Gallo and WSTA warn of tough times

Published: 24 February, 2009

E&J Gallo winery has been forced to restructure its business in the face of crippling government duty on alcohol in the UK, the company has revealed.

The winery reported healthy sales growth in the UK market late last week, but has warned that it faces serious challenges in 2009 alongside the rest of the drinks industry. The Wine and Spirit Trade Association (WSTA) has also issued a bleak assessment of the difficulties ahead.

In a statement, a spokesperson for E&J Gallo says: "Like many in the alcohol industry the 17% duty increase has presented a significant challenge for our business. As a result we have had to restructure our business accordingly. We sincerely hope the UK Government will abandon its tax escalator on alcohol and promise no further increases in excise duty in this year's Budget."

The Wine and Spirit Trade Association also warns that 2009 will see more challenges heaped on the embattled industry.

"Over the last 12 months, the alcohol industry has been pummelled with tax increases," a spokesperson told Harpers Wine and Spirit.

"First, a 9 % increase in excise duty in the Spring 2008 budget, then a further 8% tax increase to ensure that the cut in VAT would not be passed on to consumers of alcohol, though it forced up the cost of over 90% of the wines bought in Britain.

"This year it's the start of a 4 year tax escalator set at 2% above the rate of inflation per year. It means that by the time of the London Olympics., tax on alcohol will have increased by as much as 40%."

The WSTA spokesperson adds that excise duty on alcohol accounts for more than half of what consumers pay for an average bottle of wine and more than that for a bottle of spirits.

"Those taxes are now among the highest in Europe, increasingly making the UK an unattractive market in which to invest, distribute products and build a business.

"There is no doubt these taxes have been costly. We have seen 44,000 jobs lost across the beer and pub sector alone. Already, major wine companies are diverting their investments away from the UK and into other European markets and beginning to make redundancies as well.

"What's more the tax increases are failing to achieve their revenue raising objective - demolishing into the bargain the common perception that alcohol sales are recession-proof . In the wake of last year's Budget the amount of wine released from bond for sale - a good indication of what's actually being drunk by consumers - fell in the second quarter by over 5%. In the third quarter it was down by over 10%."

Printer friendly version