consider when combining actual duty collections with the OBR projections (for 2017/18 they were £4.3bn for wine and £3.4bn for spirit drinks). Firstly, and most notably, their consumption projections are, at best, curious: they expect wine consumption in the UK to increase over the next five years which is in direct contradiction with what we have been for years seeing in the market. That said, the duty freeze in November was welcome for consumers, particularly at a time when it looks like wages are just starting to rise consistently for the first time since before the financial crisis in 2007/8.

Secondly, given the uncertainty surrounding Brexit, projections of inflation will likely change between now and the end of the transition period in 2020, so it is likely that the real picture will look very different when it comes to it, should the RPI-linked duty rate increases continue out of kilter with CPI inflation. This is surely no way to plan the public finances or calm an already uncertain business environment, especially one so heavily dependent on cross-border trade.

Finally, Scotland will implement MUP in May. This policy is without precedent and, though the Scottish Government have said duty collections will go down (offset slightly by VAT increases), this means that it is very difficult to know what distortive effects MUP will have on what the OBR will project for inflation, consumption volumes and, ultimately, duty collections for the public purse. What is clear is that MUP has yet to affect the projections, given that volumes continue to rise over the next five years.

In March, we met with the new Exchequer Secretary to the Treasury, Robert Jenrick, mainly by way of introduction but also to highlight the general concerns of the industry as part of the new year-round campaigning effort on the budget. He came across as well-briefed and understanding of the issues facing the industry, asking sensible questions and showing a particular interest in exports, distillery growth and the English wine industry. This is an encouraging start to our relationship with the new minister, one which should be fruitful as we look to educate him further on the prominence of our industry.

You can download and view the latest duty bulletin releases on the HMRC website here.

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@optawine – Market Report: A cracking start to the year thanks to spirits and what’s happening with RTDs?

The second market report of the year brings some surprises in that the first quarter was probably the best 3 month period for some time, a realisation that spirits is carrying increasing weight in the industry, and, something I definitely did not expect this time last year, the return of the RTD. See below for a little more detail to supplement the latest WSTA market report.

A good start to the year

It’s good to start on a positive note for overall sales with the welcome news is that the off trade has had a good start to the year. Particularly given the same period last year was littered with negative growth, rising prices and things generally looking gloomy, it is welcome that there is positive growth in both quarterly volume sales (+2%) and value sales (+5%).Though the volume growth isn’t reflected in the yearly sales (yet), it is also welcome that over a slightly longer term, value sales have also growth, adding more than £700m over the last 12 months to the end of March. Spirits were a key contributor to this, adding 38% of it, or £281m, and no prizes for guessing where much of that came from. More on this below.

But wine also got in on the action: all wines contributed £217m of growth (which would have been had Champagne not been going through a tough time), 30% of value added in the first quarter of 2018, with still wine alone contributing more than £160m. Sadly, volume is still a sore subject for all wines with the exception of sparkling. But there are areas of encouragement, including usual suspects New Zealand and Argentina, but also Spain, Chile and Italy. We may want to keep an eye on these newcomers. With a lot of trade press buzz around Spanish and Chilean imports, and Prosecco still flying high, there is a base on which to hope for stability in wine and maybe even some future growth.

The on trade hasn’t fared as well, particularly in volume terms, but value sales in the first quarter of the year are just about keeping pace with inflation, though this has yet to filter fully into longer term sales. With inflation still somewhere around 3%, it’s difficult to describe this as genuine growth.

Spirits is where it’s at

The spirit category can be pleased as punch (aha) about its work over the last few years. In the year to the end of March, total yearly alcohol sales grew by 3%, or £1.063bn and of that £1bn, £578m came from the spirit category, representing 54% of all growth, and is now worth £10.5bn in yearly sales. The trade in general is becoming increasingly dependent on gin for growth; in the 12 months to the end of March, the gin category across both trades grew by £369m, representing 64% of growth in spirits and, remarkably, 35% of all growth in alcohol sales in both the on and off trade. In the first quarter of this year, gin also grew by more than £100m.

It’s also a very bright spot for the on trade. For the foreseeable future, volume sales in the on trade will be largely dictated by how beer is performing (accounting for nearly 80% of sales) but in terms of value sales, spirits alone account for 25% and adding in all wines and RTDs, that number increases to 43%. In terms of growth, spirits added £297m over the last 12 months, accounting for 89% of all growth in the on trade. With the gin boom, an emphasis on exports in the coming years, growing concerns over the rate of pub closures and rum achieving £1bn a year sales (and by the way, I think there’s more to come from imported whiskies), even more attention needs to be paid to spirits – not just gin - as it becomes increasingly important to the UK alcohol industry and in particular to the on trade.

Return of the RTDs?

Last quarter, my esteemed Comms colleague Lucy rightly pointed out something that I had overlooked; RTDs appear to be enjoying something of a renaissance. In the last market report RTDs recorded very reasonable yearly growth of 3% by volume and 5% by value in off trade sales, recording the 2nd quarter in a row of volume growth and 7th in value. If current trends continue, yearly sales could reach 500,000hls for the first time since 2014 and £250m for the first time ever by the end of the year, particularly if you factor in the growth figures posted in the first quarter of 2018 (+7% for volume and +8% for value). All this leads me to wonder if the success of spirits over the last few years is filtering into RTDs as, for example, single measure spirit mixers in cans become more popular.

