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The Grapevine

The WSTA's views, distilled.

@optawine – Market Report: The Good (more gin), the Bad (less wine) and the Ugly (the Budget)

Market report time again with a trend that is becoming very common, a trend that is concerning and a trend that is surprising for some but at the same time gives me an opportunity to say ‘I told you so’.

Quarterly gin update (we may as well start calling it what it is)

In yearly sales, gin’s growth added £208m in the off trade and £250m in the on trade, £458m in total representing 38% growth. Gin in the on trade totals £947m in yearly sales, whilst value added in quarterly sales from March to June was £86m. If the same growth appears from June to September (the next market report due out in December), gin in the on trade will be a £1bn industry for the first time. Similarly, yearly sales of gin in the off trade is worth £710m with quarterly growth from March to June was worth £62m. Similar growth each quarter would mean gin would be worth £1bn to the off trade by the end of next year. Finally, the latest trade figures show that, so far this year (January to July), gin exports have reached £334m, an increase of 17% on the same period in 2017, with an average monthly increase of 18%. If this average persists then gin exports will be worth well over £600m in 2018. We predicted gin would be a £2bn industry by the end of this year, is £3bn now on the horizon?

Also, a quick note about gin’s importance to the on trade: gin account for 66% of spirits’ yearly value added in this issue of the market report, and 61% of total alcohol sales growth. Without gin, total alcohol yearly value sales growth would have been an entire 1% lower and spirit’s growth would have been 3.9% lower.

£m

12 months 16 June 2017

12 months 16 June 2018

chg

%

Total

      24,463

      24,871

           408

1.7%

Spirits

         6,018

         6,396

           377

6.3%

Gin

            697

            947

           250

35.9%

 

 

 

 

 

Without gin…

     

Total

      23,766

      23,924

           158

0.7%

Spirits

         5,321

         5,449

           128

2.4%

 

What’s happening with wine?

It is no secret that the UK wine trade is facing tough trading conditions and has been for some time. Total wine sales (still, sparkling, Champagne and fortified, on and off trade) declined by 2% by yearly volume sales and increased by 1% by value (given inflation as it is currently, can you call +1% genuine growth?). Take out sparkling wines and those numbers change to -3% and -1% respectively.

In particular, still wine has struggled to find growth, save for a few pockets of good news such as New Zealand wine, Malbec and Sauvignon Blanc. For whatever reason, still wine has witnessed long term decline which is not helped by consistently being treated worse than any other alcohol category at Budget time (see below). Add a severe currency devaluation leading to inflation and therefore price increases, it is safe to say the wine category is facing challenges.

This is particularly prevalent in the on trade where this market report posted yearly sales growth of -8% by volume and -5% by value. Since 2012, volumes have decline by 18%, 8% by value. Page 13 of the latest market report shows wine by countries of origin littered with double-digit negative growth, save for New Zealand and Italian wine (much of that growth coming from Prosecco), wine by grape paints a similar picture. Part of this could be down to product substitution – consumers choosing Prosecco or gin instead, always hard to accurately quantify – but what Phil Montgomery has highlighted in his commentary (p.9) must also be relevant: that the number of restaurant outlets has fallen and is perhaps too competitive and geographically concentrated. With its association with food, the restaurant sector’s volatility could also be a key reason for wine’s longer-term decline.

Sparkling wine reaching a peak?

A surprise for many; sparkling wine (ex. Champagne) has posted its first negative growth since 2012, - -4% in off trade quarterly volume sales - in what could be a sign the sparkling wine is reaching peak. Growth in yearly sales remains positive and in the on trade they are still in high double figures, so there is probably still some way to travel before a new equilibrium is reached, but it’s worth noting that growth hasn’t been as high as many have come to expect. Except me, I told you so.

November’s Budget

It’s getting to that time of year again where the WSTA are ramping up activity in calling for a freeze in alcohol duty at the next Budget in November. Last November, the Chancellor listened to our call and froze all alcohol duties, saving the UK wine and spirit industry an estimated £247m in duty liabilities for 2018. Duty is linked to inflation, so with current rates being so high, and with Brexit proper just round the corner, there has rarely been a more important time to get involved and help the WSTA team secure a much needed freeze for wine and spirit duty. If you’d like to get involved, please read Tom’s brilliant quick guide to the Budget and then email [email protected] to find out more.

Quick Guide To The Autumn Budget