British increase duty on wine 14 March 2008
Possible effect on low-end SA suppliers

The British Chancellor of the Exchequer, Alistair Darling, increased the excise duty on alcohol for the first time in a decade in his budget this week and South African producers are sitting tight on the impact on their UK exports.

Darling announced that tax on alcohol will be used to target child poverty. In his first, low-keyed budget, he increases excise duties by 4p on a pint of beer, 14p on a bottle of wine and 55p on a bottle of spirits. This translates to about R2.25 per bottle of South African wine.

COMMENTS

From John Woodward:
As a UK retailer of wine (South African and otherwise) I can state that we're actually on the better side of what could have happened. After a decade od runaway Labourite socialism we were braced for anything between 15p and 50p rise. So not the train-smash it could've been.

As a SA resident and a SA domestic retailer/exporter/importer, more worrying have been the phone calls from industry colleagues in the UK wanting to know why we here in SA have suddendly started to insist in GBP or Euro transactions for export orders. This is viewed by most in the UK as a blatant attempt to fleece us (them...I live here) because your (our...I live here) currency has slumped. It leaves a bad taste in the mouth and isn't good for long term business relationships.

We've a LOT of wine to export out of SA and a weak Rand is just what the Doctor ordered. Stop looking at UK & Overseas buyers as cash cows and make hay while the sun shines...you live in Rand so sell in Rand. Our competitors in other "New World" countries don't do this and it means they continually steal a march on SA export efforts. 
 

From Dana Buys of Vrede en Lust:

Quoting in hard currency is certainly something that is pretty much standard practice in most export/import businesses and I am amazed to hear that it is regarded as 'ripping off' the clients! Those are the same clients who did not want to pay more and put huge pressure on prices when the Rand went the other way.

This should be an opportunity for the SA wine industry to improve margins vs just becoming cheaper! A lot of our costs have soared - diesel, electricity, bottles, labels, labour, cost of money - ie interest rates etc etc. The imported components such as barrels and winery equipment are set to soar.

Lets look at the competition as well: The Aussie and New Zealand dollars have strengthened, as has the Chilean peso. It is only the rand and the Argentinean dollar that have weakened. The Aussies and NZ producers are sitting with shortages and are (wisely) choosing to target markets where prices are better (unlike the pearls of wisdom from WOSA re the US market). This presents the SA producers with the time to improve rand earnings without having to increase overseas retail prices.

Why in the world should the UK importers and retailers be the ones to increase profit margins and the local producers give up that opportunity? That seems really stupid to me and maybe after 12 years in this industry I still just do not get it.

From Oscar Foulkes of Cloof:

I agree, if the exchange rates are in our favour we must use them to our advantage. However, this is a two-way street. For most of the past five years the rand has not favoured exporters. Those of us selling in Sterling (or, for that matter, euros or dollars) saw our rand returns fall substantially. Throughout this period we kept the pricing constant to ensure that we kept our position in the market (and we certainly didn't have customers offering to pay us more to off-set this). If we now are making a little more than last year it only goes a small way to recouping our 'losses'.

The South African wine industry has been working very hard to move beyond its reliance on a declining currency. I'm not sure we have much to show for the R20-per-quid period six years ago. By all means, let's empty our cellars, but let's also keep an eye on customer service, wine quality, marketing, and all the other factors that make a business competitive over the long term.

From John Woodward again:
 ...the problem is, especially in the UK, that there is marginal preference for specific countries' wines (apart from arguably French) off shop shelves. The UK consumer is a fool to itself for supporting initiatives like BOGOF's [Buy One Get One Free] etc which have led to a decline in quality (in my opinion) in what is widely available in the UK. The sales tactics of the various big-boy retailers have only increased the problem (I cite Champagne for under £5 as a prime example, even though this was a PR stunt).

You can make all the excuses about quality etc that you want, in order to effectively sell a product you must listen to the customer...the slide in the Rand has given those wishing to export an excellent opportunity to increase the amount of SA wime available to UK's consumers.

UK retailers couldn't give two hoots about our rising costs, and neither does the man in the street.
If you always dealt in hard-currency then this is a mute issue. As stated earlier...this is only the "noise" I am hearing from UK guys I speak to.
 

From Dana Buys again:
John, the fact that the UK retailers do not give two hoots about our cost issues shows exactly why we should not give two hoots about increasing their margins, by lowering the GBP or Euro prices of our wines. They do not care about ensuring sustainable supplier relationships and will reap the rewards of their shortsighted approach in the coming years of shortage.

SA wines are already going out to Aussie to help cover their shortages which will worsen following this harvest. Bulk prices are rising steadily. At international bulk levels of $0.90c/l we should see red wines reaching R7/l this year - well up from the currently levels which hardly cover wine making costs let alone fruit costs (Per the MF article elsewhere on this site).

The US will need to import significantly more wine due to stronger exports on the back of a weak dollar, plus solid growth in domestic wines consumption. At the same time, the imports from Europe are becoming very expensive with the strong Euro. During the past 6 years the Euro has gained nearly 60% against the US $!

It was predicted that the global industry would switch back into a shortage of mainstream varietals by 2009 and it may well happen sooner thanks to a poor harvest in Europe last year and two very poor, back to back, harvests in Australia.

For most of this decade the retailers had all the power, but agriculture is always a cyclical industry and the balance of power will shift to the producers for the next cycle. The UK retailers will have to deal with that just as the world has to deal with $100/barrel oil prices - a simple matter of supply and demand. I agree with you that the industry has to be customer focussed in terms of style and quality, but the SA wine industry has the right to target clients that are prepared to pay the best price. Lets hope we see intelligent use of this change in the cycle.