Premiumisation hits a wall

Over the past 15 years, the phrase "drinking less but better" has become the trade's rallying cry. Yet its function was not merely to lift our spirits in the face of overwhelming challenges – the phenomenon, evident in both retail and hospitality sectors, has underpinned a profitable premiumisation arc. This shift into lower volume but higher quality allowed businesses to champion small-producer narratives, justifying higher margins – or indeed, a margin! However, as cost-of-living pressures continue to exert a decisive influence on consumer behaviour, the sustainability of premiumisation over the longer term is by no means guaranteed.

"In 25 years of running a business I have never come across conditions like this. One of the more experienced local brewers is saying it's the worst set of economic circumstances they have come across in 50 years," says a despondent Rupert Pritchett, MD at Taurus Wines.

"We have lost about 8% of our high-net-worth customers, due to the change in non-dom tax rules, as they have simply left the country. This is a double-edged sword as they are selling their collections cheap on the way out so those still here are expecting rock-bottom pricing. Meanwhile, the last sector of our customer base who had any money (older people who had paid off their mortgages) are now being careful as they are concerned about being targeted in November's 'doom budget'."

 

As a result, Pritchett has been forced to scale back his direct importing, and is more reliant on UK agents "to reduce both lead times and stock holding." He is far from alone.

Lies, damned lies, and statistics

According to IWSR data, however, top tier categories are holding some ground in the UK, while value and standard-priced wines are under increasing pressure. "All price bands at premium and below are in decline. Yet premium, while in decline, is declining at a slower rate than wine as a whole," explains Emily Neill, IWSR COO of Research.

She adds: "All price bands super premium and above are growing, but please note that these price bands combined accounted for only 4% of the global market in 2024." In short: resilience at the top cannot substitute for a broad-based decline below it. The premiumisation narrative is truly being stress-tested.

Nevertheless, the picture on the ground is fairly nuanced, with variations in performance dependent on geographical location and/or business model. Peter Mitchell MW, wine director at Jeroboams, describes a (relatively) robust high end. "Over £75 a bottle has had a strong 12 months with volumes up year on year in each of the past four quarters," he says.

"We have seen a small amount of trading down in White Burgundy, with some customers trading down appellations to maintain chosen price points as wines have gone up in price." But luxury Champagne has held up well, he notes, whereas sales further down the ladder have declined and "there has been trading down visible in this category."



Yet Will Burgess, director at The Sourcing Table, reveals that "anything over £40 is a tough sell, particularly top-end US and Australian wine." He also observes that The Sourcing Table "is being offered larger allocations of hard-to-get, luxury wines, which is indicative of how other retailers are now struggling in this area."

Meanwhile, several reports point to a wider decline in bottled still wine volumes even as pockets such as sparkling show modest growth. But the pain is not evenly shared: London-based merchants who rely on affluent collectors face different risks from independents who must increasingly appease price-conscious shoppers. The IWSR's broader overview is that premiumisation will persist as a structural force, however, volumes will likely continue to fall, and recovery - where it occurs - will be uneven, driven by market and segment.

"Premiumisation's gains can be fragile if macro headwinds intensify or if tax and regulatory shifts alter price elasticities in key markets," says Emily Neill.

Survival technique

Back in the high street, independents are adapting in different ways. Some are streamlining their range to proven sellers, while others are focusing on value-driven wines that deliver character at under £20, coupled with greater reliance on direct sourcing.

"We have streamlined our range over the past 12-24 months, and looked to work with fewer suppliers so that we can increase our buying power and negotiate better pricing so that we can achieve better margins," reveals Phil Innes, MD at Loki Wines.

"We are doing less direct importing and are more reliant on UK agents to reduce both lead times and stock holding. This gives us fewer USPs and is terrible for margin, but is a necessity," observes Rupert Pritchett.

In contrast, Jeroboams has not instigated a significant shift in buying strategy, as Peter Mitchell MW continues to seek out wines "with real provenance and a story, and that offer great value at their price point."

He continues: "With many of our buying relationships stretching back decades, we have worked with producers to keep their key wines below sensitive price thresholds. Where this has not been possible, we have worked hard to find new additions that maintain the balance of the range.

"We can see from the numbers that our customers are drinking slightly less but spending similar amounts and I would expect (and hope) that this trend continues."

John Chapman, MD at the Oxford Wine Company, expands upon the theme. "Trading down means for us basically switching to supermarkets or price-battling websites. In our range any wine that offers quality and has our recommendation is surviving this downturn well. In terms of numbers this corrolates to a £22-£39 bracket, so above everyday but classy enough in the non-elite bracket."

Today, our beleaguered but resilient trade is caught between the opposing forces of a declining – but not moribund – demand for premium wine labels and ongoing cost-of-living pressures. Unfortunately, whether this situation can be turned around will depend as much on economic policy – especially the forthcoming budget – and geopolitical factors beyond our control, as on the industry's ability to tell stories that justify a higher price.

For once, the ball is only partially in our court.