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Independent merchants feel pressure as supplier price hikes start to feed through

Published:  17 October, 2016

The Bank of England warned of inflation rising beyond 2% on 14 October adding further concern to independent wine merchants who have already been forced to pass on price increases from suppliers to customers

The Bank of England warned of inflation rising beyond 2% on 14 October adding further concern to independent wine merchants who have already been forced to pass on price increases from suppliers to customers.

With a weakened pound, the price of imported goods, such as wine has already risen since the referendum on Britain's EU membership in June and some economists reckon inflation could hit 3% by the end of next year.

Several independent wine merchants have reported price increases of 3 to 5% from suppliers, and one owner of wine shops in West and Central London, who wished not to be named, said these price hikes had forced it raise wine prices by 20%, closer in line with the rate of the fall in the pound. He said price increases on wine were more notable to customers on mid-range wines under £20 and entry-level wines. Whilst some of the bigger wine merchants have bought currency to lock in exchange rates, smaller companies are bearing the brunt of hikes in prices from suppliers.

"For a month now we've been getting daily emails and calls from our suppliers all putting in one-off price rises as their pre-referendum Euros run out and they have to start buying at the new rates," said Toby Pierce, proprietor of independent wine merchant, Quaff Wines in Brighton and Hove.

"Bibendum have issued an interim price increase on its list which comes into effect on November 1st; it is the first time I have seen this happen," Pierce said. He said he was already adding a pound to some of his wine prices.

Bibendum has not commented on its interim price hike that will affect much of its range after Christmas. Indeed several wine merchants consulted by said many suppliers have delayed price increases to the New Year, so as not to offset Christmas sales.

Even so, Sam Tyson at Ten Green Bottles in Brighton said its Christmas promotion may well centre on English wines rather than imported wines as a result of the price increases. Meanwhile, Lucy Driver, owner of South Downs Cellars in Sussex, said the economic outlook had prompted her to consider replacing existing lines with new wines as it is easier, she said, to increase price levels of new wines rather than raising the prices of existing ones. Driver directly imports wines and whilst it is currently easier to absorb price increases on the retail side, she said the impact of high prices is more notable on the wholesale side, which has tighter margins.

Mark Flounders, wine buyer at Vagabond Wines in London, however played down concerns over the impact of price hikes from suppliers.

"We directly import much of our wine so we are less affected by price hikes of suppliers. And some of the suppliers we deal with such as Daniel Lambert have said they will only add a surcharge according to each Euro cent price change," he said.

Flounders said the economic outlook had not altered a decision from Vagabond Wines to open two new shops in Battersea and Victoria in the New Year.

But several independent wine merchants consulted by Harpers remain concerned that a combination of volatility in exchange rate fluctuations and inflation is to continue next year and could worsen when British Prime Minister, Theresa May, triggers article 50 before the end of March 2017. When Mark Carney, Governor of the Bank of England warned on 14 October that Britain was going from "no inflation to inflation," and that inflation would rise at beyond 2%, he said inflation would last "for years."

Analyst, Toby Magill, head of beer, wine and spirits (BWS) at IRI says the outcome of an increasingly volatile market for wine sales will be determined by the strategy of supermarkets.

"Supermarkets are continuing to cut their ranges to compete with the discounters and convenience stores, who are focusing on quality and increasingly offering everyday prices and are less reliant on promotions for sales. This leaves a lot of space for independent wine merchants, but if supermarkets change their current strategy, then this will leave the independents squeezed," Magill said.

"Cutting back ranges makes business sense for supermarkets, but if different retailers end up with almost identical wine ranges, then what is their unique selling point? Whilst there is a lot of room for niche independent shops, I am not convinced that supermarkets will maintain their current strategy in the long term, as it may not prove to be a viable business model for them," he said.

One of the advantages of smaller wine merchants is that they can operate with flexibility and hang around for late deals and are not reliant on large shipments of wine. However, the prospect of a steady rise in inflation, with imported goods costing more as result of the fall in the pound, has prompted some wine merchants to fear the rise in prices from suppliers is just the tip of the Brexit iceberg with one even predicting a "bloodbath" in the market by next Spring.