Own-label spirits sales have fallen 9.9% in value to £760m over the past year, compared with growth of 2.9% in 2009 [Nielsen 52w/e 2 October 2010].
Duty increases take up a proportionately higher percentage of lower-priced own-label products than pricier brands, bringing the two closer in price when increases are passed on.
Heavy promotions by brand owners further squeezed the gap, according to distiller Greenall's, which produces 70% of UK own-label gin and vodka.
"Diageo has taken a very aggressive stance with Smirnoff and Gordon's," said Greenall's CEO Christian Rose. "In 2008-09 own label was growing and impacting directly on them. This year, Gordon's and Smirnoff have hardly been off promotion in most of the major mults.
"Needless to say, we've come under a little bit of pressure on prices from the multiples, so we've been looking at efficiencies."
Through such efficiencies and gaining new listings, Greenall's still managed to grow its own-label sales value by 3%, he said, but its branded business far exceeded that, with 25% year-on-year growth.
Tesco spirits category manager Mark Suddaby argued that increasing alcohol tax and VAT rather than promotions were chiefly to blame. "If there has been any closing of the gap on own-label prices versus brands, it is where government duty and VAT increases have been passed on to the shelf," he said.
"Retailers are committed to responsible retailing and not prepared to sell below the cost of duty and VAT, meaning that absorbing a tax increase for customers is not viable for own-label."
Own-label spirits still offered great value, he insisted, because unlike brands, there were no marketing costs to pass on. He also pointed to the quality of Tesco brand spirits.
"Our vodka contains lower levels of methanol than Smirnoff this can be considered a measure of purity," he added.
Speaking to The Grocer in October, Diageo GB managing director Simon Litherland agreed the vodka category had become more price competitive, but said duty increases were the main reason own-label vodka sales had stalled.
A Diageo spokesman added this week: "We do not believe heavy discounting will ultimately deliver value for our brands, and promotional strategies that we recommend reflect this. However, it is important to note that we do not set or agree retail prices our customers do."