As the UK grapples to make sense of the ground-breaking Brexit vote, and the accompanying upheaval and uncertainty, the UK drinks trade is also having to get to grips with the changing landscape.
The vast majority of the UK drinks sector was in favour of remaining in the EU - in a survey of its 300 members conducted by the Wine & Spirit Trade Association shortly before the referendum, a full 90% wanted to remain in the EU, only 2% said they wanted to leave, and the remaining 8% were undecided at the time.
However, the industry is now putting a brave face on the Brexit vote, pledging to support the government in its plans, with assurances of ‘business as usual’.
Miles Beale had raised concerns about a Brexit prior to the referendum result, saying it could hinder growth.
In light of the Brexit vote, Beale said the WSTA would do “everything it can to ensure that the UK’s wine and spirit industry has a powerful voice”, within the European and international market.
"While our members felt that the wine and spirit industry was stronger in the EU, we will work to assist government in preserving our access to the single market supporting British drinks exports and agreeing the best possible international free trade agreements,” he said.
But, in fairness, it is hard to see how much influence it can truly have when you consider every major export and import industry is going to be shouting and fighting for its own positive way forward.
What has become clear is a clear resolution amongst the UK’s major distributors and wine importers to work together to find a solution, rather than see this as an opportunity for competitive advantage.
“If there’s any consolation we’re all in the same boat” was the view of one major branded wine importer.
Troy Christensen, chief executive of Enotria&Coe, one of the UK’s largest wine and spirits importers, wrote on The Buyer this week that it was essential the drinks industry came together at this time.
“I believe our industry can be a beacon for others looking to find the right path, maintaining a positive trajectory and finding momentum during this transition,” he explained.
“We must continue to work in partnership with suppliers towards market investment, channel activation and fair and equitable sharing of this investment. Tactical arm-wrestling over costs creates conflict and is counterproductive when a challenging market requires collaboration for success.”
Working together
He added: “This is the time the trade must band together and work with our trade associations to ensure we have a strong voice in Brexit. This is not the time to panic, or to push for trade protectionism, but to work to limit administrative impact to allow each product and category to succeed on its own merit.”
He said arguably the most important issue to address first is to bring certainty back to a sector that has been shocked to its core by this vote and not to go back to heavy discounting to drive sales.
He explained: “With all of this uncertainty comes a dramatic increase in business risk; risk is to business investment as garlic is to Dracula: potently crippling. During the credit crunch, the off-trade used deeply discounted wine and beverage alcohol to drive footfall. The result was an industry that gave consumers very little incentive for category engagement.”
International response
Internationally there has been a lot of head scratching and bewilderment at a vote no-one really saw coming.
The secretary general of the Comité Européen des Entreprises Vins, Ignacio Sánchez Recarte, expressed his misgivingsat the Brexit vote.
“We acknowledge the British people’s decision to leave the EU, but obviously we regret it,” he said. “The UK is the second biggest importer of wine in the world, both in volume and value.
“With EU wines representing almost 50% of these imports, there are no doubts that the UK market is of utmost importance for EU wine producers and that the British really appreciate EU wines.
“Whatever happens, the UK will remain a preferential market for EU wines and we will work with our UK colleagues to built a sustainable wine trade relation in this new political framework”.
“We hope that the important economic activity that wine generates in both the UK (#17.3 billion) and in the EU will be taken into account when negotiating the future treaties that will rule the relationships between neighbours.
“Legal certainty as well as fair and transparent market access conditions are necessary for sustaining jobs and growth on both sides of the Channel.”
Spain’s Federación Española del Vino (FEV) was quick to release a statements simply stating the vote was "bad news" for the Spanish wine sector.
Ultimately it will be the detail of these trade negotiations that will really determine if the global wine trade can pick its way through this potential minefield of red tape and regulations - the exact administrative hurdles the Leave campaigners were so keen to remove by voting out.
Opportunities for non-EU countries
But whilst EU wine will all have to find new trade agreements to export to the UK, its non-EU status could be good news for all New World countries. Their prices should be more competitive and there is a hope that it could have long term benefits. Particularly for countries like Australia and New Zealand who previously have had to pay an import tax to sell their wines there which is as high as 8% for Australia and 4% for New Zealand.
Wine Australia analyst, Angelica Crabb, estimates the cost of the EU import duty on Australian wine exports to the UK came to more than A$42 million last year.
Under the current regime, EU countries such as France, Spain and Italy are not charged duties, saving these countries an estimated A$110 million per year as a result of their EU membership.
Additionally, there are other existing trade agreements in place, with the EU. Chile and South Africa being the main beneficiaries.
Chile has a FTA in place with the EU, exempting it from import duties, while South Africa’s FTA is more complex, and allows the first 50 million litres into the EU duty free, with tax payable on anything over and beyond this.
The UK accounts for 35% of the 320 megalitres of South African wine exports to the EU, while France Italy and Spain, Chile and South Africa comprise 60% of imports into the UK.
“Brexit could remove a significant cost to trade for Australia as World Trade Organisation rules would prevent the UK favouring one country over another except in the context of FTA’s” said Crabb.
Keep calm and carry on
David Gleave says it won't be until wine companies have to re-buy currency that the real impact will be
Various UK wine businesses confirmed that on a day-to-day basis at least, nothing has yet changed.
“At Liberty Wines it is business as usual,” said the company’s managing director, David Gleave MW.
“The most immediate consequence of the referendum result is the fall in sterling. We have forward cover to see us through the next few months. We'll use that period to talk with our suppliers and monitor the situation.”
There is likely to be a protracted period of uncertainty which could lead to a hit on spending and investment in the market, he added. “However, we went through a similar period following the financial crisis in 2008, and we thrived during that time, so are confident we would do so again.”
And producers will want to continue to be present in the UK, he claimed. “It will remain a major market, so as long as producers can sell profitably, then they will continue to support this market. While the situation looks difficult at the moment, sterling was much weaker against the major currencies in 2009 and 2010, and producers continued to sell to the UK then.
“We have received numerous emails of support from our producers, which I think underlines their commitment to the UK market.”
Price increases
Prior to the referendum, Majestic boss Rowan Gormley had warned that exiting the EU could cause the price of wine, along with all imported goods into the UK, to increase.
“If a Brexit does happen and that results in the sustained fall in value of the pound, all imported products will have to go up in cost over time and wine will be no exception to that,” Gormley said. While all UK retailers are likely to be affected equally, putting all on a level playing field, Gormley said higher prices would not help the market to grow.
After the UK voted for Brexit, Majestic said that it was waiting “for the dust to settle until it becomes clear what effect Brexit has on us. We won’t make any big changes and will stay focused on making us the best and only place to buy wine.”
In the same vein, Jay Wright, chief executive of Virgin Wines, also predicted that the price of wine is “likely” to rise, stating that the “EU won’t feel as strong without the UK”.
Not everyone in the UK drinks industry has been growing their sorrows this week. Tim Martin, the larger than life founder of the UK pub chain Weatherspoon, was one of the few figures within the drinks trade to publicly back the leave campaign. He said the decision would “enhance freedom and security” and that anxiety over the economic effects of independence during the campaign had been “misplaced”.
“The UK will thrive as an independent country, making its own laws, and we will work with our good friends and neighbours in Europe and elsewhere to ensure a positive outcome for all parties”, he said.
The final word goes to Patrick McGrath at Hatch Mansfield who spoke for many when he urged the global wine trade to “keep calm and carry on” and added it was essential to wait for the markets to calm and not over react.
* This is an edited version of an article that first appeared on VINEX.