Interesting article about Brexit and the Wine Trade

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Brexit Fears Grow for UK Wine Trade

Boris Johnson's approach to Brexit has many in the trade worried.

© Sputnik International | Boris Johnson’s approach to Brexit has many in the trade worried.The installation of a gung-ho Brexiteer at the helm of Britain’s government hasn’t helped the trade’s confidence.By James Lawrence | Posted Monday, 09-Sep-2019

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty,” observed Winston Churchill. It’s the Boris Johnson philosophy, a self-confessed Churchill fan, in a nutshell.

The incumbent British Prime Minster has made it clear he believes optimism will lead Britain to greatness. That, and the famous British bulldog spirit in appearing sanguine about the prospect of no deal. Oh, and don’t forget suspending parliament for almost four weeks, in an attempt to railroad though his disastrous agenda. He seems to have forgotten that the EU aren’t Nazis, and the UK is not a war-torn state, desperate for a strong dictator to take charge. Optimism is very thin on the ground in today’s Britain.

“The appointment of Johnson [as prime minister] has encouraged me to think seriously about leaving the UK,” says restaurant owner Owen Morgan. “It’s almost funny. He is not competent and ties himself in knots every time he speaks. A bizarre situation indeed.”

Owen’s colleagues who export to the UK are no less terrified.

“I am concerned that Boris is a populist who is likely to lead the UK to crash out of the EU and potentially cause the break-up of the United Kingdom,” admits Mirabeau founder Stephen Cronk.

“He seems to have a vision primarily for Boris Johnson, not for the good of the country and seems to believe a Churchillian stance will win the day. The world is now one of extreme economic interdependence; it’s hard to see how the UK will fare well economically in the short term and I am sad the peace bonus of the EU has been so gravely underestimated in the Brexit discussion.”

Indeed, Boris Johnson is a man who elicits strong opinions from every member of the wine trade – rarely are those opinions brimming with compliments.

“His track record is poor,” observes Taylor‘s CEO Adrian Bridge.

“His visit to Portugal as Foreign Secretary showed him to be poorly prepared, hardly serious and unapologetic for his actions. His behavior in Lisbon was more that of a prep school prefect than the Foreign Secretary of Great Britain – but he may have grown up since then.”

We could go on like this all day. Johnson obviously lends himself to endless character assassination, which would be entertaining if he wasn’t PM in a major UK peacetime crisis. He decided to suspend parliament just days after MPs returned to work in September – and only a few weeks before the Brexit deadline, slashing the time British MPs have to pass laws to avoid a no-deal Brexit on October 31. What else? The pound is at historically weak levels and currency devaluation, coupled with the ongoing uncertainty, has hit some companies hard.

Among the significant casualties were major drinks group Conviviality, who went into administration in 2018, selling their retail division to grocery wholesaler Bestway for £7.25 million.

However, conviviality could be just the beginning. At the time of writing, no deal is still a distinct possibility – despite the UK Parliament’s vote to make it impossible to leave without a deal – and that means trading under WTO rules after October 31. That puts the UK in a small and very undesirable club which includes Somalia and Mauritania.

“We are less confident than a year ago,” says Morgan.

“Confidence has been eroded over the past three years, of course, but now it’s at its lowest. In an industry already feeling the effects of rocketing overheads eroding any small margins of profit, Brexit is going to test it an awful lot more. No deal will mean tough times for the business, in fact for most industries and businesses. After three years of negative impact, the short term will be worse. Good employees will be harder to gain or keep, food and drink will increase in cost.”

Many retailers have been stockpiling wine ahead of the October 31 departure deadline.

© Majestic Wine | Many retailers have been stockpiling wine ahead of the October 31 departure deadline.

Economists have forecast that entire industries, such as sheep farming, could be wiped out if the UK leaves the EU without a deal.

Yet Johnson claims the UK’s business community has nothing to fear from no deal. He claims the country is prepared – it’s that bulldog spirit again.

But would you trust a man without much demonstrable track record of vision or competence, and a wayward moral compass, who has appointed a cabinet with views that are not especially progressive or outward looking and has sacked long-serving colleagues who dared to disagree with his approach? His move to suspend parliament has been described as an outrage, a coup d’état, undemocratic and unconstitutional by all right-thinking people. You know, those pesky experts. Academics, lawyers, judges, and so on.

“Since Johnson’s appointment I am less optimistic about the UK doing a deal and think that he, and his supporters, wish to leave whatever the cost,” agrees Bridge.

“This is likely to cause two problems – problems at the port of entry as UK adjusts to WTO terms and a further weakening of the pound sterling. We will mitigate the first by shipping early to the UK and hope that by autumn 2020 the logistics routes are sorted for that trading period. On the second, a weaker pound, the UK population will feel poorer. As Port wine is a discretionary spend we may well see a fall in purchases but this is likely to be exacerbated by the need for us to raise prices.”

The net result is likely to be squeezed margins – which are often already in single digits – business closures, redundancies, weakening demand and higher prices. A price worth paying to take back control, leave voters might claim.

Their perpetual shtick (and stick) used to lambast remain voters is the disingenuous rallying cry that negativity in “talking Britain down” is the real problem. “If only you could be more optimistic about this communal act of self harm,” they cry. I’m running out of options, so I’ll give it a go.

After an exhaustive search, I’ve found two possible sources of optimism. The first concerns the UK’s parliamentarians. While the odds have shifted a bit further towards no deal, there is still a clear majority in parliament to stop it and a speaker determined to enable this. A bill passed through Parliament last week aimed at preventing a no deal exit, but it is uncertain whether the current Government will take any notice of the new law or not.

The second ray of hope concerns the UK independent wine trade’s most prized ‘possession’. I’m talking about the widespread consensus that “consumers are drinking less but better”, which has become a wine-buyer’s Holy Grail. With margins at the bottom continually being squeezed, Britain’s wine-buying firmament have found solace in rising value across several categories.

Wine Intelligence research shows that UK wine drinkers are less influenced by promotion offers than before, and are becoming more involved in the category. “It is this demographic that can potentially save retailers from the worst effects of Brexit,” notes chief operating officer Richard Halstead. “Middle-class consumers who are more concerned with drinking quality wine or sourcing their favorite varietal, and won’t immediately abandon the category because of price rises as they are more insulated from the financial effects of Brexit.”

Yet a no-deal departure could put a stop to all that. If additional tariffs are to be grafted onto the rest of the tax and cost elements of importing and selling alcohol into the UK, it is likely that bottle prices will increase exponentially to dramatic levels, especially in the more premium categories.

“In current market conditions where consumers’ awareness of health and spending have increased, a no deal will reduce overall consumption in the UK and therefore sales,” says Reserve Wines owner Kate Goodman.

“This doesn’t have to be a huge issue as we’re keen for people to drink less and better. But under WTO, with no balancing act from the government, drinking better will be too prohibitive for a larger section of society, which is a shame and will not help the wine industry as a whole and the independent trade specifically.”

So what we’re left with is a great deal of uncertainty and a deficit of optimism – even Churchill would be hard-pressed to remain positive about the UK’s future as it stands today. “To be honest none of us have a clue as to what will happen but we will all be in the same boat – just have to order plenty of stock and hold our breath,” admits a sanguine Ted Sandbach, owner of the Oxford Wine Company.

Johnson, reportedly a seasoned enophile, has commented on his fondness for Antinori’s Tignanello. I suggest he stocks up.

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