4 February 2016 -Taxes and Accolade Wine’s London Performance

Healthy tax?

Many Australians think tax on alcohol is high. Others, such as health bodies and police, think it should be higher to curb consumption and place less strain on health services and law enforcement.

John Wilson, wine correspondent for The Irish Times, has investigated how much the Irish pay for wine compared to other countries (published January 29):

“The difference between what we pay and what people pay in other countries varied according to each wine. However, Ireland is comfortably the most expensive country in which to buy almost all of the wines I looked at.”

Two of Wilson’s examples were Australian wines (TKR has added a couple of prices to Wilson’s, noted with an asterisk).

Tahbilk Viognier:

  • Ireland: €14.65 ($22.80), down from €17
  • UK: €18.34, €17 and €15.84 (Amazon)
  • Australia (Dan Murphy’s): €7.77

Jacob’s Creek Sparkling Pinot Noir Chardonnay:

  • Ireland: €18.45
  • Canada: €14.95
  • Sweden: €9.52
  • UK: €13.13*
  • Australia (Dan Murphy’s): €6.53*

Though health and violence issues are one argument for raising taxation, the main reason for taxation is putting money in government coffers.

According to the Irish Wine Association a bottle of still wine attracts €3.19 in excise duty in Ireland (double for sparkling). It’s the highest rate in the EU. Also needing to be taken into account is value added tax (VAT), or GST as its known in Australia, which adds another 22 per cent onto the Irish excise price. The next four European nations, in order of tax on still wine (75cl bottles), are:

  • UK: €2.85 (VAT 20 per cent)
  • Finland: €2.55 (VAT 24 per cent)
  • Sweden: €2.03 (VAT 25 per cent)
  • Denmark: €1.17 (VAT 25 per cent)

Tax on a bottle of still Australian wine is complex but for a $12 bottle at wholesale WET works out at about $3.48 (€2.27). Then comes the retailer markup plus 10 per cent GST.

Governments don’t want to lose revenue, and heath and law enforcement agencies put up strong arguments for increasing tax. Wine drinkers, in fact all consumers of any form of alcohol, argue out of self-interest for no increases, or, better still, reductions.  But does higher taxation work as the health lobbyists argue?

Alcohol Action Ireland: The current level of alcohol consumption, based on 2014 figures, is 11 litres of pure alcohol per person aged 15-plus, an increase from 10.6 litres in 2013. Exclude the 20 per cent of the population aged 15-plus who do not drink alcohol, and the per capita alcohol consumption rises to 13.75 litres of pure alcohol for every Irish person aged 15-plus.

Australian Bureau of Statistics: Apparent Consumption of Alcohol, Australia, 2013-14. On a per capita basis there were 9.7 litres of pure alcohol available for consumption per person in 2013-14, 1.7 per cent less than the amount in 2012-13 (9.9 litres). As a standard drink consists of 12.5mls of pure alcohol, this is equivalent to an average of 2.1 standard drinks per day per person aged 15 years and over.

Though the Irish are taxed a great deal more on their wine than Australians, it seems they drink more alcohol, which brings us to the point of the article: are health authorities and law enforcement absolutely sure increased taxation on wine would curb issues that arise from alcohol consumption?

The growing view on alcohol consumption is that there are no safe limits. However, the Brits have released new guidelines advocating a limit of 14 units per week for both men and women (a pint of beer or glass of wine a day), but preferably none at all.

The advice is now presented as weekly consumption rather than daily, as a daily ration implies one should drink daily, whereas the advice is to have alcohol-free days and never binge.

Whatever criticism one has for supermarkets, it has to be admitted they are not slow to adjust to consumer trends. UK giant Tesco lists 26 low or non-alcoholic wines and is adding two new non-alcoholic sparkling wines. Dan Murphy’s lists 27 low or non-alcoholic wines.

Oh really!

