It does make you wonder sometimes whether there is an unspoken agenda at the heart of government to make alcohol, and particularly spirits and wine, into the new social pariah. Having rightly pushed tobacco use to the very edges of society with both education and tax measures over a quarter of century, whether government with a nudge and a wink to those ‘in the know’ is moving against alcohol in the same way?
Yesterday’s announcement in the budget that all alcohol duty is going up is another burden to this much pressured trade and reported with slight skews that mislead consumers as to exactly what the increases are. Based on a real time example these calculations demonstrate what the actual raw government increases are and the reported impacts are. It makes for interesting reading.
TYPE OF ALCOHOL | Raw Duty Increase | Est. Final On Trade Retail Inc | Red Top Report |
Spirits – 37.5% Litre | £0.40 | £1.78 | £0.40 |
Sparkling Wine 75cl | £0.10 | £0.44 | £0.10 |
Still Wine 75cl | £0.08 | £0.35 | £0.08 |
Beer Pint | £0.016 | £0.06 | £0.02 |
Cider Pint | £0.01 | £0.03 | £0.01 |
This chart looks at the main higher profile drinks categories and the raw duty increases as directed by Philip Hammond yesterday, how that translates when actually put through a live supply chain example and then compares that to how it is reported in a red top, but frankly speaking you could take any of the main newspapers.
In establishing the retail price the example above takes the cost of a drink and looks at it from the on-trade perspective – producer or importer sells to wholesaler/distributor who then sells to the outlet where the consumer finally drinks the product. So whilst the increase portrayed by government and the established newspapers to be a couple of pence, we can see that it translates to significantly more than that especially for spirits and wine.
Wine is a special case. Currency depreciation has increased costs by around 15% for importers already and these costs are chasing down the supply chain as I write. Furthermore the rise in wine duty could be self defeating. When the increase on wine duty was frozen in 2015, the income that the government took actually rose by 3.6% in the following year. There are solid arguments for wine duty to be less than the 3.9% inflation and for alcohol duty to be frozen as a whole.
There are some other significant aspects to the budget, which lay other responsibilities back at the alcohol traders door. The wholesale industry’s consolidation into few bigger players is having a fragmentation effect. There are now many more companies seeking to find their niche with higher value, specialists that turn over less volume but seek to appeal to the prestige or premium market. So the impact of increasing NI contributions, Business rate changes will most likely have a corrosive effect on not just the actuality of todays business, but the motivation to take risks and be entrepreneurial in the future. This lies at odds to the challenges laid out by BREXIT and the idea that without the shackles of EU comfort legal and trading blanket, we seek new previously unexplored opportunities. Alcohol innovation has lain at the centre of British business for centuries whether that be for marketing, technical, financial or supply chain elements. As an example, one of the world’s leading alcohol trading companies is Diageo, a business based in London and from where much innovation has be born over many years.
Alcohol has a cultural dimension too. It goes back centuries in our history and is a way in which people relax, socialise and create new things, projects, friendships and initiatives. In this way, as part of our human makeup then alcohol is a part of the very essence of being human; contributing to progress in less direct ways.
The latest duty increase and other budget measures may be a sour lemon for the trade to suck on, it is up to us to ensure that we make lemonade!
These moves in the political and economic scene continue the focus for consumers on alcohol playing its part in ‘special’ occasion whatever that means for the individual. How we interpret that as a trade is may be not the million £ question but maybe the thousand £ question. Few of us in the alcohol trade are going to be millionaires any time soon!
Furthermore there is an important deadline in the next month for the registration to the AWRS, the HMRC alcohol wholesalers registration scheme. No-one in their right mind can argue against its implementation as a strong tool to stamp out illegal alcohol trading, a blight on the alcohol trade’s operations for the last 20 years.
It is to be hoped that this is used by government exactly what it has been set up for; not a tool to marshal alcohol traders, quantifying the cost of alcohol and not the benefits.
Alcohol consumption in the UK and western Europe is on the decline, as consumers moderate their intake towards levels that are more in line with longer life expectancy. It is no doubt a benefit to us all to maintain a perspective on alcohol consumption and that it remains a social lubricant not the essence of life itself. It surely will be a short one if we see it as the latter. Equally it is also to be hoped that government is not sizing up the idea that alcohol in 20 years time is the pariah that tobacco has now become. The two are very different and have distinct differences in the benefits it offers to human and British kind.
Alistair Morrell
Hospitality & Catering News, Wine & Drinks Editor