Wine sellers bottle it as middle-class customers scale back amid cost of living crisis
Squeezed middle-class shoppers scaling back on their favourite bottle of red or white amid the cost of living crisis is continuing to weigh heavily on the bottom line of some of the UK’s biggest wine sellers.
The share price of online merchant Virgin Wines plummeted over 10 per cent today after it revealed a year of flat sales and declining revenues.
The chardonnay seller said revenues slipped by £10m to £59.0m, while adjusted profit before tax sunk to £1.8m down from £6.2m the prior year.
A tough buyer market coupled with issues in its warehouse was touted by Virgin Wines for the weak performance, but chief executive officer Jay Wright said that he remained “confident” in the group’s longer-term prospects.
Virgin Wine’s subscription scheme, WineBank, which allows customers to spread the cost of their booze purchases and save 20 per cent interest, performed well achieving an £8m in customer deposits by year-end.
Charlie Huggins, head of equities at Wealthclub told City A.M: “The wine sector has struggled during the cost of living crisis.
“Recent signs of moderating inflation should relieve some of the pressure, and a greater focus on productivity and costs should also help. But this will always be a low margin, competitive sector.”
“All players in the sector have seen significant cost pressures, with the cost of freight and glass in particular rising significantly.”
He added: “Given the competitive nature of the industry it is hard to fully pass on these cost increases to consumers and this has seen margins come under pressure. Price increases can also have an impact on demand as consumers have to shell out more, making it harder to retain customers.”
It’s not only Virgin Wines, who has felt the pinch, rival firm Naked Wines just last month warned that it could go bust if a “combination” of factors hit its cash flow after it swung to a £15m full-year loss.
New customer sales at the online wine seller were 41 per cent lower in the first quarter of the year, blaming a tough trading environment for the dip, the company also predicted that sales for the year would decline 17 per cent.
The firm said: “There remains a risk that a combination of these assumptions could result in a reduction in actual cash flows which would result in the business being unable to meet its covenant commitments.”
The fall in sales for middle market wine sellers comes amid a rise in the popularity of budget booze sold in the likes of discounters such as Lidl and Aldi.
In June, Aldi said sales of its English Sparkling Wine, which retails for under £10, have jumped a whopping 240 per cent in the last 12 months.
Julie Ashfield, managing director of Buying at Aldi UK, said at the time: “English wine, particularly sparkling, has a reputation for being expensive, but we’re proud to be at the forefront of making it accessible for all.”