The UK wine market: how to avoid dead shark syndrome.

Why the pressure is on the leading distributors.

 

There’s a seminal moment in the film Manhattan when Woody Allen turns to his girlfriend and says: “Relationships are like sharks: they have to move forwards in order to survive. And what we have on our hands, my dear, is a dead shark.”

Well, I’ve always thought that businesses and sharks are pretty similar too in that respect and this came to mind as I read Chris Losh’s recent piece (Just Drinks, February 5 ): The UK: Land of … What’s the Opposite of Plenty. He concludes that a combination of government policy, “buyer parsimony” in the trade, and a consumer who has in effect been trained to buy wine on which there is no profit, means that the middlemen in the UK trade – our distributors and wholesalers – are under so much pressure that the sector could well be “about to enter a tailspin”.

As Chris admits, it’s a familiar refrain, and certainly the doom-merchants in our business have been saying that we have had dead shark syndrome since the turn of the century. He argues, however, that the unrelenting recession – and, more recently the shortage of wine, implying cost increases that many might not be able to pass on – could well represent the tipping point for many such companies. Linked with this, he believes that the trickle of producers reducing their focus on the UK will become a flood.

Let’s assume he his right, and I accept he may be. How do we turn things around? What are the options?

Don’t expect much help from politicians

Well, I’m a self-confessed fan of big government, particularly in a crisis, but I think we can rule out support from Whitehall. The strength of the anti alcohol lobby, combined with wine’s relative lack of importance as a sector, not to mention the recession, suggests to me that government is hardly the place to look for financial sympathy. In fact, even if we avoid the perils of minimum pricing, we can expect more constraints on our ability to promote wine, as well as ongoing duty increases.

At the other end of the spectrum, we have the grass roots of our business. This is, in many respects, vibrant and dynamic. The sector is overflowing with passion for the product and there is clear evidence of tactical innovation when it comes to the use of social media and other elements of the marketing mix. Yet, without in any way wanting to be dismissive, I would question whether the sum total of all this niche marketing, however effective in individual cases, can make a material difference to consumer attitudes, at least in the medium term.

What does this leave? Well, it leaves the big companies. We need the likes of Accolade, Treasury, Diageo, Pernod Ricard, Concho y Toro, Bibendum, PLB and Enotria amongst others to step up to the mark; we need  our market leaders to lead. We need them to come charging over the hill, like King Arthur and his knights, to rescue our trade from the all these dragons and other tormentors.

They are really the only companies who can represent the wine category effectively to government, through the WSTA, and who have the resources to invest in much needed commercial training programmes, both in house and through the WSET. They are the only companies who can talk to major retailers on anywhere close to an equal footing. And they are the only companies with the resources to invest in step-changing innovation – in terms of product, packaging or route to market – and then in the effective brand-building to realise its potential.

I’m aware that this is all terribly easy to write. These companies don’t have some moral obligation to rescue the category; one can’t expect them to invest for altruistic reasons simply because they are market leaders. Some are already doing their bit, some do give the impression they are about to spring into action. However, all of them, I’m sure, are feeling the pressure and many are subsidiaries of international producers who could well decide to focus elsewhere.

For supermarkets, wine is just part of the mix.

What about the major retailers, you might say? After all, they account for some two thirds of all wine sales in the UK. Well, it’s not ultimately their responsibility either to take the category forward or nurture their UK supplier base. On one level they are simply a route to market, a conduit through which producers can choose to sell their wine. On another level, they have their own agenda.

For supermarkets, wine is just one element of the proposition. True, it so happens that the category has been of greater importance to the multiple grocers, for many years, than its direct return would suggest. But we shouldn’t assume that this situation will last forever. In my view we already expect too much of the innovation in our category to come from retailers, and this is not healthy. As long as they are open to suggestions from suppliers and, where appropriate, are prepared to offer themselves as partners in joint initiatives, that is as much as we should expect. But we can also expect them to go direct to producers should they see this as strategically advantageous.

Of course, the way major retailers choose to promote wine has a profound effect on consumer attitudes. Currently, there are plenty of low-price deals on show, but there is also a fair amount going on at the premium end. Indeed it might be argued that in some cases they are doing more than their suppliers to encourage consumers to trade up. Either way, it’s not surprising that retailers are getting rather exasperated by continuing calls to trade up from a sector which is, as a generalisation, failing to provide enough consumers with reasons to do so.

Chris Losh has noted the pressures on suppliers which make this difficult, and I’m not in any way dismissing those pressures. Ultimately, however, we need vision and related action from those with the ability to make a significant difference, which implies that the onus has to be on the larger suppliers. I’m not sure I can see any other option.

 

 

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4 thoughts on “The UK wine market: how to avoid dead shark syndrome.

