WSTA Logo

The Grapevine

The WSTA's views, distilled.
Ciaran Myles has not set their biography yet

@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).

Continue reading
218 Hits

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] 

 

Continue reading
1161 Hits

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.

Continue reading
1558 Hits

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.

Continue reading
1549 Hits