How little is too much?

How little is too much?

By David Taylor - 23rd July 2014

There’s a renewed price war raging in UK supermarkets and it’s got nothing to do with food staples such as bread and milk. It’s about wine. A glance around three of the big four multiple UK retailers this weekend revealed well known branded wine from Australia, New Zealand and Chile on sale at £4.50 to £5.00 per bottle.

With tax on wine entering the UK at £2.05 per bottle, and VAT of 20% on top of that, clearly these retailers are able to import the wine at less than £2 per bottle. Considering much of the wine is coming from the other side of the world, the transport costs must also be a significant factor.

This aggressive pricing may have something to do with the rise of the discount retailers in the UK, where the strategy seems to be to offer more than everyday food and drink items at incredibly low cost, to lure people away from the established UK-based outlets.

So how much per bottle does the wine producer actually get and is there a dangerous pattern emerging for the wine industry in allowing such cheap wine to be so freely available?

A common factor with all this cheap wine is the closure. All the bottles I saw on these low priced offers used screw caps. According to data from Wine Intelligence (and reported in Harpers recently) 40% of UK consumers now say they like wine closed with a screw cap. Well, I guess they will if the wine is drinkable and sells for under £5 a bottle.

The issue I have around the sales of this cheap wine is with how it will affect the long term health of the wine industry. Setting such a low price point will raise consumer expectations that all wine should be sold cheaply.

On a positive note, it seems that the closure used can help to distinguish between a cheap wine and a quality one, for which a higher price will be paid by the consumer. In the Wine Intelligence report, it found that consumers still associate cork with premium wines in the three markets it researched, the UK, USA and Australia. In the USA, consumers strongly associate cork with quality wine and they are prepared to pay $15.85 for a bottle with a cork closure but just $9.42 for one that uses a screw cap.

Only time will tell how much damage is being done to the industry through unrealistic pricing of mass-produced wine. Let’s hope it doesn’t mark the beginning of the end for smaller, quality wine makers who can’t compete with the stack it high and sell it cheap producers and who, through the big retailers’ domination of the market, find making a profitable living almost impossible.

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