As uncertainty over the Brexit effect continues, every line of business seems to have its own brand of questions about the future. And maybe it was a coincidence that shortly after the end of that driest of months, January, and on Valentine’s Day, we were urged by the industry body to ponder the stability of the wine trade in Britain.
There were stark warnings of a “triple whammy” hitting the UK imported wine sector: the falling pound, signs of rising inflation, and the possibility of the UK chancellor raising alcohol duty in the next budget. It sounded like a perfect and worrying storm for cash conscious wine buyers. A glass could be about to get lot more expensive.
So where does our hard earned money go when we buy a bottle of wine? If we take a typical £9 imported bottle, the actual making and production of the wine accounts for less than a third of the price, around 27%. Almost the same amount (22%) goes on UK duty. The largest proportion (32%) goes to the distributor’s and retailer’s operating margin, 17% goes on VAT and 2% pays for the actual transport of the bottle.
So are suggestions of a possible “triple whammy” on price a realistic taste of the future or just an opportunistic PR stunt? Perhaps the only and honest answer at the moment is that we do not know definitively. We can always rely on our experts’ best forecasts, although these could also be characterised as best “guesstimates”.
Remember all the catastrophic events which were going to befall the UK if it voted to leave the EU? The International Monetary Fund (IMF) warned that “Brexit would trigger a UK recession” and claimed that “Leaving the EU would hit British living standards, stoke inflation and wipe up to 5.5% off the GDP.” To date, none of these things have happened.
One thing we do know with a relative amount of certainty is the rate of inflation will go up and down. This change is always happening, but is often only background noise for most of us.
The current rate stands at 1.8%, but is predicted to rise to 2.7% by early 2018. But many economists expect this to peak at around 2.9% later in 2018 before falling back towards around 2.2% by 2020. So, could this increase in inflation increase how much we pay for our wine? Again, we can only speculate. Retailers and manufactures may choose to wait and see, and take the financial hit themselves in the short term, in the hope that inflation does indeed start to fall again, leaving thirsty customers none the wiser (or poorer).
There is still a general consensus that the economy is going to slow down, but not anywhere near as rapidly as first thought. There may be opportunities for overseas investment, as a weaker currency can attract investment. However, this all links back to the uncertainty created by the Brexit question, in that there are concerns that this flow of investment in the light of a weak pound might slow down. One important consideration is that the chancellor will be monitoring all these points and may decide to freeze the rise in duty. Therefore, the feared triple whammy would be put on hold, or even banished to history.
Put a cork in it
So, do we need to stock up on wine right now? Well, unlike the supply problems affecting groceries like iceberg lettuces, which major supermarkets are restricting to three per customer, wine supply seems fairly secure.
It also depends upon the individual and the risks you are willing to take in filling up your cellar or rack – or leaving it empty. One historical viewpoint worth considering on inflation, is that £9 of today’s money could have bought you two bottles of £9 wine from 1996. That’s not much of a change in over 20 years of inflation. And it is always worth remembering that while a rise in price is always a possibility, bad news makes for a good headline. So when it comes to the best approach to your wine supply, it might be best to take stock… before you stock up.