Unfortunately, RTDs is another category where the on trade can’t live up to the recent fortunes of the off trade, with declining growth across the board continuing a downward trend where sales in both volume and value are half what they were in 2012. It remains to be seen whether the success of spirits can filter through to RTDs as it may have in the off trade, or whether there are extra barriers (cocktails maybe?) in the on trade for such a knock effect.

Sources: Thanks as always to Nielsen (Scantrack WE 24.03.18) and CGA (WE 24.03.18).

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Celebrating Scotland’s hidden gem

Gin may not be the first spirit you consider when you think about Scotland, but the industry in is undergoing a quiet renaissance that is bringing jobs, investment and exports to the Scottish Economy.

The gin boom across the UK over the past 5 years has been phenomenal, with sales increasing at a rate of around 20% a year, leading to a doubling of the number of distilleries in all countries of the UK. The industry is now worth over £1bn in UK sales (over £150m of which is in Scotland) and a further £530m in exports. Its growth shows no signs of abating.

While gin has always had a special place in the Scottish economy, with around two thirds of UK gin produced there historically, the recent gin craze has given the industry a renewed vigour from the Shetlands to Strathearn. Recent calculations estimate that there are now more than 50 distilleries in Scotland producing gin - that’s over a third of the 149 Scottish Distilleries in total.

To celebrate the innovation, creativity and provenance of Scotland’s gin producers, the WSTA launched “Scotland’s Gin Trail” back in 2015. Such is the extent of the growth that just two years later we published a renewed version of the trail which now features summaries on 20 gin distilleries that hold tours and tastings, and provides details for another 30 or so that we have identified.

The updated Gin Trail was relaunched in the Scottish Parliament in June, where the WSTA hosted a reception and showcase of Scottish Gin producers, both modern and traditional, to Members of the Scottish Parliament and others.

The investment in new gin distilleries in Scotland is helping to provide jobs and skills to the workforce, support local supply chains, increase exports and encourage tourism. Not to mention creating some of the world’s best quality and most iconic gin brands. All of which provides a boost the Scottish economy and, with the right business environment, this is set to continue over the coming years.

While Scotland will always be synonymous with its eponymous spirit, the renaissance and growth in the Scottish gin industry - its hidden gem - is certainly something worth celebrating too.

You can download Scotland’s Gin Trail here: http://www.wsta.co.uk/images/Spirits/GinTrail/2018Scottish_GinTrail.pdf

 

 

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Gin, wine and whiskies all a key feature of the first market report of 2018

The new market report shows some old themes by now are so expected that it’s like light snow causing train services to be cancelled; you’d be a fool to expect otherwise. For example, we are now so accustomed to seeing growth in gin that the only surprise left how big the growth is. There are worse surprises out there. The price of wine in the last 18 months, for example, has much the same problem as gin growth, but it is far from a good thing. New themes can and do appear also, just to keep us on our toes and it is imported whiskies, as well as flavoured spirits we find something new to talk about and some possible indicators that point towards current consumers trends.

Gin (again!)

This time last year gin was plodding along very nicely; low double-digits, but double digits nonetheless. 12 months later that has all changed having added 9.5m bottles (+23%) sold in 2017 compared to the year before worth an extra £295m (+27%), enough to pay the entire civil service for a month (you’re welcome Sir Jeremy).

The equivalent of over 50m bottles were sold for the first time with a value of £1.4bn, add on 2017’s exports value and it’s £1.925bn, perilously close to £2bn. Three more quarters of similar value growth and gin may well be a £2bn industry based on domestic sales. Two more quarters of similar growth in the on trade and it’ll be worth £1bn to pubs, bars and restaurants alone.

Quarterly value sales over the Christmas period were the real star, with 29% growth in the on trade and an incredible 38% in the off trade, adding an extra £104m to the market overall. Polling conducted late last year also stated that 38% of people would consider giving and 33% would be happy to receive gin as a Christmas gift, surely proof that gin is the tonic for all seasons, not just the summer.

Wine prices: premiumisation or polarisation?

Wine prices continue to be a cause for concern, not just with the dramatic increase since the referendum, currency devaluation and ensuing inflation - all of which means it costs more to supply the market - but it also may have adverse effects on demand. The average yearly price of wine has again risen in the off trade to £5.64, up 8p on last quarter. Since 2014, the average price rose 28p from £5.36, 23p of that occurred from 2016 onwards. It’s an excellent example of inflation starting to bite but it also presents other issues when analysing market data. On the graph below I have overlaid average wine prices and CPI inflation because it shows neatly fits relationship with prices, particularly for imported products.

But it also forces us to recalibrate what we consider when looking at the data and discussing premiumisation. Inflation is disrupting the price points data (p.6) so much that it is increasingly difficult to point to premiumisation, at least as a general trend, rather than simply saying prices are going up which is pushing all products up the price brackets. Last year at the Research and Insights Group a valued member suggested that in fact premiumisation isn’t really happening to any large extent in the wine market, and that it’s more accurate to suggest that polarisation is occurring, where some consumers are opting for more expensive wines and others opting for cheaper ones, which wouldn’t necessarily affect the average price. It could also be suggested that, if CPI is 2.7% (for 2017), then any % increase above that could represent premiumisation. Maybe, but industry specific issues such as increased import costs and duty rates, as well as more industry wide issues such as changes in business models as Brexit looms over the horizon may be more applicable than inflation.