Rob Harrison, the recently appointed general manager for Accolade Wines in the UK and Ireland, made the news recently after announcing that though Australia as a category was doing “pretty good”, a lack of growth at more premium price points in the UK meant it was not “fit for the future”.

“Oh really?” was the TKR reaction. And Harrison expects his audience to accept this as news? Australian wine has painted itself into the corner in the UK and has been moving towards that corner for the best part of 20 years.

The latest export report for the calendar year 2015 shows very little growth overall to the UK. Within the bottled wine sector it was sad to see that $2.49 a litre and below grew 16 per cent, while the next bracket up, $2.50-$4.99, rose only 8 per cent. The $5-$7.49 bracket remained static, with volume at 3.42 million litres. The bright spot percentage wise was the $7.50-$9.99 bracket, recording a whacking 30 per cent increase, but it only accounts for 1.41 million litres. Also shining brightly was the $10-$19.99 bracket, up 27 per cent and crossing the million-litre mark at 1.07 million litres.

Looking back to the 2008 figures, the $7.50-$9.99 sector was running at 6.8 million litres. The question being: how has Australian wine in this category fallen so dramatically in eight years?

Harrison appeared to point the finger at supermarkets but defers from being disrespectful. After all, Accolade is reliant on their goodwill. TKR suspects Harrison’s speech was motivated more by the decision by Tesco (with which Accolade has a cosy relationship) to change its trading pattern with suppliers. Tesco is looking for the lowest possible price all year round, cutting out promotions on lines it thinks need no promotion, and looking at reducing ranges. Looking at the Australian range at Tesco, providing a supplier could give the amount needed, many lines could go.

Harrison also pointed the finger at deep discounts, which in a way is giving the finger to his company and Constellation Brands, which owned Accolade before flogging off 70 per cent. Constellation/Accolade have been at the forefront of deep discounting for years.

Harrison seemed to suggest discounts are being scaled back. If so, we ask why Waitrose is this month promoting:

Hardy’s Endeavour Chardonnay, save 1/3, £7.49 to £5.29
Hardy’s Endeavour Cabernet Sauvignon/Shiraz, save 1/3, £7.99 to £5.29
Hardy’s Anniversary Shiraz Rosé, 25% off, £7.49 to £5.59

Plus five Hardy’s wines are retailing at £5 at Tesco.

TKR applauds the change of mind and different approach, but, hell, Accolade was a huge part of the problem and it shouldn’t be allowed to brush this away and expect others to simply believe it.

It will take a long time to change the perception of Australian wine in the UK, and if successful this will mean sales will fall. How would Accolade react to falling sales? It is our belief it would only react well if lower sales generated higher profits.

Is Accolade trying to emulate Treasury Wine Estates (TWE), claiming it is going after the premium end of the market? It may be, and TWE has been very strong on the vocal aspect but still plays in the lower leagues with Lindeman’s and Wolf Blass (Cabernet and Chardonnay on sale at Morrisons for £4 per 75cl bottle).

Should TWE and Accolade do as they boast, others will fill the gap. Neil McGuigan, CEO of Australian Vintage, is another who makes a lot of noise about the company’s increasing sales of branded product, but we feel sure he would take up any slack that TWE and Accolade might create by exiting certain price points, as would Bill Moularadellis at Kingston Estate and a dozen others we can think of.

The UK Accolade team has also had a whinge about the poor sales of Australian wine in the on-trade. This is somewhat ironic, as until recently Accolade half-owned Matthew Clark, one of the UK’s largest wholesalers. Is Accolade now implying its staff were so useless they couldn’t flog Australian wine? Or was it they didn’t understand the market? Now Accolade owns Grant Burge and has other top-end wines such as Houghton it is in a position to lead and make changes. We suggest Accolade get on with it rather than standing around looking at others and shifting blame when it has been a major part of the problem.

No matter what Wine Australia says about education, pushing premium pricing, holding a tasting and Langton’s listed wines, Australian wine is in that corner and it may take years before the paint is dry enough to walk out of the room.

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