British Prime Minister Teresa May’s announcement yesterday that the UK is heading for a ‘hard’ Brexit – with no automatic access to the European single market – surprised nobody. But it provided a lot of food for thought to members of the wine industry, and not just in the British Isles.
Mike Veseth, the ‘Wine Economist’ had already written a blog post in which he predicted a rise in Britain’s already painfully high excise duty rates to help the government fund a weaker economy, as well as to pay for the 30,000 new government employees who’ll be taking on the work currently performed in Brussels.
Wine prices will rise even further as a result of the fall in the value of the pound which is already 30% lower against the dollar and 20% against the euro. The pound is expected to drop even further after May triggers Article 50, the official beginning of the divorce proceedings, on March 31st.
If British wine drinkers - who will also be dealing with higher food costs, because the UK imports 40% of what it eats – cut their consumption, this, Veseth suggests, will have a wider knock on effect “as the wine not sold in the UK looks for a home elsewhere in the global marketplace”.
Among the unexpected victims might, he says, be “winemakers in California who never gave a thought to UK sales [but] find themselves the unintended victims of increased competition [elsewhere].”
I wouldn’t disagree with any of this, and I see other interesting consequences. CHAMP, the Australian private equity business, is busily looking at the best way to offload Accolade, the business created from Constellation’s cast-offs in 2011. Whether the business is sold to a Chinese buyer such as China Resources or the Kweichow Moutai Company, or is subject to an IPO, CHAMP will have made a very good return on the estimated A$290m ($218m) it paid for 80% of the business.
Estimates of Accolade’s value today are in the region of AU$1bn, but – and this is where Brexit becomes relevant – Accolade brands like Hardy’s, Echo falls, Mud House and Kumala are all focused on the UK market. Indeed Accolade Park, the company’s bottling centre, is one of the biggest facilities of its kind in Europe.
In October last year, The Australian newspaper reported that Chinese buyers “were said to be interested in only the Australian operations of the company, which has about half of its sales from Europe and Britain.” But how appealing will the post-Brexit UK business be to anyone else?
And what of other New World producers that have been disproportionately reliant on UK supermarkets and their customers?
It is an ill wind, as they say, and Britain’s fine wine merchants had a great second half of 2016 as foreign buyers took advantage of the weak pound to stock up on bottles at a discount – in their currencies – of 25% or more. But when those same merchants head to Bordeaux in the spring for the 2016 en primeur campaign, they will be at a distinct disadvantage when compared to competitors armed with dollars.
If, as is rumoured, London loses some of its financial services businesses, that too might lead to a reduction in the number of bankers with bonuses to spend on fine wine. Or a reduction in the purchasing of that wine in London.
The decline of the UK influence was already illustrated during the week that May made her speech. Burgundy producers who had, for many years come to the British capital in January to show off their en primeur wine, organised simultaneous tastings in Hong Kong for the first time.
Much may happen before Britain and the EU go their separate ways – and mainland elections and a new US administration may also have roles to play – but one thing seems certain. The wine world in 2018 and 2019 will be a very different place.
Robert Joseph