Tell me what’s your flavour

Imported whiskies is a category that is rarely talked about, and unjustly so. It’s the best-selling whisk(e)y in the on trade and is worth nearly £800m to the UK spirit market, about 7.5% market share. But it also represents an opportunity for consumers to do what they currently do best in the UK: experiment. This means new flavours and new experiences with products from offshore and imported whiskies gives them that opportunity as well as a new take on something familiar.

Imported whiskies

 

000hls

£m

2016

138

738

2017

150

787

% chg

9%

7%

 

Japanese whiskies have certainly made waves in the UK in the recent past, with volumes having more than doubled in the last 5 years or so. According to the IWSR, global sales of US whiskey increased by about 6% between 2010-15, 5.56% in Europe and in the UK it’s about 6% in the last year alone. All this could change, though, depending on what side of the bed Mr. President gets out of and chooses to continue with his trade war (also, one of the finest headlines you’ll see this year). Back on planet Earth, Irish whiskies are also faring well, backed up by a consistent stream of news about new distilleries opening up across the country. Global sales are up nearly 10% between 2010-15 and are projected to add another 7.16% to 2020. European volume sales of Irish whiskey are smaller at 3.7% and a projected 2.6% to 2020. UK volume sales increased 5.2% between 2014-15.

Other categories also suggest that (new) flavours are on the rise. Flavoured vodkas and flavour/spiced rums are all in growth in both the on and off trade, and CGA have consistently suggested that golden rum is the next big thing in the on trade. Also, the WSTA receive a lot of questions about this from the trade press who, keen to find the next big trend, are featuring ever more interesting flavours of spirits including vodkas and rums, but also flavoured gins. While flavoured gins in the UK currently account for less than 0.5% of the market, it’s likely that start-up distilleries are, rightly, trying to find their USP so any claim to the ‘next big thing’ for any new flavoured gin is probably premature. That said, gin can currently do no wrong, so it would come as no surprise if one of them rocked the boat with a revolutionary new gin flavour.

So a mix of good and bad news, and also food for thought.

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Yearly gin exports reach £500m

There are many (us) in the industry who have been predicting this point will come for some time now. There are also others (us again) who have been predicting gin in the UK will be a £2bn industry by the end of 2018 and, now that exports have reached such a landmark, this seems inevitable. And there are some (everyone, including us) who have seen the rise of UK sales grow and grow waiting for something to occur that will check the industry’s meteoric rise. Until now the UK gin industry has never much resembled a tidal wave crashing onto land but more of lapping shore line as it approaches full tide, with strong but consistent growth rather than an explosion. But with accelerating growth in the UK gin market and now in UK exports, more, not less, speculation will surely occur about the fate of the juniper spirit.

As always, the facts come first, courtesy of HMRC. The UK has achieved £500m in yearly gin exports for the first time - £532.4m to be exact – representing a 12% increase on 2016. Key markets for gin regionally are North America – which passed £200m for the first time - the EU – which grew by 16% and remains by a distance the largest import region – and, though a smaller market but one with lots of potential, Asia and Oceania (see below). This further strengthens our export strategy that this year is targeting Asia and the East Coast of North America in particular (ask Rob for more details on how to get involved).

 

Value £

Region

2016

2018

% chg

EU

218,105,915

253,776,937

16%

Asia and Oceania

28,185,392

31,721,496

13%

E. Europe

1,667,126

1,896,476

14%

Latin and C. America

9,097,221

11,451,908

26%

Middle East and N Africa

7,058,845

9,402,925

33%

North America

193,273,104

206,125,315

7%

Sub-Saharan Africa

5,682,507

7,014,024

23%

Western Europe exc EC

10,622,239

10,951,421

3%

Stores and Provisions

39,879

71,241

79%

Non-EU

255,626,313

278,634,806

9%

Total

473,732,228

532,411,743

12%

 

The USA remains the world’s bigliest importer of UK gin, importing £184m worth in a year to November 2017, up very nearly £12m on last year, #MAGA one G&T at a time. Signs are that gin sales by volume in the US is broadly flat but value sales have increased around 8%, indicating US consumers are enjoying more premium brands, which plays well with exporting UK’s growing number of available gins and the WSTA’s ambitious gin-producing members attending our trade missions. You’re welcome Mr. President.

Another landmark: £100m worth of exports in 12 months to Spain for the first time, up nearly £7m on 2016. Spain is by far UK gin’s top EU market, importing more than the five next biggest markets - Germany, Italy, France, Greece and Belgium - combined (£94.5m). The 7% increase in gin exports to Spain is encouraging and part of a clear trend in there that mirrors the UK domestic sales experience; by value sales have increased by 40% in the last five years, over a third by volume. This indicates that, whilst Spain has been and remains a key market for UK gin, there is still a lot of head room for exports as long as exporting to the EU remains as unhindered as possible after Brexit, something that was brought into question last week but is crucial for gin as well as other goods.

