UK volume sales of both still and sparkling wine are in decline. Analysts predict still wine sales will fall by almost 11% over the next five years. However, consumption, production and planting of English wine are all increasing. 2018 production bottle equivalent is up by circa 180% with hectarage under vine increasing by 83% since 2015. It is predicted there are roughly 7-8 years of U.K. sales currently in stock with around 55% of plantings having no wine currently for sale. Considering market decline, assuming the market is one of monopolistic competition, and noting only 8% of English wine is exported, supply is grossly outstripping demand. How will this excess supply impact the market and how should it react?
Considering the volume decline in more detail, it is within the low-price segment of the market in which the decline predominately exists. It appears that Brits are adopting the global trend of less-but-better approach to purchasing. The IWSR predicts that the still wine market will continue to gradually decline towards 2022, with most of this decline remaining in the lower-price segment. The same IWSR report forecasts ‘premium’ wine sales (defined as wine selling in retail for £8 to £14.99) growing from 20% of sales by volume in 2017 to 25% by 2022. The volume decline is multi-faceted, contributing factors could include: slowing down of Prosecco sales (which drove a considerable portion of the sparkling sector expansion), increasing trends relating to gin, rum and cocktails, and the growth of the low and no-alcohol drinks sector forming part of a general trend toward moderating consumption of alcohol.
Despite this volume decline, in 2018 domestic consumers popped their way through 4m bottles of English and Welsh sparkling wine. Off the back of this record year and vintage, English sparkling wine has gained increased prominence amongst UK consumers. According to the Wine Intelligence UK Sparkling Wine Report 2019 nearly 8 in 10 British sparkling wine drinkers now claim to have heard of English sparkling. The number of people saying they have visited a winery in the UK has doubled since 2017, with 3 leading brands accounting for more than 25% of all UK winery visits in 2018. The report also demonstrates that over 70% of those who have heard of English Sparkling wine have never visited a UK vineyard, suggesting sizeable room for growth in UK wine tourism.
Without casting a shadow on what is undoubtedly positive news, in 2018 production bottle equivalent of English still and sparkling wine reached between 13 and 15m bottles (source dependent) 30% still and 70% sparkling. It is predicted that despite being down on 2018 (a bumper crop) 2019 yields are expected to be well above average, 60% above in some cases. Assuming growth remains unchanged long-term production is expected to reach around 40m bottles by 2040, 8-9m (yearly-release production) bottles in the next 10 years (2/3 sparkling) and with 92% of wine produced in the UK (investors could see opportunity in growth) currently sold domestically and a declining category overall there’s a gigantic elephant in the room.
No matter how you spin it, supply of English wine (both sparkling and still) based on both current, and future, market predictions, is drastically outstripping demand. The wine industry is a market, a monopolistically competitive market no different to any other similar in structure. I spoke to renowned consultant & English wine expert Stephen Skelton and Professor Chris Jones, Head of Economics at Aston University, to better understand the English wine industry, the challenges it faces and how it might respond.
What can the industry do?
For those not wanting to read the entire article I will summarise briefly my position. I posit that producers seeking to achieve long-run normal profit should focus intensely on building a strong brand, ensuring sufficient reserves (traditional-method specific) and controlling supply. The industry ought to define itself and lean more toward waving a primary flag. Those operating at lower price points should vary product offering and production method in order to achieve a more attractive retail price. The industry should ensure thorough customer communication and producers will benefit from focusing on experiences. If you want to read about what I believe will happen in the industry skip to the end of this article.
The English still and sparkling wine market is playing out like an Economics textbook. The attraction of perceived supernormal profit is encouraging more firms to enter the market, resulting in a drastic increase in supply, an increase far beyond current market demand. In the long run this is likely to push quantity demanded from each firm down, readjust price and leave firms competing on price alone (similar to happenings in the New Zealand wine market) This type of competition could cause producers to make no long-run economic profit and drop out of the market. Building a global brand will be crucial to producers wanting to establish a long-term position in the market e.g Nyetimber, Chapel Down, Rathfinny etc. who have all already successfully begun doing this. As the market shrinks and overall price is driven down, this will enable producers to maintain clear consumer differentiation as premium replacements for Grand Marque (Great Brand) Champagnes making long-run normal profit more likely.
In the 1980s, England faced a similar supply issue. Lamberhurst (then by far the biggest producer) reduced the price of their wines, others with large quantities of stock followed suit. Producers got in to trouble, there were bankruptcies and vines were grubbed up. However, Stephen Skelton MW highlights a major difference between the challenges faced then and the those that the industry now faces. He notes that demand for aged English still wine is, and was, low, whilst on the other hand there is still ample English sparkling wine for sale from circa 2009. He suggests that those producers who are well-funded could rein in immediate supply where necessary in order to ‘ride out’ this challenge, he states‘finding money overnight is easier than finding extra sales …’
Tamara Robert, CEO of Ridgeview, has noted that many producers have likely been guilty of releasing wines too early to please sales. In the face of excess market supply, reining in supply would allow producers to build their reserves and avoid downward price pressure. This is an importance echoed by Simpsons Wine Estate who have identified the importance of building up reserves to ensure that regardless of climatic conditions producers will be able to blend and maintain house style.
It seems inevitable that there will be downward pressure on the price of English wine (still and sparkling) Not only due to basic laws of equilibrium pricing but also due to the build up of existing stock, and future supply, flooding the market. It does not seem likely that the category will grow dramatically so where possible producers should attempt to position themselves at a price more suited to achieving substitution. To achieve this, producers could consider, as some already are, diversifying methods of production and sales with a focus on exploring sparkling methods such as carbonation, Charmat method and Traditional method with less ageing (clear distinction could be required here for quality purposes) This could allow producers to seize ground in the sparkling category where Prosecco, and to some extent cheap non-brand Champagne, has previously done so well (it should be careful to not find itself lost in the sub £10 market) This increase in product variation (arising as a result of competition) is something that Professor Chris Jones also alluded to in his comments to me. Adding to the subject Stephen Skelton MW notes that as well as exploring innovative production methods many of the new players are also exploring more creative approaches toward selling and format, this innovation will likely be crucial in attracting consumers moving forward.
