UK alcohol market returns to growth

The WSTA’s Q2 2015 Market Report shows that the UK alcohol market has returned to growth following years of continuous decline. The report shows modest growth in off trade volumes and a slowing of the decline in the on trade, resulting in overall volume growth for the first time in five years.

A combination of factors including duty cuts and lower inflation has seen price inflation slow considerably, particularly in the off trade, which is positive news for consumers and a clear of benefits being passed on by producers and retailers. While this matches what is happening with overall inflation, alcohol inflation this time last year was around double CPI inflation at 4% due to the lingering effects of the Alcohol Duty Escalator.

While the overall picture is positive, the market remains fragile with many categories continuing to face tough trading conditions. The wine market remains in overall decline with volumes falling by over 2% over the year. Wine volumes have not shown overall growth since 2010 and in that time the market has declined by nearly 15%.

Miles Beale, chief executive of the Wine and Spirit Trade Association said: “It is welcome news that consumers are benefitting from lower taxes and the impact of lower inflation. It is clear that the retailers and producers are passing these on and that consumers are finally getting the break they deserve after years of inflation-busting tax rises.”

“While this is a positive development, the market remains fragile and a recovery unsure - with volume growth very low. The levels of taxation for the wine and spirit trade remain high in absolute terms. As we see the benefits of lower food and fuel prices beginning to recede there is a real prospect that the market could tip back into decline.”

In relation to wine volumes continuing to decline Miles Beale added: “The wine market in particular continues to fare less well with further volume decline for wine in both on and off trade. This highlights the concern over the Government’s decision not to include wine in the 2% alcohol duty cut for all other products. Although the freeze on wine duty was an improvement the WSTA will continue to make the case to government to for equal support for the wine industry and the 270,000 jobs in the UK that it already supports.”

Key highlights of the Market Report include:

• Volume and value in the off trade grew by 2%, showing that prices remain broadly the same as this time last year;
• Beer (3%) and spirits (3%) as well as sparkling wine (28%) and champagne (2%) led the growth in volume, while still wine (-2%),
• Volumes declined in the on trade by 2% and value increased by 2%;
• Beer (-2%), wine (-3%) and spirits (-3%) led the decline with only cider (1%), sparkling wine (20%) and fortified wines (5%) showing any growth;
• Sparkling wine continues to be the standout category with growth of 20% in the on trade and 28% in the off trade, with volumes increasing by around 29% in 5 years;
• Spirits in the off trade showed strong growth in the past 3 months with a 6% volume increase, this includes the period following the 2% spirits duty cut.

Total volumes (000s HL) on and off trade combined Q2

Volume decline 2010-2015 = 10.8%

24 June 2015 - Felicity Murray The Drinks Report, editor