Priyanka Jethwa explores what wholesalers should expect now minimum unit pricing has got the go-ahead in Scotland.
Minimum unit pricing (MUP) will finally be rolled out in Scotland in May, as a Supreme Court ruling in November last year brought to an end a long-running battle.
Despite the legislation receiving approval in 2012, resistance from the Scotch Whisky Association – which believes MUP will be ineffective in tackling misuse and will damage the scotch whisky trade – resulted in lengthy court proceedings.
When it comes into effect, MUP will require all alcoholic products sold in Scotland to be priced at least 50p per unit of alcohol. Pubs and bars will likely be unaffected, as most alcoholic drinks are already sold in the on-trade at more than 50p per unit. That means MUP will primarily hit cheap white cider and value spirit products with a high alcohol content, so sales of such lines are expected to drop as a result.
Therefore, what does this development mean for the wholesale sector?
Simon Hannah, managing director of Glasgow-based wholesaler JW Filshill, thinks there will be little additional revenue generated for retailers by the scheme and predicts myriad changes.
This, he says, is because the brands set to be hit will be those that provide a unique selling point for retailers, as most supermarkets do not sell them.
Hannah adds: “Operationally, there are going to be challenges for the supply chain in the build-up to the go-live date – many suppliers have been quiet about their brand plans for impacted products. Wholesalers and retailers need to manage proportionate stock wind-down for products that we believe will dramatically drop in sales, and we need to work closely with the affected brand owners to ensure that there is a clear strategy in place. The sooner this happens, the better.”
Hannah also believes that suppliers will be unlikely to increase the prices of products being sold to Scottish wholesalers, as raising prices may cause ‘displacement purchasing’ – something Gordon Johncox, CEO of Aston Manor Cider, whose Frosty Jack’s brand is set to face a steep increase in price, reiterates: “Many consumers will inevitably shop south of the border, resulting in a significant impact on Scottish wholesalers’ trade.”
Hannah notes: “From a wholesaler’s perspective, there will be little opportunity to increase the prices of the products because of the highly competitive nature of the sector. Retailers may make small increases in margin but on a vastly reduced rate of sale.
“It is likely that shoppers who previously purchased impacted products will switch to other products that fall outwith MUP and, heaven forbid, switch to illegal products like drugs.”
He adds: “There is no question in my mind that there will be a lot of products purchased at wholesale prices and sold around the doors by ‘white van men’, who will be able to undercut every retail outlet in Scotland and still make a healthy profit. It is not clear what penalties there will be for such activity and who will be responsible for policing it.”
Aiming for alternatives
Amaan Ramzan, managing director of United Wholesale Grocers (UWG) in Scotland, says that when the price of cheap alcohol goes up, consumers will be looking to alternative brands. Therefore, wholesalers and their customers need to be prepared.
He adds: “If retailers want to keep customers loyal, they must have a point of difference. When consumers trade up, what is stopping them going to a multiple if the range is the same across all channels? Price alone will not be enough.”
Thus, one way retailers can maintain an advantage is to provide a wider, more unique range.
“This means that wholesalers need to increase their range in-depot and trade in more niche and craft products that will help their retailer customers keep afloat,” explains Ramzan.
Filshill’s Hannah adds: “The biggest opportunity for convenience retailers is to focus heavily on chilled as a category, ensuring that cold beer, cider and wine are always available. I know that many of our retail customers will direct any additional margin generated at getting their chilled offering right, which, to me, is the correct strategy.”
Hannah believes the legislation could also lead to the further resurgence of the “specialist on the street” who will be able to create a further point of difference by focusing on craft and premium products in the category.
However, UWG’s Ramzan adds that to make this happen, wholesalers will eventually have to evolve to become specialists in supplying alcohol, which will take time and money.
MUP for all?
After the legislation in Scotland received the green light in November, Wales soon followed suit. Subject to the legislation being passed by the Welsh Assembly, MUP is due to be introduced in the country at some point this year. As for England, MUP is not on the horizon, or at least not yet.
Meanwhile, wholesalers in Scotland, should stock up now on products in the firing line, which could, in some cases, be bought in higher quantities.