Miles Beale on the challenges the drinks industry faces

As CEO of the Wine and Spirit Trade Association, Miles Beale has much to lobby about on behalf of the organisation’s members. With the fallout from Covid-19, tariffs and Brexit to contend with, he tells The Spirits Business about the current state of affairs.

Miles Beale, chief executive officer of the WSTA

First Brexit, then trade wars and most recently Covid‐19 – the past few years have presented the perfect storm of challenges for the UK drinks industry. At times like this, the influence and power of industry groups such as the Wine and Spirit Trade Association (WSTA) to protect and lobby for the sector is invaluable. The trade body’s representation is vast and varied, covering more than 300 firms, ranging from retailers and specialist stockists to producers, wholesalers and bottlers.

At the helm is Miles Beale, chief executive officer of the WSTA. Before taking the reins at the WSTA, Beale spent more than 14 years as a civil servant, holding numerous positions at the Cabinet Office, Ministry of Housing and the Department of Environment, Food and Rural Affairs.

The issues facing the wine and spirits industry today are monumental, with the Covid‐19 pandemic presenting what has been classed as the biggest global challenge since World War II. On 20 March, UK prime minister Boris Johnson told the on‐trade to close indefinitely, before a nationwide lockdown was brought into effect three days later. Shuttering the UK’s pubs, bars and restaurants had a ripple effect on the UK spirits market, with suppliers out of work; meanwhile, e‐commerce sales rocketed.

KICK-STARTING THE ECONOMY

This month marks the start of the long road to recovery for the drinks trade, as bars, pubs and restaurants in England will be allowed to reopen indoors and out from 4 July. The two‐ metre physical distancing rule will be relaxed to one‐metre‐plus, and getting the on‐trade moving means suppliers will be back in action and businesses will, hopefully, start pumping much‐needed money back into the economy.

“It’s a relief, very good news,” says Beale. “There was always a problem with the two‐metre social distancing rules; it makes things extremely hard for businesses my members supply into. So this one‐metre‐plus idea is pretty important.”

As one of the first industries to be affected by Covid‐19, the hospitality sector, and by default parts of the spirits trade, looks set to be among the hardest‐hit industries by the pandemic. In an effort to save businesses and jobs from collapsing because of the crisis, UK chancellor Rishi Sunak introduced the Coronavirus Job Retention Scheme (CJRS), which promised to pay 80% of workers’ salaries up to £2,500 (around US$3,115) a month while they were unable to work. The furlough scheme has been extended until the end of October, with new rules on flexible working conditions to ease people back into jobs. It’s an initiative Beale has been hugely impressed by.

“I have almost nothing but praise for the furlough scheme on the basis it’s consistently been more comprehensive than we had hoped,” Beale enthuses. “It’s an extremely good scheme, it’s been well delivered, it’s extension has been well telegraphed and timely. I think it’s very fair what they’re asking employers to contribute increasingly and it’s in small increments as the economy gets going, and it does fit with what the chancellor has been saying about trying to get businesses through this time so that they can survive and continue to trade.”

However, Beale would still like to see more flexibility for the hospitality sector and an extension “if it’s suppressed for longer. The signals from the chancellor and the Treasury at the moment are that they don’t expect to treat any bit of the economy differently; they’ve been pretty clear about that,” he says. “But there’s lots of flexibility in the scheme, it will last for quite a long time. We don’t yet know whether the hospitality sector is going to be impacted for longer than other parts of the economy. I think we’ll have to wait and see with that.”

Beale: UK spirits industry does have some cause for optimism

Distillers also felt the repercussions of the UK‐wide lockdown, with visitor centres forced to suspend tours and operations while the nation banded together to stymie the spread of the virus. Production levels have fallen, says Beale, but thankfully, not to such an extent that it would affect supplies. While some sites had to press pause on distilling altogether, Beale says both large and small producers are now back in business.

“Overall, there’s been a bit of a blip in production, but we’re getting back to normal and it’s reasonably easy for distilleries to do so,” Beale explains. “The issue there is probably what demand looks like, and I think that’s still slightly uncertain. If you step back far enough, demand is flat, but that’s taking the on‐trade into account.”

Dependent on whether there was some stockpiling at the start of the pandemic, Beale suspects volumes “might even fall a little”. However, it’s the high‐value end that will be hit hard, he says.

“The on‐trade creates a lot more value for spirits products, particularly high‐end and I think those have been affected by the closure of the on‐trade, and you can’t make up for that by selling those products down different channels,” Beale explains. “So everyone will want the on‐trade to come back because that’s the key to getting value sales going back in the right direction.”

While Beale’s commendation of the CJRS has been wholly positive, he and his team at the WSTA have been particularly vocal about a forgotten part of the trade when it comes to government support: suppliers. Beale explains companies that supply wine or spirits into the on‐trade are poised to be in the “worst position possible” as a result of the pandemic, as they have likely supplied products to on‐trade venues, paid duty on those products, to then have that customer be forced to close their doors before they’ve been able to pay.

“Suppliers already have a bit of a cash flow issue, then suddenly demand has dropped off a cliff overnight because everything is shut,” Beale adds. “But if you are in the supply chain rather than a provider of hospitality direct to the consumer as it were, you don’t have access to the business rates holidays that a bar or restaurant or indeed off‐trade retailer has, so you’re almost in the worst position possible.”

The WSTA has been loudly calling on the UK government to extend business rates exemption and the availability of government grants to the on‐trade supply chain. In April, the government also introduced its fast‐track Bounce Back Loan scheme, which allows businesses to borrow between £2,000 and £50,000 – completely backed by the government, with no repayment needed for 12 months. However, while the WSTA welcomed the new scheme, it said the move didn’t go far enough to help businesses and was ultimately landing them with additional debt.

