As the category comes to terms with major tax changes, pre-Christmas deals and lower abvs could be on the cards for port and sherry, finds Nigel Huddleston
Fortified wines were clobbered the most by the August rise in UK duty rates. The overhaul of alcohol tax increased duty by 44%, adding just under £1 to the price of sherry at 15% abv, and £1.30 to port at its higher typical abv of 20%. Coming just ahead of the peak pre-Christmas sales period makes the change especially difficult for producers and retailers, and the recent rollercoaster ride in the UK and global economies has only compounded the problems.
Fortifieds enjoyed a pretty good pandemic sales-wise, as consumers indulged at home in lockdown. But the expectations of continuing good fortune were scuppered by the 2022 economic downturn and the return of the on-trade, leading to some heavy retail promotions as stores sought to offload over-bought stock.
This year’s duty hikes are likely to lead to a similarly discount-heavy landscape in the run-up to Christmas, according to Adrian Bridge, chief executive of Taylor’s, Fonseca and Croft producer Fladgate. “You’ll see deals,” he says. “Ahead of the duty increases many of the big supermarkets bought a certain amount of stock in, which is buffering them for a couple of months.
“My expectation would be that they will start their Christmas promotions a little bit earlier. It costs to have stock sitting in a warehouse, so they may start promotions in October and help the end consumer spread the cost of Christmas over a longer period.”
Cambridge Wine Merchants, an independent with an established reputation for its fortified wine range, ran a successful price promotion on port, sherry and Madeira ahead of the duty change. Managing director Hal Wilson says: “That alone will reduce [pre-Christmas] demand. We would normally expect to sell good quantities in the last quarter of the year that in effect we sold in Q2 and Q3.”
Wilson describes the increases as “eye-watering” but says that they have yet to fully sink in with consumers. “Consumers will look to buy something in Q4 at a price they are willing to pay,” he adds. “That may well mean trading down or trying something different that is on promotion. Brand owners will hope that consumers will buy from within their portfolio, which in most cases is pretty large.
“Fino sherry at 15% was hit particularly hard and it is difficult to hide an increase of 98p. That may well affect demand or push people towards the halfbottle format.”
Melissa Draycott, managing director at Tío Pepe supplier González Byass UK, says the government is “unwittingly heavily over-taxing responsible drinking consumers” of sherry and port. She adds: “We predict that there will be an impact, but it’s too early to see any meaningful sales patterns. We haven’t seen tax increases like this before, so there is no data to guide us.”
Draycott says González Byass is “tempted to say that we are confident that the once-a-year sherry shopper will continue to buy into well-known branded sherries – it is traditionally a time when BWS consumers invest in brands”.
To that end, the company is investing in a Christmas campaign for Croft Original on video-on-demand, digital and in print, and Bridge at Fladgate says it, too, is continuing to advertise. But he says that marketing investment in brands becomes harder each year.
“The reality of the highly competitive nature of the UK market is that much of the producer’s margin has been squeezed out,” he adds. “We have nowhere to go. In the early 1990s, Taylor’s LBV was around £10.49. Accounting for inflation, that should be over £21 today. Instead, in Sainsbury’s for example, the price was just £16 a bottle before the August duty increase.
“What’s happened to that £5? It was money that was being used for advertising and promotion and so on, but it isn’t there, primarily because of how competitive the high street is.
“We don’t have a large toolbox we can mitigate this latest increase with. We’ll do what we can, but it’s a tough environment.”
One solution might be to tinker a little with abv levels, though regulatory regimes in the main fortified wines’ home countries mean there are limits to what can be done. Port producer Vallegre, imported by Lanchester Wines, has already taken such steps. Assistant manager Carlos Afonso says: “A few years ago, Vallegre took the strategic decision to lower the alcohol content of our basic ports to 19% abv, which, while higher than still wine, is considerably lower than spirits and therefore attracts less duty.
“Our decision was both future-proofing our business and, most importantly, looking after the health of drinkers without compromising the taste of our product.”
Bridge at Fladgate says it is also exploring the potential for such a move for its ports, which are currently typically at or around 20% abv. “We’re looking at it,” he says. “We’ve actually done tastings at 18% abv and we think the product is really good. “The regulations say that only for standard categories can we go to 18%. For special categories such as LBV or aged tawnies we can’t.
“We’ve done the work; now it’s a question for the regulators. But from our internal tasting panels we’ve determined that at 18% the drink is as fresh, has the same volume in the mouth and delivers the same enjoyment – but it would save about 40p in duty.
“It would make a difference. It has an impact that could be relevant to the price point.”