The average bottle of wine in the UK off-trade today will set you back £5.34, according to Nielsen – a hefty whack for consumers facing income squeezes, soaring household bills and rising taxes.

It’s been a steep and inexorable rise from less than £4 just a few years ago, with inflation, the duty escalator and exchange rate ups and downs all playing their part. One result of the changes is that entry- point wines, always a hotly debated topic, have become even more controversial.

Entry-level wines clearly play a key part in any retailer’s offer. The thorny question is, how low can you go?

It is well known that wines priced at £4 and under are not making anybody much money. With VAT at around 80p, £2 duty and at least 20p for getting bottles on to shelves, that leaves less than £1 to put into the liquid inside.

Continental Wine & Food wine development manager Nicholas Tatham MW says: “It isn’t a good place for any country to position itself in. Spain is there now but probably would rather not be, as it is not possible to make money at entry-level and ultimately grapes are left unpicked, as in Australia, or vineyards are pulled up.

“Any wine sold below £5 should now be described as entry-level, which implies an ex-cellar price of €1 or less – you don’t get much decent wine at this level and certainly no worthwhile profit.”

But that doesn’t mean the wines are not worth selling.

Bibendum head of buying Andrew Shaw says: “If there is liquid available then the importer is making some money – even though they may be making less than they would get if they sold it in bulk or poured it down the drain with some sort of government support. The supplier won’t be making any money below £4. For the importer it’s marginal and the retailer gets a bit more.”

Popular countries

Spain is the most popular choice for entry-point wines, such as Sainsbury’s own-label Basics-branded Spanish red, white and rosé wines, which have 11% abv and are priced at £3.45.

Félix Solís Avantis UK supplies many of these wines, including Tesco’s Everyday Value wines in one-litre Tetra Paks (£4.50), using its large-scale model, covering a wide range of price points, to offset costs at the cheaper end.

Managing director Richard Cochrane says: “It is up to the retailer – we provide wine at a price and they choose what they want to do with it.

“There have been some major changes in 2014 with Asda stepping away from three-for-£10. Wine at under £3.50 is not economic for obvious reasons, but there are countries selling at that price without selling below cost, which is defined as tax plus VAT, although it is obvious they wouldn’t make any money on it.

“Retailers are saying: we have got customers we want to look after. If we all say let’s shut the tier at £5, we will just lose an enormous number of consumers. We need a few stepping stones to bring people up to over £5.”

For the moment, Spain seems to be the place to source cheaper wines. One supplier tells OLN: “There is a lot of extra volume sloshing around Spain, from La Mancha and similar DOs.

“Increasingly supermarkets are buying directly from co-ops in big regions. Their main mission is to sell the wine – they are not so focused on price, and that can distort the market price.”

But there are other countries that could take over in the future.

Tesco’s product developer for Italian wines, Charlotte Lemoine, believes Italy is in a position to compete. She says: “Italy is now in a position to provide wine for every price point, including entry-level. Though many producers are focusing on producing quality wines, if the 2014 vintage goes well, Italy will be able to position itself as a competitive entry-level option with the quality that is still so appealing to the UK market.”

Simon Cairns, wine trading manager for the Co-operative Group, says: “The [exchange rate on the] dollar means Australian liquid is accessible, and I have never known the South African rand to be as weak for so long. It is really helping us to maintain pricing.”

Price stability

Other tips include South America, Argentina in particular, and the former eastern bloc, including Macedonia, Romania and Hungary.

Exchange rate fluctuations have played a role in pushing prices up – but right now they are helping to keep them in check.

The Co-op’s Cairns says pricing is “as stable as I have seen it for quite some considerable time”, and that he is not feeling any pressure to change his lowest price points. Suppliers agree that entry- level prices should remain stable for the next year or so.

Julie Ingham, marketing manager for Continental Wine & Food, says: “Outside duty increases, we don’t expect our entry-level prices of £3.99-£4.49 to change much over the next year as there has been consistent downward pressure on prices over the past three years with many more introductory wines appearing.”

