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How to beat the taxman by buying better wine

How to beat the taxman by buying better wine

Taste the difference when you spend a bit more

When thinking about how much to spend on a bottle of wine, there is a general rule of thumb: the more you spend above £10, the better the quality of wine you're likely to get, as more of the money you spend goes on what's in the bottle rather than paying logistical costs and taxes. 

On a £10 bottle of wine, only £2.70 goes to the vineyard (and on a £5 bottle it's a meagre 31p!). With that, the vineyards have to grow and harvest the grapes, blend and age the wine, and bottle it up. The rest of your money is gobbled up by increasing importing costs, taxes, and retailer margins. The UK taxman alone takes £3.06 on a £5 bottle - that's 61% of the price you've paid!

Even at the £10 mark, vineyards are forced to take shortcuts and you’re not going to be getting the things that make for a higher quality and more enjoyable wine - such as the best hand-picked grapes, oak barrel ageing, and wine purity.

However, since excise duty and logistical costs are fixed on a per-bottle basis, every extra pound you spend on a bottle creates more money for the vineyard to play with, which can be invested into the quality and sustainability of the wine. 

 

the real price of wine 

So where does all the money go? 

In the UK, wine sales can be roughly divided between on-trade and off-trade retail. On-trade retailers include pubs and restaurants, whereas off-trade retailers would be off-license supermarkets, independents, wholesalers and cash and carries. Essentially, the vineyard has to take into account each type of retailer and their respective profit margins. This sales structure means what you pay for a bottle isn’t just going towards the wine. Your money contributes to the different layers associated with that wine: the excise duty, the VAT, distribution costs and other logistics, importing costs (mounting due to Brexit) and retailer margins. This leaves the gross margin for the vineyard itself, which has to take into account the bottle, closure, and sleeve materials as well as other production costs.

UK drinkers in particular will know that taxation of alcohol is notoriously high. The recent alcohol duty freezes (re-announced for a second year by the UK government on March 3rd, 2021)  imposed a duty on a 750ml bottle of £2.23 (and £2.86 for sparkling wines). VAT is then charged on top (currently at 20%) and rises proportionally with retail price. Knowing these numbers, we can get a rough idea of how the value of wine could change with retail price.

  

How does the value of my wine change? 

The duty remains frozen but the total margin increases proportionally with the retail price, therefore the money going into the wine itself is also greater. For low cost wines this means: a smaller proportion goes into the wine itself. In contrast, higher cost wines will have a larger chunk of your money contributing to the wine. For organic wines, this effect is more dramatic: their smaller operating margins result in a more dramatic increase of the proportion of money contributing to the wine itself between low and higher cost wines. 

Taking a closer look at the graphic above, sales tax (VAT and duty) accounts for more than 50% of what you spend on a £5 pound bottle, but this decreases to just above 25% for a £10 bottle, so as the price of your wine goes up, so does the relative amount going into it! While it's impossible to have precise formulae to work this out (as the margins on which retailers operate are diverse), as a general rule, that little extra spent on wine can make a significant difference in wine quality.

 

How much margin do retailers make on the wine?

This varies from retailer to retailer.

At Collectivino, we have a guiding principle when it comes to our range selection and pricing. It’s important to us that every bottle is high quality with some wow factor, that the vineyards we work with have more sustainable practices, and that our partner vineyards are paid fairly for their labour of love.

We make around £1 on wines we sell at the £12 mark, before deducting our people and marketing costs. So in reality we don't even breakeven on wines sold at £12 and under. This isn't a very sustainable approach for a business take. So why do we do this? We want our customers to enjoy better wine, to come back for more, and to appreciate the value of spending a bit more on wine to enjoy at home. 

We think the sweet spot is around £15. By spending £15, you're starting to get into the world of some super interesting tasty wines.

 

What about restaurant wines? 

Unfortunately there is one caveat to the above rule. Restaurant wine prices are constantly at the centre of criticism for their high margins. The general rule is to charge about three times the retail price, add the VAT, and subtract a margin of about 70%. However, there have been instances where the margin can reach 400%, which is perhaps the cause of the uproar among many diners. Keep in mind that wine is the golden goose for restaurants, as it’s a surefire way to make money, which explains the substantial margins applied. Consumer behaviour is also a major driver of decisions by restaurants to up the prices. They know it’s cheaper for you to buy a couple of glasses rather than the bottle, so they sell glasses at a higher markup. In the end, if you want to enjoy a good glass of wine when dining out, without stripping your wallet, it’s best to buy the bottle!

Better still, halve the amount you spend in a restaurant and invest it instead in a bottle to drink at home. You’ll get a wine that is twice the quality for half the price.


Is organic wine more expensive? 

Well this depends to a large extent on the retailer, who sets the prices. What we do know is this: organic vineyards tend to have roughly 26% lower average crop yields than their conventional counterparts. This is largely attributed to land management practices such as not over-farming the land and maintaining better biodiversity, avoiding pesticides, herbicides and fertilisers, which can result in lost crops, and less machine harvesting as the focus is on grape quality and vine preservation. The net result is a smaller and less predictable yield, but generally a more sustainable wine which is also of a higher quality. Although these vineyards save money on synthetic pesticides and herbicides, they need to pay a large number of workers skilled in organic practices. So the lower input costs tend to be outweighed by the labour costs. Increased costs can also be attributed to simple things like organic certification, which requires an application fee, then further annual inspection fees. As a result, organic wines often have higher production costs relative to regular wine. 


So what’s the sweet spot?

Our view is that it’s worth spending that little bit more to enjoy a higher quality wine which is also more sustainable - for the planet, and for the people who make and sell the wines. Although we sell wines at the £10-12 mark, the difference is noticeable and indeed remarkable when you spend £15 or more. Given most of us don’t think twice about spending double that when in a restaurant (which would be for an inferior wine!), we think that it’s well worth that extra few pounds for the quality you get in return. 


Why not try out a carefully curated Discovery Case and experience the taste difference for yourself?



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