Where the Money Goes on a Bottle of Wine in the UK
November 29th 2012, by Gavin
In case you missed it, the coalition government has announced plans to introduce minimum pricing on alcohol at 45p per unit. That would mean that a bottle of red wine at 13% alcohol (9.8 units) would have to be sold at no less than £4.41. Also in the firing line, and of more relevance to many people in Britain, are ‘multi-buy’ offers.
Whatever the pros and cons of this strategy, let’s look at what wine consumers get for their money. We all know that tax on spirits is high but what about wine? Well, you may be surprised to find out just how little is spent on the stuff in the bottle.
To illustrate the point, I’ve taken the figures from Robert Joseph’s article called ’Lifting the stone on the UK wine trade’ (The Joseph Report, 22/8/2012). As the editor of Wine Business International magazine and as the co-owner of a wine brand he sells to supermarkets, Robert is well qualified to comment and he kindly gave me permission to syphon off his numbers.
Above is the breakdown of who gets what from a bottle of European wine sold at retail in the UK (it’s even worse for non-European wine). It’s eye-watering stuff, especially for wine lovers who can’t afford more than the UK average spend of around £5.50 a bottle. Just a quid of that is spent on the wine, including the bottle.
As part of an unofficial grape farmers’ union, it’s grim reading too for the growers who supply the co-operatives and négociants (mega-blenders) that sell to supermarkets and other retailers.
The government’s share: duty and VAT
As you can see, UK duty is nearly £2 a bottle (£1.90 now, rising to £2 in the next Budget) and there’s 20% VAT on the duty and the wine. UK wine retailers – whether supermarkets, merchants, websites or shops – have to add the dreaded £1.90 duty to the cost of the bottle before adding their margin and VAT. By contrast, there is no duty in Germany, Spain, Italy, Austria, Portugal and many other EU countries. In France, it’s 3p.
Wine, bottles and margins
Included in these costs of the wine is the bottle, closure and packaging, which totals anything from 30p to 90p. I’ve added together all the ’margins’ of distributors and retailers for clarity. These margins are operating margins and not simply just profit – staff, marketing, premises, logistics, IT and so on.
Promotions – ’25% off’ and all that – are usually funded by suppliers or by simply overstating the ’normal price’ for a month or so.
£7.50 buys less than £2 worth of wine
Any UK retailer therefore selling wine of any quality or character for under £7, post promotion, should be congratulated at sourcing such inexpensive stuff (less than £1.60 at cost, bottle included). Majestic announced this month that the average price paid by their UK customers has risen to £7.46 a bottle. That’s good news but that’s still only a purchase price of less than £2, excluding tax, according to The Joseph Report. No wonder profits have soared at their Calais operation, where that same wine would sell for under a fiver.
Winners and losers
Whatever the results of the consultation into minimum pricing, it’s tricky to see how poorer wine drinkers who drink sensibly – students, pensioners, my extended family – will be better off.
Let’s take that bottle of red wine I mentioned at 13% alcohol (9.8 units) which will rise to £4.41 from, say, £3.85 today (and some journalists still recommend wines at this price in national newspapers). Will a professional buyer for a supermarket, with double the margin in their pocket as a result of the higher selling price that’s forced upon them, say to their supplier ’Yes, I’ll pay more for this’?
In the UK, £4.41 might mean cheap wine. Yet in France and so many other EU countries, it would be inconceivable that €5.50 would be the cheapest available bottle – by law. And wine consumption in France is falling.
The losers will almost certainly not include the UK government. UK Duty on wine, which went up by 46% over four years to March, is bound to increase yet further come the spring. With or without minimum pricing.
Further reading/viewing – minimum pricing on alcohol:
The Spectator: ‘Why is the government so confident minimum alcohol pricing will work?‘ by Chris Snowdon
Imbibe.com: ‘The beer minimum‘ by Chris Losh
The Drinks Business: ‘Government proposes 45p minimum unit price for alcohol‘ by Andy Young
Channel 4 news: ‘Minimum alcohol pricing plans unveiled‘ (video)
Further reading - the cost of wine:
The Joseph Report: ‘Lifting the stone on the UK wine trade‘ by Robert Joseph
Bibendum Times Blog: ‘How to get value for money in wine‘ by Juel Mahoney
Bauduc blog: ‘UK duty on wine up 46% in four years‘ by me