Analysis: minimum unit pricing in Scotland

Source: The Spirits Business

by Tom Bruce-Gardyne

22nd December, 2017

With minimum unit pricing finally coming into law, SB assesses the likely impact it will have on alcohol sales in Scotland, and whether it will spread to the rest of the UK.

The right to sell alcohol is not some God-given right laid down in the tablets of Moses,” cried Kenny MacAskill, like some firebrand preacher in his pulpit. That was eight years ago, and Scotland’s then justice secretary was on BBC current affairs television news programme Panorama, early in his government’s crusade to bring in minimum unit pricing (MUP). Last month the Supreme Court threw out the last legal challenge that stood in the way of the legislation, paving the way for price hikes on spirits sold in Scotland.

As of May 2018, the cheapest 70cl bottle of Scotch will cost £14 (US$18.80) north of the border, or possibly more if MacAskill and others get their way. As he wrote in Herald Scotland the day after the Supreme Court announcement in November: “A unit price higher than 50p will be needed to meet the balance required between health benefits and market interference.” The price has risen from the original 35p mentioned in 2008; last month MSPs agreed a minimum price of 50p.

Last year, Nielsen analysed EPOS data from 1,200 stores in Scotland and found that 69% of all spirits were sold for less than 50p a unit, but that figure jumped to 76% for the top 50 lines. Of all the categories, it concluded that blended Scotch would be the worst hit, with a 20% average price increase, followed by vodka, which would be 16.3% more expensive. But the Scottish Government continued to insist that Scotch whisky would be relatively unscathed.

As for “market interference” there may be a surge in cross-border shopping, with new off-licences springing up along the border. Yet rather than drive to Carlisle, thirsty Glaswegians may prefer to simply order their drink online. Maybe Holyrood is planning to search every delivery carrying booze from the south, but it seems unlikely.

Pricing palaver

What will happen on Scotland’s supermarket shelves is hard to say.

A brand such as The Famous Grouse flips between £15 and a discounted £13 for a 70cl bottle in Tesco. Volumes are skewed to the lower price, as Neil Boyd, commercial director for malts at Ian Macleod Distillers, explains: “It’s well known that something like 80%-85% of blended Scotch whisky sales are on promotion in the UK.”

If £14 becomes the new entry level, he feels it will definitely close the gap on what is known as ‘high-low’ pricing. This has long been the supermarkets’ drug of choice when it comes to promotion, and one that has helped commoditise spirits and diminish brand loyalty. And “it’s going to wipe out private label”, predicts Boyd.

“As soon as private label gets near a brand everyone picks up the brand.” Of course, brand-owners could raise prices to maintain a position above the entry level. “That’s the textbook route to go down,” Boyd says, “but I don’t think that’s going to happen. The Scotch whisky industry has a horrible history of chasing volumes with discounts.”

Aldi and Lidl would be less affected because their spirits are all private label, but there could be a reduction elsewhere. Grain whisky destined for Tesco Special Reserve may soon be heading for the overseas bulk market, while anyone reliant on the bottom shelf faces tough times. Loch Lomond Group, whose Glen’s Vodka and High Commissioner blend are big in Scotland, appears particularly vulnerable.

Then there’s the money. If a £12 bottle of High Commissioner jumps to £14, who pockets the extra £2? Kenny MacAskill reckoned it would be the distiller. One wouldn’t want to reward the supermarkets – the pantomime villains in alcohol debates at Holyrood – yet, ironically, this is the most likely outcome.

Producers may raise prices for a while, but someone will break rank in return for some shelf space, and everyone else will follow for fear of losing market share. Besides, it’s a lot easier to agree a pan-UK supply price with the big buyers, all based in England, than quibble about Scotland, which accounts for around 15% of the UK spirits market.

And that percentage may be declining, with “Scottish drinkers increasingly opting for softer alternatives,” according to Andy Crossan, consumer insight director at Kantar Worldpanel. “The number of Scottish adults willing to consider alcohol-free or low-alcohol options has surpassed 1.8m – an increase of more than 200,000 since 2015.” So he wonders if the effect of the new law “may not have as monumental an impact as some may expect”.

Legal battle

The Scotch Whisky Association (SWA) led the legal battle against MUP and managed to keep the industry on side, despite Holyrood’s best efforts to sew division. MacAskill claims that at one point former first minister and now chat-show host Alex Salmond “flew to Paris convinced his known charms could alter the attitude of a major producer”, (Pernod Ricard).

Having lost, and now facing serious legal fees, SWA members may wonder if it was worth it. However, this was never just about Scotland, as the excitable press coverage revealed. Scots were told that “the world had reacted with huge interest” (The Nation), and in a Scotsman editorial titled ‘How Scotland could fix the world’s booze problem’, were informed that their country was “genuinely a world-leader”. Beneath the hubris there lay some truth.

Professor Tim Stockwell, a Canadian academic and campaigner for minimum pricing, mentions 11 countries that have implemented MUP or are contemplating it in some form. “There are several regions of the UK and some EU countries poised to implement now that Scotland has taken it on,” he says. “I think it’s a game-changer.” In June, the Welsh Assembly announced plans to introduce MUP within a year, while a similar bill is halfway through the Irish parliament, and could become law by next Easter. There is a counter-argument, however. The Scottish government won because it had no alternative, since excise duty is set by Westminster, and any EU country pursuing MUP would have to explain why it couldn’t simply raise taxes. Meanwhile, team MacAskill plans to crack down on distribution and marketing in its crusade against the demon drink.