Majestic bubbly but it’s still tough for wine trade

But news from the rest of the off-licence industry, which has been hit hard by the impact of drinkers becoming more tight-fisted with their wallets, is far more sober. Although the capital's splattered streets on Saturday nights might suggest otherwise, the volume of alcoholic drinks drunk in Britain has remained static in the past ten years, according to market research by Mintel. That, together with tax hikes and supermarket competition, has left the wine-selling industry with a serious headache. These are the key trends:

Independent retailers lose out to supermarket giants

The scale of the problem became impossible to ignore when First Quench collapsed into administration last month.

More than 1300 Threshers, The Local, Wine Rack and Haddows stores are disappearing from the High Street. Announcing its demise, the retailer said it was "no secret that the credit crunch has made a very competitive marketplace even more challenging". Administrators KPMG said that up to a third of the off-licences were not profitable. Although First Quench, with a chequered history of private equity ownership, had its own unique problems, it was also a victim of the industry-wide malaise that earlier this year killed off Wine Cellar, which had 170 shops around the UK.

High Street wine sellers have been hit hard by the dominance of supermarkets. "They are putting serious pressure on the industry," says Gavin Partington of the Wine and Spirit Trade Association (WSTA). "Supermarkets have had a lot of promotional offers in place, and that makes it testing for independent retailers. Supermarkets are very difficult to challenge." Budget chains Aldi and Lidl are a creeping presence in the market too, currently selling bottles of champagne for less than £10.

Soaring alcohol duty on wine

Tax hikes have compounded the problem. Duty on alcohol rose by 9% in March last year, and when Alistair Darling lowered the VAT rate at last autumn's Pre-Budget Report, he increased the levy on wine by 8%. It is also subjected to the tax-escalator on alcohol, pushing up duty by another 2% this year.

"Altogether tax went up by nearly 20%, and that forced a lot of independent retailers to raise prices," says Partington. "They couldn't afford to absorb it in the way that supermarkets could."

That could have been one of the reasons why Oddbins posted a £6.2 million pre-tax loss in the year to December 2008. Its sales fell by a fifth to £76.1 million, according to the wine retailer's latest accounts. But Oddbins has a recovery plan, and it reflects the likely shape of the whole industry.

Managing director Simon Baile is lining up a unique range of wines at its stores, to help Oddbins become a "destination" retailer and avoid competing directly with supermarkets. "People still want something different to what the supermarkets have to offer and if you can do that, you have a future," he says.

Cheaper wines are no longer selling so well

For High Street specialists, there is little point in trying to sell lower-margin cheap wines in bulk, especially since the budget wine market has been hit hard by the trading-down trend of the credit crunch. Data from Nielsen shows budget drinkers switching away from wine completely — it notes an 11% fall in the sales of sub-£4 bottles and no increase in the £4-£6 range.

Expensive wines are a growing niche market

So the future of the wine industry looks set to be divided between high-end bottles on sale at specialist stores, with cheaper wines relegated to the supermarkets.

The WSTA says one-off, expert wine sellers are a growth area for the industry. Simon Staples, sales director at wine merchant Berry Brothers, says it is making 10% more profit than last year by focusing on more expensive wines. Its average bottle costs £18.

"Since January we've seen a huge increase in people buying pricier wines as an investment," he says. "The end of last year was murky waters for a lot of people, and people felt more secure buying wine because it's a physical thing rather than a stock or share. That trend looks set to continue, so in the run-up to Christmas, we're feeling comfortable."

The festive period will be a crucial time for many in the industry — but although change is afoot, it looks likely to survive alongside supermarkets by focusing on special vintages and expert knowledge, according to the WSTA's Partington.

"Plenty of people still like to talk about wine — and taste it — especially when they're paying a bit more," he says. "The High Street wine seller will still be here in the future."