There’s much we disagree on; however, on this point in particular I agree with Jamie Goode who has said in the past that we should be singing from the rooftops about English sparkling wine and whilst we can, and should, continue to produce still wine we should not allow it to define us globally. Stephen Skelton MW notes that whilst English still wines are getting better, on a world scale they don’t offer value for money and most cannot compete on a shelf alongside better, and cheaper, wines from overseas. The industry should clearly define itself as a world leader in sparkling wine, we are simply not a large enough producing nation to promote regional styles and so to ensure more clear, concise and relatable branding it seems logical that it should be sparkling wine which leads the way in growing the market, it should be this that industry professionals tout worldwide. At risk of sounding pessimistic I am reluctant to believe that at current price points and average quality level we will have much success, regardless of impassioned effort, promoting our still wines on supermarket shelves or in export markets, pitching them against wines from the New World (a category which has grown in the UK particularly) And whilst I am aware it is not always necessary to pitch against a product, given that the still wine market is itself shrinking it is a game of substitution not addition that English wines by default forced to play.
In addition to traditional sales channels, wine tourism, experiences and positioning in restaurants will be key to category success. UK wine tourism is pitched to explode in popularity and considering the average US wine tourist spends £650 per trip on wine-related activities, this could be big business for English wine. Sam Linter (Bolney Wine Estates) confirmed growing interest in visiting Bolney Wine Estate since 2013 with around 10,000 people visiting last summer. In addition to the direct revenue generated, the opportunity offered to strengthen consumer knowledge, product information and encourage future consumer decision-making could be pivotal. In addition to wine tourism, positioning in restaurants is an avenue worthy of focus. Increasingly (perhaps relating to environmental concerns) people are keen to explore local produce and experience a broader scope of experience when visiting restaurants. Positioning English wine at the heart of this kind of experience could prove beneficial to the industry and encourage a multi-faceted interest from consumers. To achieve this producers should focus on building relationships with food-focused social experiences and local restaurants, this type of relationship could be prove to be most strengthening for smaller producers working with local restaurants and outlets as it could drive both sales, category interest and tourism. Despite advocating firms be left to their own devices (who doesn’t love a free market?) Professor Chris Jones suggests that a strong industry lobby group may help the industry achieve both tax breaks and export support; however, this may not be in the interest of the public in the long run.
What do I think will happen?
In the face of a contracting UK market and an ever-increasing supply of both English still and sparkling wine, logic suggests that growth will contract greatly in the long-run (less supply, producers and possible mergers) with many producers needing to find a way to sell their product at a more attractive price point. Importantly it should avoid at all costs competing on price alone (which is where an overall reduction in supply may benefit the quality perception of the industry) Stephen Skelton MW points out that according to Wine Intelligence the ‘sweet spot’ for ESW appears to be around £10-15, in order to reach this producers will likely need to diversify offering (Charmat method, Carbonated etc.) in order to explore cheaper methods of production. There exists great potential, a potential which I certainly share with Stephen for English sparkling wine at this price point (and above in smaller numbers) particularly in seizing ground where traditionally cheap ‘non-brand’ Champagne and Prosecco has dominated sales, a more informed consumer is now realising that the name Champagne is not simply synonymous with quality.
The future for English still wine appears, on the surface, to be more complex and challenging due to its broad inability to compete on a global scale. Large-scale export appears less likely than it does for English sparkling wine. A small-volume higher-priced niche market in specialist stores, cellar doors and situations alike seems a plausible outcome, I would predict that volume of still wine at a price point above £15 will remain a relatively small market. Furthermore, I believe varieties such as Bacchus, Seyval Blanc, Reichensteiner and Madeleine Angevine will struggle considerably to be marketed alone, they may also struggle in succeeding on the shelf. It seems more likely that these varieties will fall in to a more broad, less quality-driven, category branding along the lines of ‘English Still Wine’ and could drive a race to the bottom on price
As plantings increase, the price of grapes will likely fall, allowing producers to explore more diverse and varied product offerings which may struggle to achieve quality-recognition if not communicated effectively. Whilst I doubt plantings and supply growth will slow in the short-run, in the long-run it seems logical to suggest a slowdown of supply and production followed by a small consolidation of producers (the prices pitched by many current producers are in disequilibrium) This reduction in supply will likely benefit the market overall by reducing the likelihood of producers forced to shed excess supply at reduced costs resulting in a 1980’s style fiasco. Of those that remain I believe there will be a large portion who choose to focus on cheaper methods of sparkling production, with supermarket own-brand products playing a large role in communicating the category to consumers (as Morrisons, Aldi and Tesco have already begun doing) Here Professor Chris Jones makes an interesting point, one with which I agree, that it is likely under price pressure that we will see consolidation not only in the form of firms leaving the market but also via mergers and acquisitions, this will allow firms to develop economies of scale as the industry becomes more concentrated. Those that remain focused on Traditional method will differentiate themselves on quality via effective branding and will lead the charge in growing the export market (exports will likely be small for smaller players) with potential to achieve sales of higher-priced still wines on the back of this success (such as Chapel Down etc.) followed by increased presence in restaurants, corporate events and sponsorship.
Thank you to Professor Chris Jones of Aston University and Stephen Skelton for their contribution to this article.