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Brexit is a disaster for wine!

There you go I have the balls to say it. In the next few weeks, you will be hearing a hell of a lot more about how the vote to leave will affect prices.

I want to give each and every customer fair and proper warning of the price increases that will happen on 10th October 2016 and in this article I will explain a little about how this will affect practically every wine sold in the UK.

So let's begin with the price hikes, no need to explain Brexit as the media have covered that in massive depth.

As you may know, the pound is in a poor state against many currencies, you don't get as many Euro now if you go to France on holiday. Whilst most people think this is only a short-term issue when it comes to wine things change dramatically. 

As wine importers and retailer got hit by the huge fall in sterling around 5-6 years ago measures were adopted to ensure profits would not be hit like they were then.

Most importers buy wines at a price and pay for them 30-60 days later depending on terms agreed with the grower. This sounds fine as you get a bit of time to pay but the problems begin when you buy at say €5.00 today but when you come to pay the currency has changed and you now have to pay €5.35. Profits get hit and it's too late to try to sell the wine for a higher price on what has already been purchased.

So the idea of buying currency in advance was universally adopted by wine merchants throughout the land. You could buy currency for 6 months at an agreed rate which on paper sounds great. If the pound drops it's not an issue as you have got a stable rate agreed. If the pound rises you benefit from the better rate. In theory, it's great news as you get to give a stable price for at least 6 months and can then review and adapt if necessary.

But it's only good if there are a few fluctuations. Post Brexit the pound has been suffering and the time for most merchants to fix the next 6 months is here. The rates are terrible at the moment as the money men don't want to get burned either.

This means big price hikes on some wines and it gets worse the further down the buying chain you go. here are a few calculations to show how a bottle of Prosecco gets affected by changes like this.

Current Prosecco price £6.05 ex VAT or £7.26 sale price
Price change from vineyard or currency issues + 30p 
Importer margin added to that overall price means price hike is now £1.63 (importers work around 20% gross profit)
The price is now £7.93 ex VAT or £9.52 sale price
That's a £2.26 increase on the retail price of a bottle of Prosecco.

It gets MUCH worse if you are now buying that same bottle of Prosecco in a  restaurant.

Check out the numbers to see

Current Prosecco price £6.05 ex VAT or £7.26 sale price which would normally cost £20.70 in a restaurant
Price change from vineyard or currency issues + 30p
Importer margin added to that overall price means price hike is now £1.63 (importers work around 20% gross profit)
Restaurant sale price would now be a £27.15 sale price on their list. Restaurants normally work on a 65% gross profit margin)
This is a price rise to you of £6.45 a bottle, all from a 30p hike because of currency fluctuations.

AND it gets worse.......

Due to the adverse weather conditions in many countries in Europe, the price of wines has gone through the roof in some cases.

Take Chablis for example. The Burgundy region was hit by dreadful hail storms this year which effectively wiped out the majority of the harvest. this has driven the prices up stratospherically. I have seen standard Chablis price per bottle increase of £2.50 a bottle and this is from the grower!

That equates to a retail price hike of £5.75 a bottle and £10.00 in a restaurant if the restaurant wants to maintain their profit margin.

I'm trying not to be the messenger of doom and gloom but these price hikes are real and about to hit everyone.

I encourage you to have a serious think about buying your wines now for Christmas and don't say I didn't warn you. 

Some of the restaurants I deal with are already maximising their orders and stock piling to see them through the next few months.

So as you see it's not just Marmite that's being affected and things are set to give us all a black Christmas.

Never mind let's all hope it works out in the long run.

 


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