What will 2023 hold for the drinks industry? Expert insights - part 1
What are the biggest challenges facing the trade in 2023 and how are we going to address them? Lucy Britner talks to key industry players
Miles Beale, chief executive, Wine & Spirit Trade Association
The biggest single challenge will be getting answers out of government. Businesses recognise that the trading environment is diffi cult, but what they need is certainty and some straight answers that will allow them to plan. We were pleased the government listened to us and confi rmed just before Christmas that there would be only one duty increase next year to coincide with the introduction of the new duty regime.
We hope the government continues to listen and cancels potentially double-digit tax rises to help cash-strapped consumers and to support the UK’s world-class drinks industry. We think the government is also missing a trick as part of its duty review.
The small producer scheme is restricted to products below 8.5% abv. There’s no reason to exclude wine and spirits, which have at least as much potential – I’d argue more – to grow as other alcoholic drinks.
Beyond duty, with Whitehall departments being distracted by the review of EU-legislation, I’m seriously concerned that there is not enough capacity to deal with the host of other policy issues that need addressing as a matter of urgency – most pressing being the price of glass packaging recovery notes (PRNs), the introduction of the deposit return scheme (DRS) in Scotland and post-Brexit labelling.
Lobbying isn’t some weird dark art. It’s basically explaining to the government what we as an industry need, to do what they want – and we want – which is to grow. One of the reasons it’s been so difficult for us in 2022 is what went previously, whether it’s Brexit or Covid, or general economic travails.
We understand the government has found it difficult to make decisions – since the summer of 2022, we’ve had three sets of ministers, at least, to deal with. It’s the Conservative Party, it has manifestos, but things have changed radically with the outside world, and I just don’t think it’s talking to businesses enough.
As a trade association, we try to make it as easy as possible by saying: “Here are the things we’re worried about, here’s what we’d like you to do about them, here’s what we can offer.”
Lobbying is about having a conversation where you’re clear what sort of support you need from the government, and it is clear what it wants from you. I am optimistic that Rishi Sunak’s government will stay the course until the next general election.
But we can no longer afford as an industry to be talking just to the Conservative Party – an election won’t be further than two years away. We will be talking to politicians of all colours in order that they understand our agenda, and it’s a partnership. I think government of any colour over the next few years needs to work much more closely with business than it has been recently.
DEPOSIT RETURN SCHEME
Mark Kent, chief executive, Scotch Whisky Association
The Scotch whisky industry takes sustainability seriously, and will always support changes and initiatives that help us all adapt towards a zero carbon future.
Since the launch of our renewed sustainability strategy in 2021, the industry is now fully focused on delivery and, where it can, widening its outlook and ambition, working with supply chain partners to fully decarbonise emissions, including how we can ensure our packaging is as sustainable as it can be. That, of course, includes glass.
The industry wants to get the high-quality glass it needs for its premium product as locally as it can. That means having a reliable source of high-quality recycled cullet. So how the proposed Deposit Return Scheme operates in Scotland is of great concern and consequence to the industry’s sustainability agenda.
Inflationary pressures are hitting pockets and bottom lines across Scotland as we enter 2023, so the focus of government must be to do everything possible to achieve sustainability goals while easing the cost of living crisis and avoiding regulations which have the potential to add further pressure on business.
As currently constructed, and with fewer than eight months to go before the planned introduction of DRS, neither business nor consumers have all the necessary information to achieve the successful launch of the scheme. This is despite engagement over many months seeking answers to key questions.
Additionally, unlike other deposit return schemes in England, Northern Ireland and parts of Europe, only the Scottish and Welsh schemes include the collection of glass. This disjointed approach in the UK market continues to raise significant concerns for the industry, including reduced availability of recycled clear glass used by Scotch whisky producers.
We want to play our part in moving towards a circular economy. The SWA and the Scotch whisky industry will continue to work constructively with the Scottish government to make changes to the scheme that will enable us to continue to drive forward ambitious environmental targets in a way that is cost effective to business during turbulent times.
RECRUITMENT & EDUCATION
Michelle Brampton, chief executive, Wine & Spirit Education Trust
Inflation and financial uncertainty for businesses and customers alike is being felt across the board, but particularly in the hospitality sector with the additional pressure due to the energy crisis. The industry needs to continue developing strategies to manage the negative impact, including enhancing the entire customer experience, as well as providing and communicating the value in their offer.
