Budget: consumers face 44p hike on bottle of wine

Published: 16 March, 2012

Consumers face a price hike of 44p per bottle of wine in the wake of duty and retailer increases next week.

Consumers face a price hike of 44p per bottle of wine in the wake of duty and retailer increases next week.

The Chancellor is set to apply the next phase of the duty escalator on beers, wines and spirits, which is pegged at 2% above RPI inflation, next Wednesday March 21.

But according to Tim Wilson, managing director of the Wilson Drinks Report, retailers will take the opportunity to raise prices to protect their gross margins at the same time.

Wilson said: "We expect Chancellor Osborne to carry on with the duty escalator - it is politically very easy to continue to raise taxes on alcohol. However, we also expect most retailers will increase their prices by more than the change in duty. Their focus on gross margin percentage, rather than total cash profit, multiplies the effect of the duty increase by the time it reaches the consumer."

The most recent inflation forecasts published by the Office for Budget Responsibility put the relevant RPI at 3.1%.

A 5.1% duty escalator would add about 9p duty to a bottle of 12.5% abv still wine, but this would increase to 44p a bottle extra in retail selling price to protect a 75% gross margin.

Wilson added: "On a £15 bottle of still wine - a 9p duty increase could become a 44p increase in selling price, up 2.9%."

Retailers who opt to maintain their cash margin could keep selling prices significantly lower for customers.

What are you planning to do about your prices come the Budget next week? Email Gemma McKenna and let us know.

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