by Juel Mahoney
Perhaps you’ve also found yourself in this position. You are at the supermarket after a long day at work and you want to buy a bottle of wine. You just want one but you find rows of them. Some wines have the same name – there are three Chablis, for example – yet they are all different prices.
I’m often asked, why bother buying a more expensive wine?
My usual reply? Because it is better.
While that may sound trite or even smug, there is a big difference in the quality of the wine between a £5 and £10 per bottle – especially in a retail environment. In fact, due to the flat duty rate and fixed costs, when you pay twice the price, you get twenty-five times the quality. Here is why.
Let’s do the maths. First, let’s look at a breakdown of costs for a £5 bottle*:
Now take a look at a £7.50 bottle. As you can see, most of the fixed costs and the duty costs are exactly the same:
As the fixed costs remain the same, the money available for the wine increases. When you buy a £10 bottle of wine it is 25 x better than a £5 bottle:
For a £20 bottle of wine, with duty and costs the same, at four times the price, the wine is a whopping 75 x better than a £5 bottle:
The duty on wine has increased by 46% in the past 4 years (compared to 15% in the 8 years before 2008). It doesn’t take Robert Peston to point out that duty rates on wine started hiking rapidly around the same time as the global economic crisis and the ensuing hole in the nation’s finances.
The only silver lining is that, owing to the flat duty rate, quality rises at a much faster rate than the price. These are powerful numbers to remember next time you purchase a bottle:
- Tax accounts for 54% of a £5 bottle of wine
- Only 11p of a £5 bottle goes towards the cost of the wine
- Double your spend from £5 to £10 and get 25 times the quality
Spend a few more pounds a bottle at this price range and it could be the difference between plonk and something spectacular. What is your experience?
*Based on retailer margin of 28% at all price points, VAT at 20% and duty for a 75cl bottle of wine (5.5-15% abv) and fixed packaging and logistics costs. Does not factor in CCT. To be used as a guideline only.
Thanks to the Finborough Wine Cafe whose recent newsletter gave us the idea for this feature.
Nice post presenting things that the average consumer does not always instantly appreciate, and many have tried to bring to the limelight.
One thing that Gavin almost touched on but not quite and that is of the Importer margins? Surely this would bring your £5 bottle to a minus figure, no?
If as some posts hint at the “retailer margin” includes your own margins then it might be fairer to the retailer to clarify this rather than putting it forward they take a much larger chunk than in reality they do!
While we are on it what about the producer’s margin?