If it were @optawine’s job to predict things, it would say that there are more landmarks ahead (the £2bn mark (domestic sales + exports) is tantalising close at £1.8bn as it stands but next month’s market report will reveal more). Export trends tend to follow domestic ones so, following on from the accelerated growth in the UK market, we might expect faster export growth in the coming years, which makes the idea of gin exports a £1bn industry within the next decade a real possibility. A slowdown in gin sales and exports is inevitable, it seems glib to even suggest that given these export figures, but there are currently no signs of it so we can only expect further and fast growth in exports in the years to come.

 

So all is well in the gin industry which has casually brushed aside difficult domestic market conditions to continue increasing growth and is fast becoming a key driving force in UK food and drink exports. The tonic and lemon industry can thank us later.

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UK price of alcohol 43% higher than EU average

The ONS released this little nugget last week on the price of alcohol (and other goods). The headline stat: the UK alcohol beverage price level is 42.7% higher than the EU average, which is appalling news for consumers and curious news for public affairs types. A small bit of context; spare a thought for the Finns and Irish who pay more than 70% the EU average.

The data use the purchasing power parity to equalise price difference on a basket of goods, similar to how inflation is measured, in currencies and exchange rates used across the bloc. In other words, through this we can eliminate differences in price levels between countries, which in turn means we can accurately and legitimately compare prices across countries.

This is a good indication of how consumers suffer under regressive tax regimes. For example, the UK has the 4th highest price level for alcohol in the EU behind Finland, Ireland and Sweden. The UK also has the 4th duty level for spirit products, behind Sweden, Finland and Ireland (in that order). The UK has the 3rd highest wine duty rate behind Ireland and Finland (Sweden is 4th) and the third highest rate for beer, again behind Finland and Ireland (and again, Sweden is 4th). Proof if ever there was that the price of alcohol is correlated to duty rates, which is bad for consumers.

At a time when CPI inflation is 3% and RPI inflation at 4.1%, it is little wonder UK features so highly on this list, especially given other EU member states aren’t currently in the throes of such drastic rising prices (for example, current inflation rate in the Eurozone is 1.4%). As of September last year, the latest WSTA market report shows prices of wine and spirit products in the off trade increased by 4% compared to the summer of 2016, showing a direct link of the effect on consumers of a policy, enacted in March’s Budget, that indexes duty increases to RPI inflation, the much maligned measure of inflation that ONS itself has rejected. In fact, only yesterday the Governor of the Bank of England, Mark Carney, ‘called time’ on RPI, suggesting the UK scrap it altogether because it ‘has no merit’. That is why the industry was so glad to see the Chancellor freeze duty rates in November.

The ONS and other commentators expect CPI inflation to decline slowly towards the targeted 2% annual rate over 2018, though many have refrained from saying it will achieve this target this year. Commentators don’t usually comment on RPI and the Bank of England doesn’t set a target for it, but given it is almost always about 1% higher than CPI we can expect it to remain above 2%, which is further bad news for consumers and industry and why the WSTA will continue to press for, as a minimum, no further increases in alcohol duty.

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More than 300 distilleries are now online in the UK.

It’s almost as if these turbulent political times don’t matter to the world of spirit making in the UK, such is the rise in distillery registrations in the UK. 49 new ones opened in 2017 alone, with numbers doubling in the last five years.

Firstly, let’s get the numbers right; 49 is the new number of distilleries registered with HMRC to produce in the UK in 2017. However, 7 operators deregistered so the UK actually boasts 42 additional players to the spirit market for 2017. The number registered in England was 22, which means it tops the list for number of new entrants with 20 opening in Scotland but, with 5 deregistrations in England and 2 in Scotland, the number of new players for each is 17 and 18 respectively. Readers can decide who wins that particular battle. Wales gained 4 new distilleries bringing its total to 17 and Northern Ireland are up to 14, up 3 on 2016. 

In total the UK now has 315 distilleries online (see above), up 172% from 116 since 2010 when the WSTA first started collecting the data, so 199 in just 7 years. The graph above shows very well the acceleration of growth in the last 5 years, where percentage growth hasn’t even threatened to be lower than double digits since 2013 and total growth has been more than double since then (127%) compared to the 21% between 2010 and 2013. Compelling numbers.

149 distilleries are now online in Scotland compared to 90 in 2010, so even the land most famous for distilled products has grown by nearly 2/3s. Northern Ireland had only 2 when Clegg and Cameron were canoodling in the Rose Garden, but has increased its distilleries 6-fold since and Wales has added 16 more from its 1 in 2010. The most curious region of the UK, though, is England who in 2010 has only 23 but as of 2017 now has 135, meaning of the 199 registered since 2010, England alone accounts for 56% of them. To add further context, London alone now has more than the whole of England did in 2010.

It is easy to point to the gin explosion as the reason for this boom in online distilleries and undoubtedly this will be a factor. In 2010 there were estimated to be around 40 UK gin brands in the UK, as of 2016 the best guess is around 75 (though another 20 exist on the UK market) and the majority of these will be UK based brands, though part of this may be also down to improvements over time in data collection. Add to this the wealth of impressive UK sales and export numbers and you have a compelling case. But there is more: the same data states that since 2010 the number of Scotch brands in the UK market has more than doubled to 246 from 119. UK vodka brands went from 20 to 32 in the same time frame. The fact that the overall market for the latter two is fairly flat in recent times suggests that any new entrants are merely eating market share of others but, with gin’s exponential UK sales and exports, new entrants appear be adding to the pie.

