How COVID-19 has changed the UK wine market

Market Bulletin | Issue 199
29 Apr 2020
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The world has changed dramatically over the past few months as COVID-19 has impacted communities around the world. Our thoughts are with everyone at this time.

COVID-19 has seen rapid introduction of measures to protect the health and wellbeing of communities and it is natural that the way that we operate our businesses in this environment has changed.  

This week, our Market Bulletin takes a look at the changes to Australia’s top wine export market by volume – the United Kingdom (UK).

Wine trends before COVID-19

At the beginning of this year, the UK had started moving into a more positive commercial environment. It had committed to Brexit and left the European Union on 31 January, commencing an 11-month negotiation period. Consumer confidence was improving along with other economic indicators including the Gross Domestic Product (GDP).

But, at the same time as this increased confidence, in the alcohol sector there were reports that smaller independent pubs were not doing well due to financial pressures coming from high taxes (i.e. beer duty, VAT, business rates, wage increases and food inflation). The on-premise trade was traditionally a key influencer on wine value sales in the UK, accounting for 32 per cent by value of wine sales in 2018. Although only 13 per cent of the volume of wine was consumed in the on-premise.

The International Wine and Spirit Record (IWSR) reported that still wine consumption has been in a gradual decline over the last five years, impacting adult per capita consumption where the number of litres dropped from 25.9 litres in 2014 to 23.4 litres in 2018 and is estimated to fall below this once 2019 figures are released in May. This reduction has been attributed to cumulative duty increases and widespread price inflation that has made wine a more expensive drink. To help businesses, in early March 2020 the UK’s chief finance minister announced a freeze on all alcohol duty.

The reduction in wine consumption was further compounded by younger consumers moving away from the category (or not entering it) impacting mostly in the lowest price brackets. Trade experts interviewed by the IWSR and Wine Intelligence, suggested that decline in wine volumes was the result in the sudden growth in gin, in particular pink gin, and Prosecco coming off a peak.

Moderation and premiumisation was also being reported in the UK, with Wine Intelligence noting in its UK Landscapes – Management Summary[1] that almost half of UK regular wine drinkers were actively moderating their alcohol intake – although trading up when they did drink. The Office of National Statistics reported that the reduction in the number of adults drinking alcohol was driven by those aged 16–24 years of age. Contributing to this trend is the increase in the low and no alcohol category, which we delved into in a recent market bulletin.

Australian still wine was the most popular wine in the off-trade in year ending December 2019 (as it has been over the past 15 years), holding a 22 per cent share of value sales and nearly twice that of second-placed Italy according to IRI Worldwide. Hypermarkets and supermarkets are the largest distribution channel for wine and Australian still wine held a 22 per cent share of still wines sold through supermarkets in the off-trade.

Changes resulting from COVID-19

Soon after the World Health Organisation (WHO) declared coronavirus a pandemic on 11 March 2020, consumer behaviour trends in the UK were heavily challenged.

The stockpiling of grocery and essential items ramped up (see Figure 1) on the speculation that the UK would be put in lockdown, which was not declared until 23 March 2020[2].

Figure 1: Total Market Value Sales in UK supermarkets

Source: IRI

The period in the lead up to and throughout the lockdown has seen fluctuating sales. For the week ending 22 March 2020, IRI reported off-trade alcohol sales experienced a 59 per cent increase in sales – including wine, were up 55 per cent in value – as consumers were more frequently shopping in supermarkets and hypermarkets. While the value of sales decreased across all alcohol categories except beer in the following week, this rebounded in week ending 11 April 2020 with the value of wine sales up 12 per cent compared to the corresponding 12-month period last year to £125 million in the lead up to the Easter period.

Figure 2: Value sales of alcohol by category in UK supermarkets

Source: IRI – Aggregated sales across Tesco, Sainsbury, Asda, Morrisons, Waitrose, The Co-op Group, Iceland, Ocado and M&S

In line with the above results, overall Australian still wine sales in the off-premise for the month of March increased 16 per cent in value and 12 per in volume. This growth was consistent across all off-trade still wine markets, allowing Australian market share of volume to remain at 23 per cent.

