Wednesday, November 20, 2013

Budget 2014 - The Aftermath...

It’s the middle of November – we have to move on and stop the whingeing….but just one more lash…..!
My predictions for the budget turned out to be (predictably) way off the mark. It was probably too much to think that the Government would reduce Excise Duty, but the fact that they increased it really surprised me. Proof indeed that Lobby Groups work – what was that? Oh yes, there is no independent wine group/lobby in Ireland…..
The Government’s promise, belatedly, to “look at” minimum pricing on alcohol means that their excuse for raising Duty in the interests of protecting health is just a sham and a smokescreen. The fact that they permit below-cost selling of alcohol whilst claiming to protect our health by charging us more is laughable. The introduction of minimum pricing is a step in the right direction – but how long will it take…..
In the meantime, here are five things that I predict will happen…
No. 5
Cashflow will become very tight for importers and distributors. Excise Duty is paid to the Revenue at the end of every month irrespective of whether they have been paid by their customers. The charge is based on the volume of wine taken out of the warehouse during that month. A year ago, every 1,000 cases taken out would incur a Duty cost of about €24,000. Now it’s just over a staggering €38,000. And the importer or distributors might not get paid by their own customer for 60 / 90 days – or longer – or not at all. But the Revenue have their cash.
No. 4
Some smaller (and possibly larger) companies will go bust. It’s simply not possible to cashflow the purchase of wines (which generally must be paid to the producer after 60 days), cashflow the Excise Duty after 30 days – and then not get paid for more than 90 days…
No. 3
As a consequence, there will be a loss of diversity. Your choice of wines on the shelf will contract as only the bigger importers or retailers can afford to outlast all the rest. There are some amazing niche importers with wonderful wines who don’t use warehouses – they are generally too small. But guess what? Instead of paying the Excise after 30 days, they actually have to pay it in advance! Even before it lands on Irish soil! Even before they physically sell a single bottle. Now apply that 62% increase in Excise over the last 12 months to their scenario….
No. 2
You will get a lower quality of wine. Some people just don’t want to pay any more than they were paying before. This applies to restaurants and hotels as much as it does to the punter looking for a bottle of wine to take home. So if you paid €8 for a bottle of wine a year ago, there is now an extra €1.50 (at least) of tax and mark-up in there. If you’re still getting a bottle at €8, there’s only one thing that can have changed – the cost of the actual juice in the bottle. Be prepared for some pretty gut-wrenching stuff coming your way. And I don’t mean stuff that costs €1.50 from the producer (there can be a lot of very decent stuff) – I mean stuff that costs 40 to 50 cents. At that level it’s not really wine, it’s an industrial liquid manufactured like many other industrial liquids. And that’s not snobbishness – it’s a fact.
No. 1
Smuggling. Wine has suddenly become very attractive to smugglers. And I don’t mean going to Newry and stocking up your van in the Buttercrane centre and selling a few cases to your mates. Yes it happens, but you still have to pay the UK Excise.
The Revenue’s Annual report for 2012 has some interesting details on “Excisable Products Seized in 2012” (Page 47). There were just over 8,000 seizures of cigarettes yielding a not insignificant 95 million fags. Clearly this is an on-going challenge. I wonder why? Oh yes, the tax is so high that it is therefore attractive to smugglers.
There were a significantly smaller number of alcohol seizures….. just 359 in total, bringing just over 33,000 litres. Much of this was illegally produced spirits, or blended spirits, or guys making poitin – and so on. But even if we assume it was all wine, it would be just over 3,500 cases. Sounds a lot?
Well, consider this. The average 40 foot truck can hold anywhere between 1,000 and 2,000 cases depending on how they are packed. Let’s just say you deliver to Europe on a regular basis, but your truck normally comes back to Ireland empty. If you stop and fill it with wine in e.g. France (where there is negligible tax), and decide not to declare it on entry, you are saving just over €75,000 in Excise Duty. That’s a pretty hefty pile of cash. And that’s just one truck.
Then consider this. You’re a bar / restaurant / hotel that is under pressure on pricing. All the regular companies are coming in with their wines, but they are all a bit expensive because of the high Excise. You can suddenly get your wines much, much cheaper from a local fella who drops them off once a week. Not all your wines – maybe just the stuff you use for weddings / functions where you only need a red and a white and price sensitivity is key. So you take 20 cases a week. And there are another 20 like you in the locality. That’s 400 cases a week – and the truckload of wine is gone in about 1 month. Somebody just made €75,000. For the consumer, there is absolutely no way to identify if the wine has had the Excise Duty paid.
Now consider this. How many alcohol seizures (specifically wine) have been at Ports – you know, the type of places that lots of trucks pass through? As far as I can see, none. Zero. Zilch.
I think wine smuggling will become the new petrol smuggling. How sad.