While no one should assume that there are many who are out solely to make great gin and lots of it, there are incidents of gin producers making gin but also biding their time until the brown stuff is ready for sale. This means that it can’t be taken for granted that all new distilleries are solely for the purposes of growing the gin category, though it has clearly helped, nor does it mean that as new whisk(e)y brands come on to the market, that growth in gin will slow. But it does imply that more brands in other categories will become available in the not-so-distant future, something that has already been happening in all spirit categories for a number of years. The question then is: will new whisk(e)y eat into existing market share, or will it increase the pie?

 

All this shows the UK spirits markets is in rude health, the latest HMRC figures show this at grassroots level, and remains an exciting industry to be in. It will be interesting to see how all spirit categories develop over the next few years, as there are some potential market disruptors in barrels,  and signs are all categories will witness some movement in one way or another.

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Briefing: Latest ONS inflation figures released

The ONS have today released new inflation figures which show some good and bad news for wine and spirit consumers and businesses. The wine and spirit industry is a big player in the FMCG sector and as such inflation figures matter greatly. What is more, every year the Budget – now in November – means the industry faces the very real possibility of price changes that are outside of the control of the market in which we operate. Let’s keep this brief, inflation is hardly the West Wing and we’ve only just had a Budget.

CPI inflation was down 0.1% in November to a flat 3% in December 2017, which is good news for consumers. CPI for beer declined 0.6% to 3.8% in that time, spirits declined a massive 2.2% to 1.5% but wine increased 0.3% to 3%. The decline in the overall CPI rate, albeit about as small as it can get, could be the first signs that the effects of the devaluation of the sterling in 2016 are slowly stabilising, but this is little solace to wine and spirit importers whose prices continue to rise, contrary to most other goods.

Conversely, RPI has increased 0.2% to 4.1% in December 2017, the highest rate for the entire year. There are two things to note here: firstly, alcohol duty increases during the Budget are linked to a projected rate of RPI inflation, not CPI, by the OBR who base their projections on previous data. Should RPI continue to increase in to 2018, it will not be welcome news to the industry in November. Secondly, that RPI has increased when CPI has decreased only supports the notion that RPI is an outdated metric, now rarely used in policymaking and something we campaigned on during November’s Budget. How the ONS treats RPI data, which isn’t as detailed as other measures of inflation, is also an indication and they have openly stated they recommend people do not use it. For example, wine and spirits are measured together and register a 0.5% decline to 2.7%. This might represent something of median between CPI’s decline in spirit prices and increase in wine’s, but it is impossible to know for sure.

Having been the case throughout 2017, the UK continues to outpace the EU as a single bloc, who are at 2% (measured by the EU’s Harmonised Index, which measures UK inflation at a slightly higher 3.2%), with Germany at 1.6% and France at 1.2%.

 

A decline in inflation will likely only happen slowly and it will be important to keep an eye on ONS releases, either through this blog or directly with the ONS, whose excellent dashboard gives a brief overview of the UK’s economy.

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The 73 questions of Minimum Unit Pricing

The prospect of Minimum Unit Pricing for alcohol in Scotland raises a number of questions for the trade in the UK. 73 questions, in fact. That is the number of individual questions we have received at the Wine and Spirit Trade Association so far from our member companies concerned as to how the new regulations will affect them.

Some are fairly straight forward to answer. Who is effected? How do you calculate MUP? When will it be implemented? and so on. Others are more complicated - what if you fulfil an order from outside of Scotland to a Scottish consumer? For many questions, there is no answer as yet as the policy is still being developed – for example how would it work with a proposed Deposit Return Scheme if that was implemented?

Given the response to these questions runs over 14 pages and references about five different Acts of the UK and Scottish Parliaments, I won’t attempt to answer them all here. But it is useful to highlight a few key points and a few milestones in the next few weeks of which the trade need to be aware.

Firstly, some key dates to look out for. There is a consultation over whether a 50p Minimum Unit Price is the right level, which closes on the 26th January. The Scottish Government have pledged to respond to this by the 23rd of February and this will be the date we find out the exact price. Although this could theoretically change, it is anticipated they will stick with their preferred level of 50p. The Minimum Unit Pricing Order is then due to be published and debated in the Scottish Parliament on the 1st March, around which time we are likely to see the Guidance to support its implementation published as well.

But May 1st 2018 is the most crucial date, as this is when the Minimum Unit Pricing Order will come into effect and no alcohol retailer in Scotland will be able to sell alcohol below the Minimum Unit Price. So, it is a tight timeframe for the industry to get prepared, particularly for retailers. The regulation is a licensing condition and therefore compliance (and penalties) falls squarely with the licensee.

The Scottish Government, for its part, has been very constructive in engaging with industry to ensure it can be implemented as efficiently as possible. As part of the public consultation they are reviewing the Business and Regulatory Impact Assessment, they are holding numerous consultation events, to which the WSTA has been involved, and have promised to publish guidance which takes into account the regulations that exist in England and Wales for the ban on below cost sales. Officials were also kind enough to look over the answers to all 73 questions our members raised, so that they have the most accurate and up to date information.