Recruiting and retaining great people has been a new challenge, employers need to do more to offer potential employees reasons to engage with their organisations. Candidates are increasingly choosing a company for its values and culture rather than for a traditional benefits package. Providing training, learning and development opportunities and having a robust environmental, social and governance (ESG) agenda are more important than ever.
At a time when money to invest is hard to come by, it will be a challenge to keep the industry focused on its sustainability commitments. But we need to keep delivering against our ESG priorities, remembering that sustainability initiatives can ultimately save money, engage employees and customers, deliver environmental benefits and create a more robust and enduring business.
Finally, regulation and taxation. This is an area which is somewhat out of our control but can be influenced by us. We need to keep demonstrating the value of the drinks industry to the UK economy through end-to-end supply chain employment, tax revenue and innovation. And, of course, our value to consumers.
Emma McClarkin, chief executive, British Beer & Pub Association
Brewers used every means during the pandemic to keep their businesses going, including controlling brewing volumes. With so much instability, it has become hard to define consumer habits – are they drinking in the on or off-trade?
If brewers can’t get volumes back, their businesses will become unviable. We need both consumer and industry confi dence to return. Consumers do want to support the industry, but brewers have faced a raft of challenges.
CO2 costs have risen, but energy price increases are by far the biggest challenge. These increases affect the whole supply chain – for example, maltsters have had to increase the cost of barley by as much as 100%. Normally, producers and retailers would mitigate these increases through pricing, but the cost of living crisis is making this difficult.
Some businesses are not stable enough to absorb this and will be forced to close if they can’t get volumes back. Brewers are wrestling with this every day. The Treasury’s recent announcement will mean a dramatic drop in extended energy support relief for pubs come April. While the government has accepted the need for continued energy bill support for another 12 months, the reduction in the level of this support is extremely worrying and comes at a time of acute pressure on pubs.
We welcome the recognition of breweries as energy and trade intensive and this will help alleviate some of this pressure in our sector. But we have been clear with government about the continued vulnerability of businesses across our industry and the ongoing challenges pubs and breweries face.
I hope 2023 is a year of no surprises – we need stability and predictability.
At Christmas we saw a downturn in the on-trade and a slight uptick in the off-trade as factors such as snow, strikes and the cost of living crisis played their part. But there is still a desire to go out and to feel that an experience is worthwhile, as well as a desire for quality in both the on and off-trade.
There are also opportunities with low and no-alcohol beers. Brewers of all sizes are looking to innovate in low and no because there is a thirst for these products. I hope that, by June, we will start to see more optimism among both the trade and consumers.
PRICING & INFLATION
Robin Copestick, managing director, Freixenet Copestick
The biggest challenge for 2023 is going to be the ongoing fight to maintain price stability. I can already see there are some prospects that this will improve over the course of the next 12 months.
Dry goods suppliers are working closely with us as a group to maintain pricing. And, of course, wine has always had a certain amount of vintage variation in terms of quantity and quality, which affects pricing. But given a normal vintage in the northern and southern hemisphere, I’m quite optimistic that wine pricing will be either advantageous to the UK or at least on a par with where we are.
In terms of bottles, it’s looking a bit bumpy still. There’s no real trend in any market – some suppliers have got bottles, some suppliers have not. The advantage for us as a group is that we have so many suppliers around Europe and the world that we can often find a solution.
Most of our key retail partners are being very reasonable at the moment. They know that there’s price inflation, not just across the wine market, but across all markets. I would say that the negotiations are incredibly collaborative, with both sides understanding the needs of each other.
The most important thing for us is retaining market share. Throughout 2022, Freixenet outperformed the market and is still in growth despite a declining market. And the I Heart brand has also beaten the market. So, for our two biggest brands, that is the most important thing.
When you have brand leaders, in a way, if there is a market decline, you’d almost expect your brand to decline. The fact that they haven’t is great and that’s the progress that we would like to maintain throughout 2023. We’ll achieve that through good working relationships with the retailers and innovative marketing.
We’ve got NPD coming out for both brands and we’ll just make sure that we keep them at the top of their game.