In recent years, the UK alcohol industry has experienced a notable shift, with rising prices directly impacting consumption patterns. Inflation, driven by a restructured duty framework introduced in late 2023, has led to significant increases in alcohol prices.
In May 2024, the price of all alcoholic drinks rose by 5.9%, while wine saw a slightly higher increase of 6.2%. This increase occurred as the overall inflation rate in the UK dropped to just 2%, indicating that the alcohol sector is being disproportionately affected by inflationary pressures.
Alcohol Consumption Trends
Despite increasing prices, overall alcohol consumption in the UK continues to decline. According to the IWSR, alcohol consumption fell by 2% in 2023, accelerating the 1% per year decline experienced over the previous five years. Several factors contribute to this reduction, including long-term trends toward moderation, cost-of-living pressures, and the closure of on-premise outlets (pubs, bars, and restaurants).
Impact on Wine and Spirits
Among alcoholic beverages, wine and spirits have been the most affected by this downward trend, both experiencing a year-on-year volume decline of more than 4%. Beer, while also declining, has shown a slower rate of contraction, given that it accounts for over one-third of all alcohol servings. Interestingly, ready-to-drink (RTD) beverages are the only category to exhibit growth. Their convenience and affordability, driven by innovations like pre-mixed cocktails, have made them increasingly popular among consumers.
Taxation's Role in Price Hikes
A major factor contributing to higher prices is the new alcohol taxation regime, introduced in the UK on August 1, 2023. Under this new system, the duty on alcoholic drinks is directly tied to the alcohol content. This means that drinks with higher alcohol percentages are taxed more heavily. While a temporary easement has been applied to wines with alcohol content between 11.5% and 14.5%, this concession is set to expire in February 2025. When that happens, the duty structure will become more complex, with up to 30 different duty brackets potentially impacting prices. IWSR predicts that this change will lead to price increases on 75% of still wines, creating more hurdles for getting wines to market.
These rising prices are already affecting consumption patterns. Off-trade (retail) sales of still wines with alcohol content below 11.5% have risen from 10% to 12% of the market between June 2023 and June 2024, as consumers gravitate towards products that incur lower taxes.
Australian Wine Exports to the UK
This shift has had a noticeable impact on international wine markets, particularly for Australia, one of the UK’s top wine suppliers. Over half of the red wines exported from Australia to the UK in 2023 had alcohol levels exceeding 13.5%, a bracket subject to higher taxation. Conversely, 58% of Australian white wines exported that year fell below the 12.5% alcohol threshold, making them more competitive in the current market.
However, despite a favorable trade environment following the elimination of tariffs on Australian wine through the Australia-UK Free Trade Agreement (effective May 31, 2023), these benefits have been short-lived due to the UK’s revised alcohol duty structure.
Declining Wine Consumption Despite More Drinkers
Interestingly, while wine consumption in the UK has been declining, the number of wine drinkers has increased. Following a pandemic-induced boost in 2020 and 2021, wine consumption volumes have returned to pre-pandemic levels. IWSR data suggests that the number of weekly wine drinkers increased by 9% between 2019 and 2023. However, this increase in drinkers is offset by a decrease in per capita consumption. The average UK adult consumed 19.6 litres of wine in 2023, down from a peak of 27.6 litres in 2007. This reflects a broader trend of moderation and lower drinking volumes per consumer.
Growing Popularity of No- and Low-Alcohol Products
In response to evolving consumer preferences, no- and low-alcohol products have gained traction. In 2023, 50% of UK consumers purchased no- or low-alcohol beverages, and of these, 44% bought no- or low-alcohol wine. The no-alcohol wine category has grown significantly, accounting for 81% of the no- and low-alcohol wine market, with average volume growth of 17% annually over the last five years. By contrast, low-alcohol wine is more popular in markets such as the United States, Canada, and Australia.
On-Premise Struggles Amid Cost-of-Living Pressures
The on-premise alcohol market has struggled to recover from the impact of the COVID-19 pandemic. While on-premise consumption accounted for 14% of all alcohol volume in 2020, it fell to just 6% that year. By 2023, this share had only recovered to 10%. Rising costs and changing consumer habits have led to the closure of nearly 3,000 licensed venues in 2023 alone, in addition to the 5,000 closures experienced in 2022. Restaurants have been particularly hard hit, while bars and nightclubs also continue to feel the pressure as younger consumers shift towards pre-drinking at home or reducing midweek outings.
Conclusion: The Future of Alcohol in the UK
The outlook for alcohol consumption in the UK suggests continued decline, particularly in wine and spirits, as consumers adjust to higher prices and shifting preferences. However, no- and low-alcohol products are expected to remain a bright spot, catering to moderation trends. The alcohol duty reform, slated to bring more complexity in 2025, is likely to further increase prices and reshape market dynamics. Lower-alcohol beverages may continue to grow, fueled by both consumer demand and tax advantages.
Source: Wine Australia