However, the exact impact will only be known when the policy is implemented. This hasn’t been implemented anywhere else in this way. So, while it is positive that the Scottish Government have also established an Evaluation Advisory Group, to commission research into its impact, there are still areas of concern that remain. For example, some value products could disappear from the Scottish market, restricting consumer choice and impacting on jobs. What will the impact be on Scottish consumers in terms of higher prices? There is concern that the policy will incentivise black market trade and cross border trading making it harder to track consumption and take consumers away from responsible retailers. Then there is the biggest question as to whether it will actually have the impact the Scottish Government hopes it will.

For these question there is no answer yet. Retailers and producers will know anecdotally what is happening to the market almost immediately, some can already guess from their own modelling, but we will only begin to see a full picture of its impact emerge in late 2018 as key consumption and sales data begins to be published. That’s why the WSTA focus is a twin track of implementation now and impact after the 1st May.

As with any change in licensing policy, implementation is complex and can be costly for the trade, even when it seems simplistic in nature like Minimum Unit Pricing and its impact can have unintended consequences. At the WSTA it is our job to provide as much clarity and support to our members as we can, whether it’s in answering one question or 73.

Carlo Gibbs is Director of UK Policy and Social Responsibility at the Wine and Spirit Trade Association.

 

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Market report blog – 3 numbers that sum up 2017 for wine and spirits

In some ways the wine and spirit industry isn’t in a dissimilar place to last year, with a few areas of growth underneath some static topline numbers. In other ways it feels like it is on the cusp of change – undoubtedly a sign of the times - as external forces start to show in data. Here a three numbers to represent wine and spirits in 2017.

29% - the number of people have drink gin ‘nowadays’, making it the most popular spirit amongst British drinkers. This is according to our most recent work with YouGov, the popularity of the spirit of the moment is finally being reflected in the polls with an 8% increase from 2016. With total sales growth of 18% by volume and 21% by value over the last 12 months to September – and perhaps more pertinently, a respective 44% and 85% increase since 2013 - the only surprise to come of this polling is that it didn’t happen sooner.

Looking back over the past five years of market report data, there’s a noticeable increase in growth percentages, which have culminated in this quarter’s lofty numbers such as a 34% increase in off trade value sales in the last three months. This is unprecedented for any category of gin’s size. Add to this consistent growth in exports and we have a growing and global industry that is sure to pass £2bn by 2020, you heard it here first… probably.

 
 

 

 

 

Question asked: Which, if any, of the following types of alcoholic drink do you ever drink nowadays? (Please select all that apply)

 

2016

2017

chg

Whisky/ Whiskey

21%

25%

+5

Gin

21%

29%

+8

Vodka

26%

23%

-3

Rum

17%

18%

+1

Cream liqueur

16%

17%

+1

Non-cream liqueur

7%

7%

0

YouGov, 4th-5th December 2017 (lists only spirits

 
 

 

 

 

89% - the increase of sparkling wine yearly volume sales (on and off trade) since 2013. More impressive than that, value sales for the industry have trebled (+206%) in that time to £1.3bn in yearly sales and, if you add Champagne, the sparkling wine industry in the UK is now worth more than £2bn in 2017. Such is the meteoric rise of sparkling wine over the last five years there has always been as suspicion that it is a bubble waiting to burst, no pun intended.

It’s safe to say there is no bursting of any bubbles here but there are signs that sales growth maintain rude health but are not quite as lofty as they once were: growth for total industry volume sales of sparkling wine were about 15% in 2015, 10% in 2016 and it’s looking like mid-single digits for this year. Value sales are also not what they were, but they are starting outpace volume sales, which, inflation notwithstanding, hasn’t always been the case. This points towards the category slowly but surely stabilising at a new and higher level. Premiumisation klaxon alert: inflation withstanding however, anyone jumping to suggest consumers are trading up should think again, but more on that in a moment.

Reports of lower yields from the slopes of Northern Italy, inflation and all the complications that come with Brexit, volumes of sparkling wine are one to watch in 2018.

3.1% - the current rate of CPI inflation and the reason behind my new favourite thing; the afore-mentioned premiumisation klaxon. Between January 2015 and May 2016 the CPI rate of inflation fluctuated between 0.3% and -0.1% but since the Summer 2016, it has been steadily rising and now stands above 3%. This presents a problem for a common theme for the wine and spirit industry over the last few years: premiumisation. With such low inflation in 2015 and 2016, it is easy to understand why people were talking about it; value sales outpace volume sales with no inflation surely equals consumers trading up to premium products.

Probably. But now we have 3.1% CPI inflation (4% RPI!) and is forecast to remain at around 2% each year until 2023 (inevitably, RPI is higher at around 3%), so caution is required. It could be that inflation accounts for three quarters of that increase, leaving a 0.9% left for what is consumers trading up, but this disregards other upward pressures on UK businesses, not to mention duty increases earlier in the year, meaning this is surely a lesson in false positives.

 
 

 

 

 

CPI inflation rate since 2000

ONS [https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7g7/mm23], 2017

 
 

 

 

 

So, 2017 is a mix of the same old story – gin and sparkling wine – and a new twist – inflation – but both should be instructive for 2018. The latter is not easy to predict, but it does now mean we need to think differently about premiumisation. Gin has much headroom and momentum going in to 2018, which is exciting, and sparkling wine faces many pressures but its growth over the last few years has it well-placed to weather them.

A very Merry Christmas to you all.

