The Chancellor's tax bombshell last week stirred up a hornet's nest of activity in the premium packaged spirits market this week. Retailers have been calling suppliers frantically in desperate attempts to secure supplies of stock before the 65% increase in excise duty is imposed tomorrow, Sunday (April 28). Most will probably have been disappointed because manufacturers don't hold vast stocks and have only a limited capacity to increase production. Early this week one retailer said: "Supplies are already being allocated because people are ringing up and asking for extra trunker loads and only receiving pallet-sized quantities." More trouble looms next month when the trade must work out how to handle a combination of stock bought before and after the increase. And the price increase is going to be very noticeable. In cash and carries the extra duty will put £2.72 on a case of 24 275ml bottles of Smirnoff Ice, and on supermarket shelves the price per bottle will rise by about 20p. At this stage neither manufacturers nor retailers want to cut their margins to absorb the increase so it looks as if the consumers will feel the full weight of Gordon Brown's decision. Both brand owners and the trade take the general view that the market is now so well established and successful that it can take the increase without too much loss in volume. But the industry is still in shock at the decision: no one saw the tax hike coming and no preparations were made. Reactions were fast, however. On the afternoon of the Budget, Sainsbury was on the phone to Guinness UDV and Bacardi-Martini to secure extra supplies of its key brands. Then, at the end of the week, both producers held urgent meetings to determine their courses of action. Bacardi-Martini's marketing director Maurice Doyle says: "No one imagined in their worst nightmares that this would happen. What the Chancellor has done is blatantly anti-competitive and has distorted the market. He has also put a tax on innovation because the sector has been very successful and very pioneering. "Gordon Brown claimed this was a budget for enterprise and fairness, and this is exactly the opposite. "If this is an effort to curb alcohol abuse it is the wrong approach. Binge drinking is more likely to occur with beer and cider than it is with premium packaged spirits. As an industry we work hard to combat the misuse of alcohol, but to use taxation for that purpose is wrong." Doyle adds: "We are working with the retailers on a variety of responses, but because of the magnitude of what has happened nothing has been decided yet." But the million dollar question that is currently being mulled over is whether companies should avoid the tax increase by changing the alcohol base to beer or wine. Such products exist elsewhere in the world and Doyle says it is technically possible in the UK. Another possibility is a reduction in the level of alcohol because the tax is levied on a sliding scale. Guinness UDV commercial director Tony Mair says: "Demand has gone through the roof this week, but the total number of orders in the system is greater than the quantity we are able to ship. The price is too big to absorb and I imagine it will have a short term impact on rate of sale, but the category is growing fast and it will take a lot to knock it off course." Beverage Brands is considering the possibility of limiting the damage to its WKD brand by reducing the size of its bottles from 330ml to the industry norm of 275ml. Marketing manager Karen Salters says: "It could take us three or four months to have the glass moulds produced, but we would pass on the duty saving of moving to 275ml before then. "Now is not the time for knee-jerk reactions and it would give us time to review our options on changing the drinks to a malt or wine base. We have no plans to reduce the abv of our products. We will have to share the pain with the trade. The last thing we want to do is chase people out of the PPS market." Safeway has lined up a number of promotions in the sector and category buyer Glenn Payne says: "We have been working hard to ringfence them at the old price and it looks as if we have done that up until the end of June." Despite the industry's concern, Sainsbury wine director Allan Cheesman says: "I don't think the tax hike will impact on the trade too much because the category is now ingrained in consumers' drinking habits. The days of the £4.99 four-packs might become a thing of the past, but these drinks operate on a big margin." n {{FEATURES }}