This is an article about price fixing in the UK wine retail market. It is not a hypothetical article. It describes an ongoing practice that affects many drinkers and readers of these pages.
It will not be a popular article.
Let me explain.
This is not ‘cartelling’, as it is often dubbed. This isn’t a clandestine collaboration of and by retailers, in which they agree to hold their prices artificially high. Rather, this is retail price maintenance (RPM), being imposed by a non-trivial number of the UK’s larger importers. In RPM, the importer dictates the onward retail price of their wines to the consumer. This directive may be explicit or implicit. They may state a minimum price at which a wine must reach the consumer, or they may not. Either way, they can make it difficult for the retailer who doesn’t play ball.
The UK has a regulator against such practices, being the Competition and Markets Authority (CMA). In their advice to businesses, they’re manifestly clear on the two key impacts of RPM: namely that ‘it rips off customers’ and ‘undermines the benefits of online shopping’. Given its historic position as a mercantile hub for wines from across the globe, the UK wine retail market was extremely competitive long before the advent of online wine retailing. But it is this new(ish) addition that has fuelled an acceleration in RPM. In online retail, location is nothing and nobody lasts long with prices much adrift from the lowest. Wine comparison sites such as Wine-Searcher.com ensure that the best price is easily found. Such market transparency drives a ‘race to the bottom’, if you will, with retailers using price as a key tool to attract volume sales. We’re not just talking larger outlets and budget wines. One very marked effect of COVID-19 is that almost every small independent and fine-wine merchant is now also an online retailer seeking a place in this challenging arena. The result: very low UK prices on some very fine wines.
All of which is great for you, the consumer. However, back up the supply chain, there is discontent. Some wine producers and importers view such low(ered) prices with disdain. At which point, their influence (the shape of which I shall detail shortly) is brought to bear on the market.
A game of cat-and-mouse
You will be puzzled, I suspect. Where, after all, is the problem for the producer or importer? Why would they seek to distort the market?
That too was my reaction when I first ran into RPM some years ago. At the time, I was running a competitive online retailer. Price pressures from our competitors were considerable. Our prices – on wines from £12 to £80 a bottle – were market-beating. Somewhat out of the blue, one of the larger importers – and one of the UK’s most revered – asked us to ‘revise’ our price for an upmarket red. At that stage, it was a friendly request, with no real reason given. It was – in anticipation of some mutual back-scratching – offset by a price reduction offered on other wines. But on the upmarket red, we were being asked to increase our margin.
I might have smilingly and knowingly acceded to the request but for a wider interest and background in such matters. Instead, we said and did nothing. What began was an illegal (on the part of the importer) game of cat-and-mouse that triggered what has been my fascination with RPM in wine for some years. It’s one that has seen many discussions and arguments with producers, importers and retailers – both malignant and benign – ever since. This article is a synthesis of that observation.
So why dictate an onward price? Surely, you might posit, if a producer or importer has already secured the price they seek for their product, they need hardly be concerned about the ultimate price to the consumer.
Logical and reasonable as that thesis may be, the reality is different. Observations and discussions lay bare four key drivers for the pursuit of RPM.
1 ‘Price is a badge of quality’ You can read that as: ‘the more expensive a wine is, the better it must be’. Some tenutas and aziendas, for example, view their top Riserva as, say, a £50 wine to the consumer. When it appears in the UK market at just £40, they sense that consumers will view it as being of lower quality. No matter, it seems, that their immediate neighbours and rivals also see their wines at similarly competitive UK prices. Their preferred fix for this perceived slump in status is a downstream price hike.
2 Grey imports Any given wine will retail at quite different prices in different EU nations. As a rule of thumb, the further north it’s offered, the pricier it becomes. Prices vary partly because of duty rates, and occasionally because some producers (albeit not many) sell their wines into pricier markets at higher prices. They vary mainly because the more northerly importers and retailers typically operate at higher margins (partly to overcome higher labour costs, taxes, rents, etc and partly as a cultural factor).
The fierce price competition in the UK sits as an outlier to this trend. The upshot, in a world where online sales break down national borders, is ‘grey importing’: cross-border sales that, although entirely legal, are not the preferred route of the producer and thus defy the ‘official’ distribution network. A producer’s official importer in Hamburg, say, is circumvented by cross-border purchases by German consumers from online stockists in the UK. Under pressure from those northern importers, producers entreat their (sole/monopoly) UK importer who, in turn, pressures the more competitive (and exporting) UK retailers involved … with a spot of RPM. Brexit has, admittedly, lessened the pressure here; JR.com readers will know only too well how problematic it can be now to ship wine between the UK and mainland Europe. But it remains possible, and hence is a driver of price controls.