 

@optawine

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WSTA welcomes Budget freeze

Last month's Budget brought a welcome surprise for our industry with a freeze on all alcohol products. With a tight financial settlement, worse than expected fiscal forecasts and built in RPI rises the prospect of a bit rise was looming large over the industry just 8 months after the last rise in March. However, in a welcome change in policy as a result of our efforts, the Government froze all duty “recognising the pressure on household budgets. And backing our Great British pubs”.

This was particularly welcomed by the wine industry as comparatively this is the best outcome since 2002 and it avoided being left out as it was when duty was frozen in 2013 and 2015 and cut in 2014. But it was also welcome for spirits which have received a freeze or better for only the fourth time in ten years. It was also very welcome as we move into the Christmas trading period. Inevitably though, the devil is in the detail and the small print in the Red Book provides caveats. Some are small, some potentially problematic and these are discussed below. 

But first the good news: Philip Hammond announced that all alcohol duties will be frozen, meaning there will be no change in any duty rates, breaking with government policy of an annual rise indexed to projected RPI inflation. With the new implementation date (see below) as a result of moving the Budget from March to November, this means that all current duty levels implemented in March 2017 will remain for a further 14 months at least, meaning a full 22 months without changes prices at least. As a result of WSTA campaigning, the industry has saved an estimated £247m in new tax liabilities in 2018. This is compared to what would have happen if the Government increased duty by RPI which stood at 3.8% on Budget day based on the OBR’s new RPI inflation rate (this is higher than the 3.4% that the OBR projected in March).

What this means in real terms we can look at in a few ways. Compared to a rise being passed on in its entirety, consumers have saved an extra 8p a bottle in extra duty on still wine, 11p on sparkling wine and 31p on a bottle of spirit at 40% ABV. Overall, wine consumers are expected to save £125m in extra duty while spirit consumers save an extra £122m that could have been added to their tax bill in 2018. The value of this to Pubs for example is around £637 in additional wine and spirit duties in 2018 per pub. Or from a producer side, a wine importer releasing 1m bottles for sale in 2018 has been saved £87,140 in additional duty payments whilst a distiller producing 100,00 bottles has been saved £30,299.

A rise of this kind would therefore have been particularly unwelcome at Christmas. However, this brings me on to the next piece of good news, which is the implementation date. The move to November from March for the main financial statement meant that the usual implementation date – Midnight on the Sunday after the Budget – would have fallen just before the industry’s busiest trading period, Christmas. It is good news indeed that the Treasury listened to our concerns and delayed future rises until after Christmas and New year. The Treasury forecasts that any future increases in duty will now take effect from the 1st February.

The Chancellor also announced a new band for high strength ciders between 6.9% and 7.5% ABV to be implemented in 2019 ‘to allow producers time to reformulate and lower their ABV. The reason set out in the Red Book is to tackle issues of harmful drinking at low cost, in particular white ciders. However, the Chancellor was silent on the issue of a new lower abv band for still wine between 5.5-8.5% and we have since received confirmation that this policy has now been dropped.

There was a final point, buried deep in the budget book that simply stated the Government was going to review the practice of wine dilution in relation to duty. We are endeavouring to attain further details about this review and ensure that our members have the opportunity to feed into this.

We have learnt much during this campaign, notably what a clear, concise and targeted campaign can achieve with support from our members. We are very thankful to all the WSTA members that signed joint letters, wrote directly to local MPs and hosted events, and we look forward to working with them during next year’s campaign effort.

The WSTA Budget Report can be found here , the Red Book here and full duty rates here.

 

 

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Quick guide to the November Budget

In March, Carlo and I fielded quite a few questions after the Budget from both members and the media on duty rises. There were some assumptions that led to a bit of confusion around what the Chancellor meant by ‘I can also confirm that I will make no changes to previously planned upratings of duties on alcohol’, which sadly, isn’t as favourable as it sounds. Though it may not make for easy reading, I present to you here a quick stop guide on what to expect and to look out for in next month’s Budget speech.

 

He said no change, that’s good right? 

No. This is taken from the Government’s policy paper on Alcohol duty, released in March this year:

The public finances assume that all alcohol duty rates rise by RPI each year. This measure aims to support the public finances by implementing the expected indexation of alcohol duty rates for the fiscal year 2017 to 2018.

In other words, unless the Chancellor explicitly says so, we can expect an inflationary rise based on RPI, set to be above 3% every year up until 2022. Further to this, OBR projections model future duty intake based on inflationary rises to the end of this parliament in 2022. This is how Philip Hammond got away with saying ‘no changes’; it’s already set in policy yet it sounds like nothing is changing, when in fact the duty rate is increasing in line with policy. Sneaky.

So unless you hear the words ‘freeze’ or ‘cut’, assume an inflationary rise and we will confirm in our Budget Report which will be sent out shortly after the Chancellor’s speech ends.

You can read more here.

 

You have been saying that current government policy is another rise of 3.4% RPI. Is that still the case?

 

Yes and no. The OBR’s March 2017 Economic and Fiscal Outlook publication projects 2018’s RPI rate at 3.4% and that is what we have been working with when doing our sums, presumably the Treasury has too. But the OBR will release a new Economic and Fiscal Outlook publication to accompany the Budget speech on 22nd next month. They may well have revised their projections from the March version, which means we can’t be sure that 3.4% is accurate, but it is unlikely to be below 3% given that inflation is on the rise. But for the purposes of campaigning, we have been using March’s RPI numbers.

