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Trade Up - Wine Value Infographic

Wine Value – why you should trade up

This infographic from The Wine Society above is the best one that I’ve ever seen that demonstrates why it’s well worth spending a just a little more on your bottle of wine when buying retail. It’s time to trade up and get more value for money! In these days of austerity, especially when the sterling exchange rates after the Brexit vote mean UK wine price rises are imminent, am I perverse in encouraging you the spend more on a bottle of wine?

Well, cynics might say, “yes, fat chance of that.” But there is a straightforward, rational economic argument to trade up that’s worth considering. It’s hardly a new revelation; I just think it’s a good time to highlight it again. Spending a little more in store or online will almost certainly bring you far more pleasure in your glass because the quality difference is likely to be enormous. Here’s why.

UK duty and tax rates make wine sold in Britain more expensive than, for example, Europe. I’m not here to argue the pro’s and con’s of that; it’s a fact, as anyone that’s ever taken part in a booze-cruise knows. On a regular bottle of still red, rosé or white wine under 15% abv you’ll pay £2.08 in duty as a fixed cost. For Sparkling wine the duty rate is £2.67, and for a stronger wine like Port, it’s £2.78.

Wine imported from outside the EU may attract an additional customs duty as well depending on what trade deals Britain or the EU have in place. All very topical, given CETA, TTIP and the need for post-Brexit Britain to arrange it’s own trading arrangements in future.

Then on top of that, don’t forget you’ll pay 20% VAT (sales tax) on the bottle price. Drinks industry lobbyists will always campaign to get duty reduced, but every UK government knows that the easiest way to increase revenues in the Budget is to raise duty on booze and fags. Such products are inelastic – raising the price doesn’t result in much of a drop in consumer demand, whatever the temporary outcry or claims of encouraging health. But it may drive you to seek out a so-called bargain.

So much for economics. The result is that you pay a fixed duty cost plus taxation on every bottle you buy, whether its supermarket plonk at £5 or Romanee-Conti at £15,000.

And, like-for-like, wine production costs are standardised too. Primary winegrowing, marketing, packaging, transport and sales costs do of course vary from business to business and from region to region, but are remarkably standard for similarly made wines. Again, businesses can reduce these, perhaps by using technology, bulk transport or large economies of scale, but these activities nibble away at the edges rather than achieve fundamental differences in cost structures. Some wines do have higher production costs, say through using extra processes or long maturation, so you do need to compare like-with-like.

The sheer number of wines available mean that competition for our hard-earned is intense throughout the distribution chain, so, unless you are one of the fortunate few that can claim a high luxury price through branding or high demand, prices are cut to the bone and every intermediary takes its share. As usual, it is the supermarkets that have the most power, with thousands of wines trying to get limited shelf-space. It’s commonplace to pay a trade price of less than 1-2 Euro at the winery – ask any buyer, they are tough negotiators! Poor exchange rates make the situation even worse.

After all these various factors, all that’s then left to account for in the bottle price is the actual value of the wine made.

So let’s apply this situation to those wines we usually buy, and 99% of them will be between £4.95 and £14.95. We’ll see that all these costs account for some 93% of the bottle price at £4.95 and 56% of the bottle priced at £14.95, all other things being equal. And by this, I mean ignoring any “special” promotions, supermarket “loss-leaders” or other factors such as moving on end-of-line or bankrupt stock or seasonality. Profit margins are wafer-thin at these levels.

That means that that the value of the wine in an average £4.95 bottle is about 30 pence! Or less. But by £14.95 it’s increased to £6.50. Above that, such linearity starts to slowly break down as luxury and rarity factors increase demand and start to drive higher prices for the lucky few that can command a premium. What is clear from the maths is that the quality of the actual wine in the bottle increases rapidly with just a few pounds more spent.

The sweetest spot for us to benefit most in quality terms is therefore in the £6 – £9 price range. If you pay £3 more on a bottle of wine by spending £9 rather than £6, that’s a 50% increase – but you’ll get a 195% growth in wine value. Again, all things being equal, that should give you a far superior wine. You will taste the difference with a trade up!

QED, M’lud

Try a trade up and let me know your experiences!

Thanks again to the Wine Society for the infographic.

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