Minimum Unit Price to Reshuffle Commercial Strategies

Scotland is unlikely to remain a unique case for long: the Welsh Government has already approved the introduction of an MUP, Ireland is progressing in the same direction, and there is also growing support for such a move in England. And in Australia, the Northern Territory will also apply an MUP.

Although a lot of questions still remain – Who will keep the extra income? What about online sales? – without a doubt, implementation of the MUP at a country level will force changes in the current commercial practices – and trigger strategic changes for producers, brand owners, and retailers.

The impact depends on the product and retailer

While all alcohol bought on-trade is purchased above the MUP, a relevant proportion of drinks sold at supermarkets and other stores will see price increases. According to the NHS Health Scotland MESAS monitoring report, at least 51% of the total alcohol sold through the off-trade in Scotland sells below the MUP. In spirits, over half of the total whisky, gin, vodka, or rum is currently sold below the forthcoming MUP requirements. For many spirits, the current entry price is in the region of GBP 10/bottle ¬– which means that we are looking at a price increase of around 30% per 70cl bottle (see Figure 1).

In wine, the new minimum price will range from GBP 4.7/75cl bottle for wines with 12.5% ABV to GBP 5.25/75cl bottle (14.5% ABV). We estimate that around one-third of all wine is now sold below the MUP requirement. It is difficult to estimate the proportion of beer and cider sales or SKUs affected by type of product, given the great diversity among products in terms of alcohol content. But overall, 64% of total beer and 71% of total cider are now sold in the Scottish off-trade below the MUP. Because of their lower alcohol content, RTDs are hardly affected.

Not all retailers will be equally affected: based on the prices quoted on their UK websites, we estimate that over 75% of the SKUs sold by discounters need to be repriced, compared to just 10% to 15% for mainstream food retailers. This is not surprising, as most of the underpriced SKUs correspond to private label and B-brands. For mainstream brands, virtually all products on ‘special offer’ and the ‘value’ (one-litre) packages miss the target, while a relevant number of items sell at just the new MUP requirements.

MUP will force new commercial strategies

Suppliers of private label and entry-price brands will be most affected by the new policy. They may be squeezed out of the market, since the MUP will virtually align their retail prices to those of mainstream brands. Their survival will depend on what happens to the price of mainstream brands – if their prices rise above MUP to keep the current gap, there could be a complete realignment at higher price points. But generalised price increases would trigger a decline in volumes that neither retailers nor mainstream brand providers are prepared to support.

Changing marketing strategies for retailers and suppliers. The new regulation is also likely to change sales strategies at the retail level, as many of today’s special offers and value packs do not meet MUP requirements. This means that commercial support provided by brand owners will need to be reshaped, with less emphasis on pricing and more on other aspects.

Looking for new options together. As opportunities to use pricing as a marketing tool are reduced for low-priced items, other strategies need to come forward. An easy way to provide retailers and consumers with products that have a lower ticket per unit while respecting the MUP rule will be to make smaller packages and provide options with lower alcohol content. And both may resonate well with current consumer trends.