 

That’s very unhelpful. So we can’t plan ahead for November’s price changes because the 3.4% rate might change?

 

I’m afraid so. Going by previous Budgets any new rate will be implemented the Monday after the Budget, so the usual quick turnaround is still possible. However, we have also been in contact with the Treasury to discuss implementation dates, stating that if a duty rise was to occur, it would be extremely unhelpful to the entire industry to have to go through the burdens of administration to change prices accordingly just before Christmas. Industry will need time to implement these, not to take staff away from trading during the busiest time of the year. That would be Grinch-like. If the worst was to happen and we have to deal with any kind of rise, no earlier than 1st January earliest seems only fair in terms of a potential implementation date.

 

Is there anything we can do in between now and the Budget?

 

Lots. On Wednesday 11th October, Miles sent out a call to action to our membership outlining what will happen if we as an industry don’t mobilise ourselves, but to recap:

1. Write to your MP – We have pulled together a draft template letter to your MP which highlights the impact of duty increases and asks them to lobby the Chancellor. You should send this to your local MP, make sure you receive a response and keep us informed. This is available here

2. Sign a letter – We need WSTA members of all sizes and types to lend their names to joint letters we will be coordinating to the Chancellor and other Cabinet members. All you have to do is to let us know that you are happy to sign a joint letter on duty and we will share the draft text with you.

3. Let us know the impact on your business – We are always looking for examples about the impact of duty increases on businesses, so that we can develop impactful case studies. For example duty bill as % of your turnover; no. of employees; block on export ambitions and so on. Let us know if you are happy to help with this type of information.

 

Carlo and I will also send out more bespoke materials soon, including tweetable infographics, letter templates to write to your MP based on the part of the industry in which you operate and regional stats, showing the economic activity and employment the wine and spirit industry accounts for in your area.

 

If you have any questions or want to contribute a case study please contact [email protected] 

 

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The changing world has its price - Q2 2017 Market Report

The UK alcohol industry has always managed to weather political storms. Currency fluctuations and duty increases are part and parcel of most business models in an industry that is so trade-orientated. However, Brexit is the x factor we currently face; an unprecedented geopolitical event that, for better or worse, will affect the wine industry for years to come. In particular, the devaluation of the pound after the referendum meant that import costs increased which in turn meant that prices rose. We are beginning to see evidence of this.

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Taittinger – We Dig it!

A historic event took place last week in the world of English wine. Taittinger became the first Champagne House to plant vines in UK soil and as you would expect, the launch was carried out in style.

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Grape British Diplomacy

This week, Nusrat Ghani MP (Con, Wealden) put forward the industry’s case for serving English wine at UK overseas missions to Parliament. The 10 Minute Rule Bill aims to ensure British embassies and consulates overseas purchase and serve English and Welsh wine and sparkling wine at events and functions. WSTA Parliamentary Affairs Manager, Rebekah Kendrick, highlights the value that MPs’ support brings to the UK’s wine businesses.

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Budget Reaction – unsurprising surprises

What was surprising about the result of the Budget this year was that it that it did not contain any surprises.

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Wine and spirits - our challenge to the industry

Last week the WSTA launched our annual Budget effort with an ambitious, but achievable aim of convincing the Chancellor to cut wine and spirits duty by 2% in the Budget Statement on the 8th March. The facts about duty are well known:

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Don’t let anyone tell you that Brexit has either ruined our economy or saved it

Ciaran Myles, Research, Marketing & Insights Manager, WSTA 

 



As we edge further along the Brexit timeline with limited and, at times contradictory information coming from Government, discontent from both Brexiters and Remainers alike, an ever-watchful press and volatile world markets, one thing remains constant: the world keeps turning. By this I mean that despite all the political white noise, someone has to get on with looking at how the country and the economy are performing. Whilst the old adage ‘lies, damn lies and statistics’ may ring true in parts of Westminster, the likes of the ONS, the OBR and the Bank of England continue to crunch the numbers.

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The Spirits Summit, Unwrapped

 

As if we weren’t cold enough in London as it is, WSTA decided to head north once again to the Packaging News Spirits Summit in Edinburgh.

 In its inaugural year, the event was showcased in the beautiful Assembly Rooms on George Street, where chandeliers hung from the ceiling above boxes, bags, glass, cases and corks – a packaging-enthusiasts paradise if you will.

 The room buzzed with chatter as delegates made their way around the stalls to explore some of the industry’s cutting edge creations. The packaging industry could easily be mistaken for dull, but packing businesses from across the world were proving how this was clearly not the case (excuse the pun!).

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Creating safer communities – CAPs

Creating safer communities – CAPs

Creating safer communities – CAPs help bring about real progress through partnership

Director Kate Winstanley talks about the success of CAPs in tackling underage drinking and the associated harms to communities following the publication of the Community Alcohol Partnerships (CAP) 2016 Impact Report.

On Monday 14th November Community Alcohol Partnerships (CAP) hosted an awards ceremony to honour the efforts of a number of exceptional individuals whose contributions to their individual CAPs have made a real difference to reducing underage drinking and building safer, more cohesive communities.

 It was an incredibly uplifting evening which shone a light on how working together can make a real difference to people’s lives.

 

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