Selling alcohol below cost

WDR perspective on the pros, cons and implementation implications of defining "cost"

The new Government made a commitment in their coalition agreement to introduce a ban on selling alcohol below cost.

This sounds easy but the reality of implementing such a ban has started to become apparent to everyone, including the Home Office (see WDR V1 and V2 for detailed analysis of minimum pricing).

As a result, the concept of minimum pricing has been replaced by a proposed ban on selling below cost.

How should “cost” be defined? The latest Home Office position is that “cost” should be defined as duty + VAT, although detailed proposals are not yet available.

In WDR V3, we analysed 4 specific options, looking at pros, cons and implementation implications, including duty + VAT :

Duty + VAT
Duty + fixed increment + VAT
Duty + fixed % + VAT
Duty + actual value chain cost + VAT (including use of invoice price)

Detailed examples were provided using a number of leading brands to show the impact of each option on the effective “cost” of these products.

This extract from WDR V3 (page 37) shows how each of the 4 options would compare to the selling price of Tesco Claret (note these examples used May 2010 pricing, duty rates and 17.5% VAT).

WDR participated in both the Home Office and HM Treasury consultations on alcohol held in August.

WDR also submitted a list of 7 key principles that should be applied when defining cost for the purposes of a ban :

Definition must be simple to calculate and simple for consumers to understand
Should be able to publish tables, in advance of implementation, of costs by category of alcoholic product so that anyone can see if a retailer is selling below cost
Should not require any business (retailer or producer) to disclose confidential, commercially sensitive terms and conditions
Should be linked to the number of units of alcohol in the bottle, can or pack (assuming it is legal to make such a link under EU law)
Should not provide the opportunity for producers to influence the price of alcohol in the marketplace
Should not discriminate against any one type of producer
Must satisfy EU competition law

Click here to purchase WDR V3 (just £50).