What's the wine actually worth?

Currently in the UK on a wine selling for £5 per bottle £2.89 is actually tax - that is a massive 58%!

A brief update here September 2014 - I haven't rewritten this page as the basic principle is still the same, but taxes have increased significantly since I first wrote this post.

UK Excise duty on still wine is now £2.06 per bottle, and £2.60 on sparkling or higher alcohol wines (over 15%).

There are two parts to this page. Firstly explaining the con the supermarkets use to sell inferior wine, and secondly a breakdown of the actual costs of a bottle of wine where you can see who is actually making all the money, and why you really shouldn't buy £5 wine!

We can all begrudge the ever increasing price of a bottle of wine, and naturally to save money we tend to look for the cheaper options. The supermarkets seem to have some great deals on - half price, reduced from £9.99 to £4.99 - that has to be a good deal, right?

No!!! It is not, and here is why:

Firstly for these offers to qualify legally as a genuine half price deal, the wine has to have been on sale at one branch for at least two weeks at it's "full" price. They get round this by giving it an obscure single facing on a bottom row virtually out of sight, in a remote store, at a massively falsely inflated price. After two weeks they then give it multiple facings, centre shelf nationwide at half the inflated price. Looks like a great deal, but in reality the wine is now on sale for the price it should have been in the first place. In the trade this is easy to recognise because we see the same wines from the importers at the same prices year round, routinely over inflated by the supermarkets at regular intervals. It should be illegal, but the supermarkets are experts at bending the law, and they're now so powerful the government is scared to touch them. The supermarkets work on a 35% margin on wine - this would be completely impossible with a genuine half price deal! In fact nobody makes a margin where they can genuinely offer this kind of discount. Use your head - if it looks too good to be true, it is. You are being conned.

Now onto the real price of wine!

I've just been looking at some wine which will cost me US$50 per case of 12 from the USA. That's $4.17 per bottle, which is roughly £2.62 per bottle. Ok, so could I retail that at £5 then? On the surface you would think so, but when you look at the horrendous UK taxes you would have to double that retail price! Most winery owners are dumbfounded when I tell them how much we have to pay. In fact although it's the winery owner who slaves away for a full year growing the grapes and making the wine, it's the Uk government who will actually benefit and "earn" about three times as much per bottle as the winery!!

Let's add shipping cost from California, about 40 pence per bottle. Then let's add UK excise duty of £1.81 per bottle, plus the customs tax of 5 pence (on wine from outside the EU). This wine is now costing me £4.88 per bottle. Now let's add the VAT of 98 pence. So the wine is now costing me £5.86

Now when I sell the wine I also have to charge 20% VAT and pay the VAT on the difference between cost and sales to the VAT man. So if I sell it for £8.99 and it cost me £5.86, I make a gross profit of £3.13 which is £2.61 for me, and another 52 pence for the VAT man. If I happen to make a profit at the end of the year after all my costs I then pay the Inland Revenue some corporation tax too.

So the Inland Revenue have actually made: £1.86 excise duty & customs tax, plus £1.50 VAT, so £3.36 in total. I have made a (GROSS) profit of £2.58, and the winery has probably made about £1.

This is obviously a massive money making exercise for the government and explains why a bottle of wine is so expensive in the UK. So how do the supermarkets offer 3 bottles for £10? Well in truth those offers are more like 3 for £11 these days so let's have a look.

At £11 there is £1.83 VAT. On 3 bottles there is £5.55 excise duty (let's assume these are EU wines) which is £7.38 in total, leaving £3.62 to pay for the supermarket margin of around 35% - let's be generous and call it only £3. This leaves just 62 pence to pay for the wine, the glass bottles, the labels, the cardboard box, the transport from country of origin and UK transport. The supermarkets apply immense pressure on their suppliers, often driving them out of business. I heard last year of a deal for 24,000 cases of Pinot Grigio on which the winery would make £500! - assuming there wasn't a breakage. The problem for the winery at that scale is there aren't many customers who can take that volume, so once they are geared for large production their custom base shrinks and the supermarkets can pretty much dictate their own terms. The winery then has to choose - get rid in one job lot and make nothing, or sell in dribs and drabs and get stuck with excess stock which will badly affect the next year's capability.

So what is the genuine value of the wine?

Basically the wine is worth about 5 pence per bottle! Yes, that is genuine fact. It's mass produced plonk full of chemicals. The supermarket buyers are instructed to pay no more than US$0.35 cents per bottle, labelled and packed! As you can see if you spend a little more from a bona fide wine merchant, like the £8.99 example above, you will get a wine worth £2.62, approximately 53 times more than the supermarket plonk!

It certainly makes you think what you're putting in your body when you drink this cheap plonk. Would you eat meat or fish which cost just 5 pence? Or would you suspect it wasn't going to be good for you.......?

I recently discovered another interesting article about an "app" for iphones which calculated how much of the wine's price was actually tax. It was interesting to see at the price point of £5 per bottle that £2.64 is actually tax!