3 Breadth of distribution networks Importers and some producers prefer widely dispersed retail distribution networks over asymmetrically greater sales through just a few outlets. But that, of course, is entirely the result sought by an online retailer who chooses to set a low price in the hopes of becoming the go-to for that wine. This acts against the wishes of the producer who wants their wine in every merchant up and down the land, or importers seeking particularly broad representation, as many merchants will take the view that they cannot compete with retailer X and will no longer carry the product. If the producer/importer actually applied some basic economics, they would see that they will achieve greater overall sales of their wine (as the average price of it is lower) and they are still being paid the same price for it, so they’d gain more revenue. But it does seem that many – particularly English sparkling-wine producers – want to be represented very widely for brand-building and use RPM to create a level playing field for their retailers.
4 Having ones’s cake and eating it In the online world, acting as both wholesaler and retailer is commercially unwise: you cannot reap both the greater margin of direct sales to the consumer and maintain a broad, successful network of retail customers. Here’s why: if you’re wholesaling, your online retail clients will want to be the cheapest on the block. As their supplier, you can easily undercut them. Do that, however, and they will be unamused and drop your wine. However, let them undercut you, and your own retail channel is choked off. The remedy, of course, is that everyone offers the same price, achieved by the imposition of a floor price by the supplier. That’s RPM.
How does RPM work in practice?
First, it’s important to understand the unusual structure of the UK wine trade. In most cases, it is a monopoly supply chain above the retail level. In many industrial sectors, such an arrangement is heresy (and not permitted). However, in the wine sector, typically only one importer will bring a given bottle into the UK from Bodega X, and retailers can buy the wines of Bodega X only from that importer. There is no competition; if a retailer dislikes the situation they face, they have no alternative way to obtain that wine. Multiple importers – even just two – create a position where an incentive exists for both retailer and importer to see the wine delivered to market at the best price. Most in the wine trade do not recognise this peculiarity, and hence not the perverse mechanisms that may arise from it.
So we return to the game of cat-and-mouse. After that first request to revise prices for that upmarket red came there more. We declined. Rapidly, those wines became unavailable to us, firstly in any meaningful quantity, then at all. Discussions with the importer, who held the wines and thus the power, followed. We were able to get the wines, but at a 15% price increase to us: first in those wines in question, then in many others. Naturally, it was more subtly disguised than that. Very few importers charge their nominal full price to any customer. Rather, a sliding scale of discounts is applied depending on a number of factors (size of order, on-trade v off-trade, length of relationship, etc). Their reaction, then, was not a price increase per se, but a reduction/removal of the discounts we used to be offered. The importer’s justification amounted to this: discounts are at our discretion, and we simply choose to remove them on these wines.
Where, you might ask, is the problem in a supplier setting the price they choose? (Indeed, the importer in question asked us just that, in a move of no small faux naïveté). This is allowed, but not when these moves are clearly designed to distort the market and be anti-competitive. In this case, this was a clear move to blunt our competitive edge. When tackled on this point, the importer claimed that they had decided to remove the discounts on these wines for all customers. A discussion with a few friendly competitors revealed that in fact their own discounts remained intact (causing no small delight to them that we were no longer able to compete).
The question of ‘knowing illegality’ is interesting. At all stages, the importer in question claimed to be acting quite legally. It became clear to me, as we faced more (and similar) RPM pressures, that many importers and producers – even global superstars and especially the British fizz producers – do not realise that RPM is firmly outlawed under EU law and remains so in the UK even after Brexit. (In fact, almost all major economies treat it as illegal; such RPM-permitting exemptions as do exist do not exempt the wine sector.) Sadly, this also reflects just how widespread it is in the wine trade, both in the UK and further afield. In almost all cases I encountered, I had to point the protagonists in the direction of the relevant UK and EU legislation.
I discovered that many UK wine retailers are also ignorant of the illegality of acceding to a requested minimum price. (NB it is permitted to suggest an MRP (minimum retail price) or RRP (recommended retail price), but it is quite prohibited to enforce it in any way.) The law is clear: a retailer’s complicity with RPM – knowingly or unknowingly – makes it as culpable as the outfit imposing the RPM.
Ignorance is one factor. Fear is another. Precious few retailers press back on their suppliers for fear of losing flagship, headlining wines, or of weakening commercially favourable relationships with importers. Fear also operates further upstream: an importer’s key aim is to attract and retain the best wine producers it can. If your prized, hard-won producers seek your assistance in controlling prices downstream, what do you do?