Figure 3: UK off-trade still wine monthly sales by country of origin

Source: IRI Worldwide

Across the wine community in the UK, producers, importers and distributors had to move quickly to manage supply. There have been reports that shelf space for wine was significantly reduced as retailers dealt with lack of supply and consolidating product offerings. CGA reported that food and drink sales were down 58 per cent in March 2020 across all on-premise outlets. Many importers and distributors have placed on-premise sales staff on furlough or redirected to off-premise sales. Major wine events have also been impacted, with the London Wine Fair 2020 cancelled and ProWein 2020 postponed until March next year.

With data only available for Australian wine exports up to year ending March 2020, it is still too early to tell how much the coronavirus has impacted on shipments given the timing of the virus’ arrival in the UK (see Figure 1).

However, prior to COVID-19, Australian wine exports to the UK had been in gradual decline since May 2019, as a result of stockpiling linked to the initial Brexit deadline. Recent export figures show a continuing decline, with exports decreasing by 10 per cent in value to $347 million and 9 per cent in volume to 219 million litres in year ending March 2020.

Figure 4: Year-over-year change of Australian wine exports by value and volume to the UK

Source: Wine Australia

What will the future hold for UK wine consumption?

On 16 April 2020, the lockdown restrictions were extended another 3 weeks as the UK continues to minimise the spread of the virus and manage the health impacts for the community.

For the wine marketplace, there has been a dramatic change over a short period of time and this is still going through transformation as wine supply issues resolve and shelf space returns for Australian wine. As such, it is difficult predict whether the pre-COVID-19 trends will return.

While businesses have been continuing to operate, consumer sentiment has been hit hard with GlobalData reporting a fall in the future sentiment index to -56 points in April 2020, which is 18 points down on the last month. People were even less confident on whether the UK economy would improve over the next six months with the economic outlook index down to -74 points.

At this point in time, around three quarters (77 per cent) of consumers in the UK surveyed by Nielsen think that the impact of COVID-19 will last for the next 12 months. Almost half (47 per cent) are shopping less frequently than before the pandemic.

Figure 5: Future consumer sentiment in the UK, April 2020 key metrics summary

Source: GlobalData

In the short term, Tesco has identified changed purchasing behaviours, recently commenting that people are reverting back to doing one big weekly shop – something that was a trend a decade ago – shopping less frequently but doubling the size of the basket. In 2019, Tesco was the largest retailer of wine for 44 per cent of regular wine drinkers in the UK according to Wine Intelligence. Further to this, more consumers are moving to online with retailers continuing to fill customer orders.

It is difficult to determine what impact economic uncertainty and the changes people have had to make to their lifestyles will have on alcohol consumption in the long term. A recent study by GlobalData in the UK reported that half (51 per cent) had purchased the same amount of wine as before, or more. But the results also suggest that the moderation trend will remain, with one in three respondents indicating that they have either stopped drinking or reduced how often they have purchased wine since lockdown. While not wine, sales data from Nielsen indicates that the low alcohol and alcohol-free beer has been performing well while people have been drinking at home. Low alcohol spirits have seen increases in sales.

As with other markets, there are predictions that the landscape will be very different as the UK comes out of lockdown with consolidation of the supply chain very likely. Further potential challenges identified for wine going forward would be smaller ‘exclusive’ wine lists in restaurants, bars and cafes, and an increased focus on supporting local products with studies suggesting that more than three quarters of those surveyed consider local products as trustworthy. The UK domestic wine production has been increasing, however, this is at a very low base.

 

[1] This report is available to Australian levy payers.

[2] At the time of publication, the lockdown in the UK banned gatherings of more than 2 people, stopped all events including weddings, restricted movement and increased social distancing. Only essential shops are open.


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