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Duty changes emphasise the law of increasing returns

Published:  31 July, 2023

The changes to alcohol duty, due to come into effect tomorrow (1 August), are the biggest the UK has seen in nearly fifty years. As businesses make their final preparations, it seems we could see a raft of new changes entering the drinks landscape – including the need to better communicate the law of increasing returns when it comes to wine and the benefits of trading up.

Tomorrow’s changes will impact all wines across the UK. Harmonisation of duty between sparkling wine and still wine is a key feature, as well as a temporary admin relief running until the end of January 2025, which will see all wines between 11.5% to 14.5% abv treated as if they were 12.5% abv, for duty purposes.

As result of the changes, the duty on most wine products will increase by 20% or £0.44 per 75cl bottle. It’s a hugely significant hike for consumers, particularly in the sub-£10 bracket, where the majority of sales take place.

Now, more than ever, consumers get more for their money when they spend more (see graphic below).

When buying a £6.31 bottle of wine – the average price of a 75cl still wine in the UK off-trade – only 29p pays for the wine itself. By trading up to a £10 bottle, consumers get £2.10-worth of wine… around seven times more.

“Hospitality has faced significant headwinds in the last few years: Covid-19, rail strikes, Brexit and this is another hurdle for us to tackle,” Andrea Pozzi, MD of C&C GB, told Harpers.

“It’s up to us as the drinks industry to show consumers that buying a slightly more expensive bottle of wine unlocks more quality and value. The big question remains whether consumers will absorb the higher wine prices, or compromise with wines of a lower abv.”

Either way, C&C is predicting that change will come thick and fast.

As duty pushes up the cost of wine, Pozzi expects the trend for low & no to accelerate as consumers look to moderate their drinking and search for alternative options. At the same time, the trade is expected innovate to meet this trend. From tomorrow, wines under 11.5% will be subject to less duty, so it’s likely the industry will move to increase listings for lower abv wines.

Pozzi said: “We expect to see a rise in the popularity of some naturally lower abv wines – either lower by nature or by natural design – including the likes of Vinho Verde Muscadet and Gamay.

“With low alcohol drinks on the rise, we might also see an increase in wines between 6% and 9.5% abv, creating a new category of mid-strength wines. These wines will be subject to progressively lower rates of duty, so offer more value with also tapping into the trend towards ‘moderation.’”

Sparkling will see changes, too. Further abolishment of separate duty rates for sparkling and still wine means that from 1 August, a bottle of Champagne or sparkling wine will have its duty reduced by £0.19, bringing it down to £2.67 and in line with a still bottle of wine.

In order to stay abreast of the changes, C&C – which owns suppliers such as Bibendum and Matthew Clark – has been working with its on-trade customers. This includes offering assistance with wine lists reviews and looking for alternative products where necessary. Wine workshops are being organised too, in order to highlight where businesses can switch up their wine selection and add value, without compromising on quality.

“The drinks industry will need to adapt to these trends and come up with innovative solutions without compromising the quality of wines in the market. With the wine category in decline, it is critical that we strike the right balance between quality and value and still offer customers an exciting selection of wines. I expect we will see some interesting innovation from both producers and retailers,” Pozzi concluded.