Skulduggery afoot
This would be a more comfortable read if ignorance of the law were all that accounted for RPM in the UK market. However, it is not. There is skulduggery afoot. In the instance discussed above, I experienced months of gaslighting that nothing untoward was being requested of us. It was also pretended that wines recently blocked to us were now also not available to our competitors (which was clearly not true). Some time later, no fewer than three of the protagonists from that importer had left the company, and the episode was discussed with me over a glass or two. Yes, they laughed, it was known that this was naughty and bad – and at all levels in the company – but that there was little that could come of it. Indeed, this was the impression I’d gotten when, during that episode, I had even called the producers of the wines in question to see if the demands to impose RPM had come from them. Of course, one might not expect complete candour in any response, but the general producer surprise suggested that the RPM was importer-driven. In short, their market-shaping power and autonomy was their affair and not to be questioned by their customers.
This was just one instance of RPM we experienced. Many cases came to bear: mid-range (if rare) riojas, flagship South American blends, better Côtes du Rhône, New Zealand Sauvignons … from, perhaps, 40% of the UK importers with whom we worked (and thus over a dozen offenders). Some backed down (somewhat shamefacedly) when called out; others pressed on, some forcibly by reducing/blocking supply or removing discounts; some more softly by reducing service levels, access to wines and tastings, etc.
I used the word ‘skulduggery’. I do not use the term lightly, but it is that. One can draw – arguably emotive – parallels with doping in professional cycling 20 years ago. It was widespread. Everyone knew it was happening. And it was illegal. Yet it persisted, despite being bad for the reputation of the sport. It became taboo to speak of it; an omerta was in force. The UK wine trade is seen as a genteel and honourable business sector. And it may be, but not where RPM is concerned. Many within the UK wine sector know that RPM is heavily used. Not once have I seen an article or a seminar presentation focused on it. Instead, RRPs and MRPs appear regularly in en primeur offers or on exclusive wines issued by many importers. And while an importer may not take any action to ensure it is adhered to, many retailers do not dip below the RRP/MRP because they do not recognise the unenforceability and illegality of such a floor price and stay above that price ‘in fear’, when, in many cases, they could sell far more if they dipped below. Indeed, what they do not realise (but the CMA make very clear) is that a retailer complying with an MRP is also breaking the law – this is effectively the first step to a cartel.
In discussions with merchants, importers and producers, I have heard plenty of support for RPM. The most frequently heard – and rather Machiavellian – defence runs something like this:
- margins in UK wine are tiny; nobody makes any money…
- so when we have wines that people want, we need to make money from them, not have competition rob us of our greater margins
- besides, UK consumers get fantastic pricing as it is…
- so they should realise just how lucky they are and live with a spot of price-fixing.
To me, that’s akin to arguing in favour of shoplifting from large stores.
I’ve also often heard the argument that online discounters act to the detriment and possible closure of much-favoured, traditional, established merchants. I’d remind again that these merchants are – in many cases – also now themselves online retailers. I also call hypocrisy on this Save Our Merchants argument. As evidence in support, I present many laments in the last 18 months on the Members’ forum of this site, these being about the Brexit-driven cessation of buying directly from source in Europe.
I’ve also heard in the last few weeks: ‘prices are now climbing so fast that RPM is the least of your worries’. I see the opposite argument; if ever there were a time when upward adjustment is neither justified nor welcome, it is now.
I must stress that not everybody is at it. There are plenty of excellent UK wine importers who deplore and avoid the practice of RPM. Their opinions and observations have been important in compiling this article. I am quite aware that it names nobody and so implicates everybody. Had I less fear of reprisal, I may have been more specific. For any who doubt the veracity of these paragraphs in the absence of named culprits, I would ask for forbearance. To repeat, RPM is not pursued by every player in the UK market. I would hope that, one day, the cleaner members of the peloton may also speak out against the dopers.
An obvious question remains: if RPM is so illegal, why is action not taken against it? The UK Competition and Markets Authority is aware of the practice in the wine sector; this I know from personal correspondence. The above cases have been described to them. I can only assume that there are bigger fish to fry or, more probably, a marked insufficiency of frying pans. For my own part, I was prevented from pursuing cases more doggedly by my own directors who feared our becoming a pariah, serially unsupplied by importers up and down the British Isles.
I wrote at the outset that this will not be a popular article. I doubt you will be delighted to read it and I am sure the protagonists of price-fixing will like it even less. When I first proposed this article to Jancis, her initial response was, ‘that’s a trade story’. To some extent, it is. But the impact is on you, the consumer, and you should know about it. On a number of wines popular with JR.com readers, it raises retail prices by 10–15% and often more. The competitiveness of the UK market – and its richesse of online retailers – is a great boon for UK wine drinkers, but the benefits of that competition are in many instances being illegally blocked. Be wary, savvy consumer, of any wine you see at exactly the same price everywhere.
Photo by Mark Swallow via Getty Images.
