Richard Hemming MW: Impossible problem
How is cheap wine possible? This is perhaps the strangest and most perpolexing question in wine, alongside such conundrums as “is terroir real?” and “pink port: why, god, why?”
The average price of a bottle of wine in the UK is around £5.68, but that means there’s still an awful lot being sold for less than that. Tesco currently has six wines selling for £3.65 a bottle, which leaves only pennies for the grapes once you deduct duty, VAT, retailer margin and fixed costs.
Producers insist that such a model is financially crippling and dangerously unsustainable – yet it persists. Cheap wine has always existed, millions of British drinkers lap it up, and there’s no indication that is likely to change. So how is it possible that cheap wine is still being made by the megalitre?n
Some people point the finger at rich investors who are attracted to the lifestyle of winemaking without an imperative to make profit. It’s true that there are many such operations – just look at the English sparkling wine industry, where many of the biggest names were originally bankrolled by cash made in other industries – Ridgeview and computing, Nyetimber and music, Rathfinny and finance. It happens in every wine region, but they are always ambitious, luxury operations, unlikely to make much difference to the bottom end of the market.
What about subsidies? According to a 2016 study, the average European vineyard receives €700 of EU subsidy per hectare every year (although that can vary massively), and there are similar schemes in many New World countries. This money shores up wine industries worldwide, although it is
by no means intended to facilitate cheap wine. Supply and demand is another important influence on wine prices.
According to OIV figures, global wine production has exceeded consumption by an average of 10.5% since 2013, although that’s lower than the 13.5% average at the beginning of the millennium. But even so, it’s a buyer’s market, which puts the supermarkets in a strong position and brings us to perhaps the most persuasive reason why cheap wine is possible: “If we don’t do it, they might.”
In other words, producers sell their wine cheaply because the alternative might be not selling it at all. This is especially problematic for an industry that
is so highly fragmented, because there are tens of thousands of companies in competition with each other and British buyers are used to scouring the world to find the best deals.
At Cape Wine in South Africa this September, a common theme was the financial peril facing a huge proportion of producers. According to one estimate, only 14% of wineries there made a comfortable profit in 2017, and 35% were loss-making. The message was imploring: we must charge more for wine to sustain the industry.
Sadly that sentiment is nothing new, cheap wine remains plentiful, and enacting a universal solution to the problem seems impossible. After all, would you be prepared to increase the price of the cheapest wine on your shelves at the risk of some of your customers going elsewhere?