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Pre-Christmas discounting “deeper than ever before”
d=”standfirst”>"Surviving" is a nine-letter word, and appropriately it looks set to become the main ambition of individuals, families and businesses in 2009. Everywhere the gloom is deepening. Unemployment is accelerating rapidly and could hit three million by this time next year and an authoritative review of high street spending from Ernst & Young, the consultancy, says the raft of pre-Christmas sales and discounting has been “deeper than ever before”, with average prices down 37.1% compared with the full ticket price.
In the drinks sector, trading down seems de rigueur. For instance, the UK agents of major Champagne houses report that business through supermarkets is collapsing, with some losing facings to own-label marques or cheaper alternatives. Champagne depletions in the off-trade were reportedly 26% lower in November and show little sign of improvement. Hopes of a last-minute rush are diminishing.
Cost and image are said to be the reason behind the unseasonal swing away from quality, as it is in the on-trade where pub owners, restaurateurs and hoteliers report that the Christmas party market, while relatively buoyant in terms of bookings, is being hit as customers trade down the price range, especially on wines. That is having a negative effect on margins and profitability.
Last month’s duty increases are also taking their toll. Constellation has laid off 50 employees in the UK and has warned of more to come unless the government makes an (unlikely) about-turn. Troy Christensen, the president of Constellation Europe, is reported as saying that this year’s two duty increases have cost the company £50m and warning that promotional investment could be cut. “We put investment in countries that produce the best returns,” he is quoted as saying. “At the moment, there are a lot better opportunities [than the UK] elsewhere in Europe”.
Meanwhile, the pound continues to slump against the euro, with UK agents warning their continental producers that price increases of 20% (the level required to bring margins back to the Christmas 2007 level) will be disastrous in the new, straitened environment, leaving the door open to producers in Australia, New Zealand and South Africa (whose currencies have slumped in tandem with sterling) to capture swathes of the UK market.
January and February are traditionally dog days for the drinks sector and will be no exception this time round. There will be one big difference, however, because undoubtedly businesses will fail for lack of cash flow and the unwillingness of banks to help them out. Electronic reordering and invoicing mean that companies know on virtually an hourly basis how they are faring, and in previous years there has been an early January rush to announce Christmas trading figures. The worse this year’s figures, the longer the vulnerable will take to announce them. For some, their silence will be terminal.
Finance on Friday, 19.12.08