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Long-term Problems in UK Wine Market Undermine Profitability

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Long-term Problems in UK Wine Market Undermine Profitability

Long-term Problems in UK Wine Market Undermine Profitability
November 19
13:14 2010

Long-term problems in the UK wine trade, which is the world’s largest importer, are threatening profitability for major suppliers who have become dependent on the market, according to Rabobank.

Wine imports to the UK rose by 6% in the first half of 2010, but this fails to compensate for the almost 10% decline in the same period of 2009. “Even if import volumes do recover in the next two years, many traditional suppliers to the UK market still face serious longer-term issues,” explains Stephen Rannekleiv, executive director of Rabobank’s Food & Agribusiness Research and Advisory Department. British consumers are still cautious about spending, in the face of slow economic recovery and government cuts.

Many people now prefer to drink at home, where they can smoke if they want to and don’t have to worry about drink driving. “As people increasingly buy their wine in the off-trade (outside licensed premises), pricing becomes dominated by a small group of retailers that negotiate aggressively to keep prices low. These retailers often use wine as a traffic driver for their stores, training consumers only to buy wine on promotion in the process. This trend will continue to weigh on wine pricing,” Stephen Rannekleiv adds.

The UK has traditionally paid some of the highest average unit prices for wine. While there is still a market for higher priced bottles, profit margins for suppliers have been falling. The government has raised excise duty on alcohol almost every year for the past ten years, and the VAT rise planned for next year will erode margins even further.

The result is that global suppliers of higher value wines will have to find new markets. “China is emerging as a major wine importer and continued economic growth should fuel demand. But a high-end Bordeaux sells in China for around half the price it would fetch in the UK, so increasing sales to China will not make up for the recent decline in UK sales,” says Stephen Rannekleiv.

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