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Dublin, Ireland
Hi, I'm a Master of Wine (MW) having passed in 1997. I am about to open a wine shop in DĂșn Laoghaire, Ireland, called The Wine Library and this is my wine blog. There should be no conflict of interest between my work with The Wine Library and the opinions expressed herein but I will do my utmost to be fair and responsible in my posts – please read my Who Pays article. I have worked in wine education, retail, and consultancy. From June 2013 until May 2017 I was the Retail Manager for The Wicklow Wine Company. I was a member of the Council of the Institute of Masters of Wine (IMW) from 2008 to 2014 and was also a member of the Events, Trips and Governance Committees Having had problems with potentially libellous comments from unidentifiable posters, I now require that if you post a comment, you must identify yourself properly or it won't be published. Please note that I do not review products or services on request so kindly don't ask. I value my independence and I believe my readers (few that they may be) do so also.

Friday, December 7, 2012

Being for the benefit of Mr Flanagan (or simple maths for politicians!)

On Budget night, Charlie Flanagan made a right fool of himself by tweeting that the Budget can't have been too bad i the Irish Times was leading with the duty increase in wine. Immediately challenged by Conor Pope about this inaccuracy, he failed to respond. On top of that, he keeps churning out the standard political lie that it's only a €1 increase. So, for the benefit of politicians who have no mathematical ability and have never run a small business, here's the deal.
The duty increase is not added to the retail price of the wine as duty is payable when the wine leaves a bonded warehouse. So, when wholesalers calculate their wine prices, they do so as follows: add up the cost of the wine (ex-cellars) and all transport costs to your warehouse. Then, add on the warehousing and distribution charges. Then the duty (!), then the margin (without which the wholesaler would go bust!).
Now, here's the bit that Mr Flanagan and a lot of other politicians don't seem to understand (it may yet be a Project Maths question for Junior Cert Ordinary Level) - margin is a percentage so this percentage is applied to all of these costs, including the extra duty.
On top of that again (seriously complicated maths, this, even UCD maths students struggle with this one LOL!) the retailer also applies a margin (imagine that - people trying to trade profitably in order to employ others - the cheek of them!!!), so that duty per bottle increase has two margins applied before the retail price is calculated.
Since the increase is €1 per bottle  (including VAT) and the average wholesale and retail margins are 20% and 30% on return, that €1 at the warehouse door translates to €1.78 (including VAT) on the shelf.
Over the last few years the average price os a bottle of wine in Ireland has been about €8.40 - that is now €10.18! Once that price breaks the €10 mark, sales drop hugely. With lower sales figures, retailers struggle and so other costs (e.g. pesky parasites such as staff) will suffer.
Now the Government might well argue that it will bring in a substantial amount of revenue, but it won't. Currently, wines sales are about 7.5 million cases, so the target is €90 million. However, the higher retail prices will lead to a drop in sales, maybe to 6.8 million cases bringing in only €81.6 million extra. Now, I suppose any extra is good, but if that sales drop also leads to higher unemployment, then is there really going to be a net benefit? Will that additional €81.6 million simply get lost in additional Social Welfare payments?
It's never just €1 per bottle!

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