PLB bulk buyer Gary O’Kelly adds: “I expect prices to stay fairly static within the larger supermarkets. They will continue to jostle for market share and use deals on wine to entice shoppers.”

But most suppliers agree that if duty continues to rise, wines at £4 and under will die out.

Bibendum’s Shaw says: “It won’t be viable, which is probably a good thing for the wine category in general. Increasing prices brings a broader requirement for the consumer to make a decision to purchase. Hopefully then the customer will start buying on something else, not just price.”

Not everyone shares his positive view.

Steve Barton, former director of First Cape supplier Brand Phoenix and now chief executive of US-based wine company C7 Brands, says: “It is so hard out there for so many families.

“If wine’s average price has gone from £3.99 to £5.30 in a few years you can absolutely see why the consumer has drifted away from the category. Even more alarming is that the profitability of the category has got dramatically worse for retailers and suppliers.

“Duty has sucked all the profit margin out of the affordable side of wine. It has had a massive effect on volume in a footfall-driving category. We’ve got to the point where nobody can absorb duty any more, and retailers are taking space down.”

Beyond tradition

In fact, retailers are already looking beyond the traditional offer to meet consumers’ needs for a wine-style drink at price points under the £4 mark.

One solution to the problem is British- made wine, which is getting greater prominence in some retailers. Asda, for example, has created an unlabelled section outside its main red, white and rosé and country classifications, devoted to cheaper everyday low-price offers – many of them British-made and often weighing in below the £3 mark.

The Co-op has a range called “affordables” which currently includes Lambrini perry and 5.5% abv wine spritzers at £2.99, and is marked to grow. Cairns explains: “I think there’s more to do with spritzers or mixers or different ways of getting to low alcohol [than de- alcoholisation or stopping fermentation] which have more resonance with consumers.

“Looking at the way consumers drink alcohol as a long drink, we think is there a job lower-alco
hol wines can do [to draw those drinkers to the category] in a more seamless transition.”

Barton says there is mileage in fruit- flavoured wines – Arniston Bay has launched a fruit-infused 5.5% abv drink and Echo Falls is set to follow with a release soon.

“Flavoured and lighter styles of wine are a huge opportunity for the wine trade – consumers drink them, and they are drinking flavoured ciders at 5.5% abv which are much higher in sugar and calories,” he says.

Market split

Barton also believes retailers could keep consumers feeling they are getting a bargain on wine by experimenting with pack sizes. “Look at how the beer guys magnificently cater for different demands – they adjust can sizes, bottle sizes and pack numbers, and who has got the time to work out that last year they bought 1cl more for the same price?” he asks.

Tim North, UK director of Les Grands Chais de France, says suppliers and retailers need to realise they are targeting different parts of the market, not a single entry-level shopper who will trade up to more interesting wines once cheaper offers become unsustainable.

He says: “The person going into a convenience store to buy a wine or a flavoured cider is not necessarily the same person who is going to pay £30 for a nice bottle of wine.

“We need to segment the market and be clear what we are going to do with each part of it. Entry-level might mean selling wine-based drinks at 5.5% abv that are interesting, quirky and a bit different. That is one consumer. The others are people who are already engaged and interested. We need to train them up and help them along that path.”

North adds: “The biggest issue is that the wine market is not growing any more. How do we find ways of presenting wine or wine-based products to broaden our consumer base and bring people in for the future? The second key issue is to make sure we enthuse consumers and interest them in wine so they actually pay more for it. The love and the effort that goes into a bottle of wine means it is not just a commodity, and we need people to understand that.”

And Barton warns: “The challenges for the wine market aren’t going to go away and consumer confidence is not going to swing back. With inflation and foreign exchange the price is never going to go back down – wine used to be the affordable alcoholic beverage of choice, which it now is not.”