Not everything in moderation is good…for business
The cultural shift toward moderation in alcohol consumption in the UK is causing the wine and beverage industry more than a few headaches. So, what key factors are driving this trend?
Well, firstly, there’s an increasing awareness of the health risks associated with drinking. More consumers, especially younger ones, are putting their well-being first and opting for no- or low-alcohol alternatives. These health-conscious consumers are looking for products that promote a balanced and healthy lifestyle. Movements like Sober Curiosity and Dry January reflect these changing attitudes towards drinking less alcohol or abstaining completely.
Secondly, economic pressures such as high inflation and interest rates have hit consumers in the pocket. As a result, spending on non-essential items like wine has gone down, while production costs have risen, putting additional strain on the industry.
Alcohol duty cuts aim to support hospitality sector
The UK government has sought to ease the burden on the hospitality sector by reducing alcohol duty rates on certain draught products by 1.7%. This reduction aims to make it more cost-effective for pubs and bars to serve draught beverages.
The change increases the value of draught relief from 9.2% to 13.9% for qualifying beer and cider products. This means that these products will benefit from a larger reduction in duty, making them cheaper to serve. For example, an average pint of beer or cider with an alcohol by volume (ABV) of 4.58% will now cost 1p less in duty.
Similarly, the duty differential for qualifying wine, other fermented products, and spirits has been raised from 23% to 26.9% to help bars, hotels and restaurants deal with rising costs and maximise profits.
Rate on non-draught products increased
In stark contrast, alcohol duty rates for all non-draught products have been increased in line with retail price index (RPI) inflation, making these products more expensive. This adjustment also applies to the simplified duty rates used to calculate excise duty on alcoholic products brought into Great Britain for personal use.
To help small producers of non-draught products compete with the relief for draught products, the government has increased the cash discount, enhancing the relative value of small producer relief. The cash discount for draught products has remained the same.
Additionally, the tax on most wines will now be calculated based on their alcoholic strength, so wines with a higher alcohol content will become more expensive. This adjustment brings the taxation on wines in line with other alcoholic products.
A mixed reception
The wine and beverage industry’s reaction to these changes in alcohol duty rates has been mixed, to say the least. While the hospitality sector has broadly welcomed the reduction in duty rates for qualifying draught products, there are, understandably, concerns about increased duty rates on non-draught products. Industry leaders have voiced their alarm about the potential fallout from the new excise duty system, which taxes stronger wines more heavily. Retailers have warned that the increased costs will likely be passed on to customers, making wine less affordable and possibly leading to a decline in sales.
Striking a balance
Overall, while there are positive aspects to the government's alcohol duty rate changes, the increased costs for non-draught products and stronger wines pose challenges for the wine and beverage sector. The industry's outlook will, therefore, depend on how businesses adapt and manage their operations in the wake of these developments.
