The UK drinks sector reacts to changes in alcohol duty
On 1 August the UK’s new alcohol tax system came into effect.
Alcoholic drinks are now classed into four categories - beer, cider & perry, wine & wine-made and spirits – with the taxation directly relating to the strength (ABV) of the product.
As the new tax came into effect, Carlsberg announced a reduction in the strength of its flagship beer from 3.8% to 3.4% to meet the lower duty threshold, with a spokesperson commenting that the move would allow it “to invest in innovations and our portfolio of well-loved ales and lagers.”
Drinks industry expert Gareth Jones comments: “The sudden cut in ABV of Carlsberg suggests alcohol levels will fall again in beer as brewers see duty savings as an easier route to profit than another round of negotiations with the retailers.
“The duty difference between retail and pubs caused by the draught relief is unlikely to change consumers' minds on where to drink but hopefully will offer some much-needed profit to pub owners.
“Unfortunately, the brewers’ disproportionate price increases to the on-trade - plus new service charges, such as keg handling fees from Heineken - make it likely the brewers will be eyeing the draught relief when they set their next price increase (again, to avoid a dispute with the retailers). In the UK drinks industry, the balance of power sits firmly with retailers.”
The changes have been met with mixed reactions from the drinks retail and hospitality sectors, with many in the industry decrying the perceived stigmatisation of higher-alcohol drinks. The lower taxation for some key product categories are also thought to be unlikely to translate to better prices for customers.
Patrick Fisher, Market Analyst, IWSR comments: “Though some categories, such as sparkling wines, liqueurs and RTDs, may appear to benefit from lower duty rates, it is far from certain that this will translate into lower prices for consumers, given that producers and suppliers have for some time been grappling with higher raw material, energy, distribution and labour costs and consequently are now almost universally anxious to restore their margins.
“In addition to higher prices, which are likely to suppress demand further at a time when many categories are already suffering due to the current cost of living crisis, the other most tangible effect of the changes is that they may encourage the introduction of lower alcohol products. Indeed, many brewers have already opted to reduce the ABV of their beers, rather than implement unpalatable price increases in an already difficult marketplace. Many wine producers are also looking at options to reduce the ABV of their products, rather than simply foisting higher prices on increasingly price-sensitive shoppers.
“Sales of still wine are already in their third year of decline since their pandemic peak and the impact of the duty changes looks set to hit cheaper still and fortified wines the hardest, while premium products should remain more resilient. White and rosé wines also look set to continue to increase their share of overall sales, at the expense of higher ABV red wines.”
Many have also expressed concerns for the UK’s many craft distilleries and independent spirit brands, with a spokesperson fo the UK Spirits Alliance commenting: "This tax hike is not just shortsighted, but it is actively damaging to pubs, distilleries and the hospitality sector."
"With the 10.1% hike in spirits duty – the highest since 1981 – the chancellor has failed to reflect the popularity of the diverse modern hospitality industry, driven by the growth in innovative British products such as those created by the small distillers within our membership."
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