• Alistair Morrell on what to expect from the Brexit fallout

    In the first of a series of industry views on what the Brexit vote will mean for different parts of the UK wine trade, consultant Alistair Morrell looks at the big macro issues that now face us all.

    In the first of a series of industry views on what the Brexit vote will mean for different parts of the UK wine trade, consultant Alistair Morrell looks at the big macro issues that now face us all.

    By June 26, 2016

    Wine consultant Alistair Morrell gives his personal assessment of the likely impact the Brexit vote is going to have on the UK wine trade. 

    It is easy to see Brexit as a massive upset for the traditional wine world. Let’s face it we don’t like change. We didn’t like the London Wine Fair moving to Excel, we didn’t like supermarkets taking over the wine business (but we liked their pounds!), we don’t like duty increases (but we like the price increases on the back of them), we don’t like brands (unless they are the ones we sell).

    So maybe Brexit is an opportunity to find out what we do like and face against fear and paranoia that it could instil.

    What’s going to change

    There are four areas of significant change; exchange rates; rules and regulations; UK market (general); and UK taxation (incentives and penalties). The difficulty comes when the slide rule of short, medium and long term is applied, as it adds dimension which multiply the potential outcomes many fold.

    Exchange rates 

    In the short term not very much will change, according to the various leaders that have made statements post-referendum. Exchange rates and peoples’ spend in the pocket are the short-term issues. Although maybe that is not as bad as the headlines make out. The euro has its own issues and therefore the impact of Brexit on that rate is less than we have seen for the US dollar for example. Equally the impact on the Australian dollar  and New Zealand dollar is significant and painful but not catastrophic. Exchange rates have a habit of calming down.

    As respected Financial Times economics writer, Martin Sandbuy said on the day after the referendum vote: “So a sterling crash, while painful, need not be dangerous”. 

    Perhaps the biggest issue with exchange rates is fear itself.

    UK market 

    Next on the rack is the UK market and specifically the consumer spending.

    The usual economic indicators will need to be watched. If inflation creeps up and interest rates rise (surely a likelihood now) then this will have an effect on disposable income. Let’s face it wine, whilst highly desirable for 60% of the population, is at the end of the ‘need’ scale when it comes to financial resources. If the UK economy is doing well then wine responds likewise as has been seen by recent growth; albeit slow and not likely to recover to 2008 levels.

    Equally economic stagnation is definitely a threat to disposable incomes and consumers abilities and desires to buy wine. Already investment is under pressure, which will in turn have its effect on output.

    This is where the engagement with consumers is critical. How are they moving and shaking, and how can we respond to their wine requirements. Consumers are not going to stop drinking wine overnight. They will respond to their environments as they see them.

    It will be some time before the real impact of the Brexit vote will be felt by businesses
    It will be some time before the real impact of the Brexit vote will be felt by businesses

    Rules and regulations 

    The biggest potential contextual change comes when the trade negotiations are in play. There are several painful stages of these. In between then and now there is all of the unhelpful speculation which will hold spending back and induce a level of fear of outcome into the market.

    The negotiations themselves could be long and hard with alternating priorities and agendas within and outside of governments and their negotiating team. Wine is not going to be high on this agenda – at least not for the British government. For France, Spain and Italy where the UK is a top three export market then much more significant.

    Equally what are the opportunities for trade tariffs to be placed on our exports? There are a number of exports, whisky, cider and English wines which would have major issues with trade tariffs or lack of trading agreements to send their produce abroad.

    There is the prospect of an early agreement, mirroring the Norwegian trade agreement; however that includes free movement of people. This last point, as a key plank of the Leave campaign will surely not sit well with the new Prime Minister. So how likely this is to come to fruition is doubtful.

    Tax incentives 

    However, the agenda for any Chancellor is going to be jobs, trade and GDP. Getting the economy moving again. Within the drinks trade then home produced drinks have more to offer than imports. So we can expect some incentives for beer, spirits and home produced wine. Could it be that land prices reduce significantly and bring investment into more vineyards in the uK to make us more than a small minority player? Doesn’t seem particularly likely considering the other priorities and the difficulties of producing wine.

    The opportunities 

    Maybe the opportunity is that, by freeing ourselves from the natural ties to European wine we discover new areas and regions, for example Kazakstan, China and Georgia (not so new to “long in the toothers” like me). In turn does that allow the wine trade to re-assert ourselves on the world markets as the genuine centre of the world’s wine trade? There could be opportunity in developing those links.

    Equally asserting more English wine in more varied markets may offer us openings that were previously uninteresting?

    In any direction we have to look outwards, whilst reflecting on how the UK consumers are evolving, matching their needs along the way. Maybe its the jolt of opportunity that will refresh us and in ten years time we will look back and say what a good job we did. For now though it’s going to be bumpy.

    * What do you think? If you would like to share your thoughts on the implications of the Brexit vote on the UK and international wine trade and premium  on-trade in particular then please email editorial@the-buyer.net.

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