“I can see why the government has missed supply chains but we’ve made that point as clearly as we possibly can,” insists Beale. “It’s probably the only place we’ve been particularly critical because I think there is absolutely no reason why hospitality supply chain businesses shouldn’t have exactly the same level of support, given they’ve got exactly the same challenges – or possibly worse if you consider they may have delivered some products and not been paid for them.”

In June, the UK government revised its FAQ to clarify that suppliers can be awarded discretionary grants by local authorities, amounting to £25,000, £10,000 or under £10,000. However, when asked whether the government has done enough to address cash flow issues, Beale is forthright in his answer: “No, I don’t. Frankly, I think they simply don’t understand the cash flow challenges for those in the hospitality sector.”

One solution the WSTA put to the government to alleviate some of the cash flow pressures being felt by the trade was a holiday on excise duty payments. Unfortunately, the notion was rebuffed by the government. Beale adds that those in office seem to “have become increasingly understanding about the deferment of duty”, in much the same way as businesses can request a deferment for VAT payments. But:“Cash flow is the biggest single problem for most of our members, and I am a bit disappointed with what the government has been able to do to help,” Beale regrets.

BREXIT CONCERNS

With Covid‐19 dominating headlines this year, one of the biggest political upheavals of recent times has been sidelined, at least from a media perspective: Brexit. The UK formally left the EU on 31 January 2020 and is now in a transition period until 1 January 2021. If a trade agreement is not reached between the UK and the EU by next year, the UK will effectively bow out of the European Union without a deal. The WSTA was already concerned about the short time frame in which to strike a deal before the pandemic hit, but Beale is becoming increasingly worried that Brexit is not getting the attention it duly deserves from politicians, although he can appreciate why.

“I do have huge concerns that coronavirus means what was already very difficult to get done is now even harder to get done because attention has, quite rightly and sensibly and fairly, been elsewhere,” he explains. “So yes, we’re extremely worried about it.”

In early May, the WSTA launched its Trade 21 campaign to highlight the importance of minimum disruption to trade, zero import tariffs and checks and balances that are “fit for purpose”. The campaign launch was accompanied by a letter to Cabinet Office minister Michael Gove MP, which outlined a number of priorities for the wine and spirits sector, including introducing a two‐year implementation period for labelling changes from 1 January 2021.

At the time of our interview in June, Beale had yet to receive a response from Gove. “I understand why it would take longer to get a reply out of government in the current climate, but we really don’t have long to get this done and since we wrote to Michael Gove, we’ve already seen one of our requests fail to happen,” Beale says. He’s referring to the publication of the UK Global Tariffs towards the end of May, which outlined what the UK’s tariff schedule would look like in the event of a no‐deal Brexit. For wine, it would mean additional tariffs, but spirits benefit from “very few remaining tariffs around the world, except, of course, the new ones between the EU and US”.

“These are a significant issue and we want to see those addressed, but that won’t be part of a UK‐EU trade deal, it’ll be part of a UK‐US one,” Beale explains. “So yes, we’re extremely worried, and think there is an enormous amount to do in a very short period of time.”

Gin growth: Beale has faith in producers boosting the flavoured gin trend

BURDEN OF TARIFFS

The ugly burden of tariffs continues to loom over the UK spirits sector, with single malt Scotch, single malt Irish whiskey and liqueurs from the EU subject to a 25% tariff in the US thanks to a dispute over aircraft subsidies between the US and the EU. Exports of single malt Scotch and Scottish liqueurs to the US have tumbled by 25% since October 2019, according to the Scotch Whisky Association. Unfortunately, the US is now considering adding tariffs to additional products, including gin and vodka made in the UK.

As whisky is the UK’s biggest food and drink export, Beale stresses a “25% tariff with one of the biggest export markets for a product that is created here in the UK is clearly very bad news.” He adds: “The WSTA represents quite a lot of imported spirits companies and brands, and they’re also suffering in the same sort of way.

“It’s very bad for the spirits business full stop, no matter which side of the Atlantic you’re based on. It should be a priority for everyone to see it got rid of. We really have to hope our government can come to an agreement that the tariff goes as soon as possible because while it remains, you end up with far less good trade than we should have.”

The key issues facing the spirits industry at present paint quite the doom and gloom picture – and there’s no shying away from the challenges that lie ahead. The world is currently braced for a significant recession as a result of the pandemic, but Beale has unwavering confidence in British spirits.

“There are two things the spirits industry in the UK can genuinely get quite excited about,” he says. “British spirits generally have a good, impressive and well‐established international reputation. If you’re looking to grow the economy, you need things in your stable that can do really well, not just in a domestic market but in an international setting, and I think British spirits have that in abundance.”

The second part of his optimism is reserved for new product development and the number of new distilleries opening across the UK, particularly producers bolstering the flavoured gin boom. “We at the WSTA have done quite a lot of work on flavoured gin and, actually, we have a definition on flavoured gin that in general everyone now accepts, and we’d like to see that turned into law so that you can properly interrogate the gin category. With our departure from the EU, we don’t have to argue for that in Brussels, we can just do it in the UK.” He sees real potential in new products coming from distillers in England and Wales, and adds they have all the qualities needed to deliver “an enormous amount of growth in the UK and globally as the economy recovers”.

“We’ve got to keep all of these wonderful new distilleries and people working,” Beale reiterates. “We’ve got to keep them in jobs, got to keep them functioning as businesses, so that they’re there to take advantage of growth opportunities. But I really think it’s there. We have given ourselves a double challenge in both recovering and leaving the European Union at the same time, but we’ve made those decisions – we need to get on with it as best we can.”