  1. A typically well-argued piece and a challenging topic. Call me a pessimist though, but I can’t help feeling that the larger suppliers are unlikely to provide the most exciting innovation over the next ten years. Yes, they will provide some form of innovation, but it is more likely to be the incremental, non-radical type that gives them a slight profit edge (through cost efficiencies), or cements a distribution position. For real innovation, I believe we’re going to have to look further afield – to smaller outfits with less to lose and more to gain, and less baggage – or perhaps even from companies that don’t yet exist and are prepared to take a fresh perspective. What the larger companies lack in terms of imagination (and I’m being deliberately unkind here – not all of them do), they make up for in terms of resources, and it would be nice to think a kind of ‘hothouse’ way of working – joint partnerships between small and large – might lead to something both well-funded and inventive, as well as something that catches the attention of one of our more alert and less risk-averse retailers. Look for example at Procter and Gamble’s business model used with Walmart a few years ago.
    One area I do not agree with is that producers are going to be less and less focused on the UK – I’m not being arrogant in saying that the UK will remain one of the larger and more dynamic markets for wine producers for the foreseeable future, due to our lack of production, open-minded consumer (more or less) and buoyant and historic ‘trade’ – journalists, buyers, importers etc. This means that the UK will represent an exciting, if challenging, place for producers to do business in the next 20 years. The pain we’re going through at present is due to the market’s maturity (and recession and government intervention), but things will improve – and in saying that I don’t believe I’m being too optimistic.

    • The main reason,Matt, for the delay in my response is that I’ve been involved in the WSET’s Business & Commercial Knoeledge Course (BACK) which of course you know well.One of the speakers was Lee James of Pernod Ricard.He talked about their approach to wine marketing.It was reassuring in two ways.Firstly it reinforced their commitment to the category (which with spirits driven companies we shouldn’t take for granted) but more importantly it was a great demonstration of the benefits in terms of category development which come out of sophisticated marketing oriented thought.

      This, I accept, does not have to be confined to the big guys but it does tend to be simply because they have the resources (financial and human) which allow them to stand back from the cut and thrust of the day to day business.They also have the desire to do so- developing carefully constructed strategic marketing programmes and implementing them methodically is something that, in my experience in the wine category, big companies get excited about rather more than small companies!

      A sweeping generalisation I know…and I am also biased given I’m a big company man by nature.It’s a question of balance, an overly rational approach and there is no edge, too much passion and not enough thought and often the potential of the idea or brand is not realised.The closest I ever got to the mid point was with Penfolds in the 90’s but then if you can’t get it right with Penfolds…….

      I’m all in favour of cooperation at an industry level. It would be interesting to structure an initiative to see how we could,say, understand the potential benefits of, say, developments in terms of packaging ( PET etc). How this would work in pactice I’m not sure but worth thinking about.

      As to your other point about the the UK losing it’s place as a destination I should have left that out as I really left it hanging there. Anyway I tend to agree with you. It would not be difficult to find producers who have pulled out of the UK or are seriously contemplating such a move. However we are a very large market with a relatively strong premium sector and sophisticated consumer. We shouldn’t be at all complacent but neither should we beat ourselves up.

  2. Is not the real issue that the guides and trainers of the wine industry, specialty wine shops led by enthusiastic innovative wine owners, been driven out of the industry by supermarkets who offer super (brand destroying) value. I think the answer is with them not the other players. If they can embrace new retail technology with their wine passion then they could lead the category forward one town at a time.

    Supermarkets are the destroyers of wine value (or creators from a consumer perspective). To illustrate the point lets say quality is a factor out of 100, if we divide this quality factor by price we get a value ratio. A 50 quality wine / $10 wine = 5. The supermarket also sells an 80 quality factor wine for $16 which equals a value ratio of 5. The two wines are of equal value. But supermarkets sell the $10 wine for $8 or even $5 resulting in wines of such value to the consumer they are reluctant to trade up. Lots of assumptions there about rational understanding of value etc but it illustrates my point.

    Supermarkets are at the heart of destroying value in the industry, the saviours are not distributors or wineries, bless them – the Saviour is a new form of innovative wine retailer. However when you have supermarket dragon in your territory it is a brave soul to be the wine industry knight to slay the supermarket dragon.

    • Bruce, my apologies to you too for the delay in response. My answer to your points is actually pretty similar to my answer to Matt below. But let’s forget wine for a minute. I grew up in a small town where there were no supermarkets; that town was infinitely improved by their arrival. Too many of the specialist food retailers and corner shops had become complacent. The goods were often over priced,the range was poor and not always of great quality and they opened when they felt like it. Now it could easily be argued that we’ve gone too far the other way.Although there are plenty of great specialists around, the sector has clearly sufferred. In an ideal world I totally agree there would be a better balance.

      However if you consider the attitude of the UK supermarkets towards wine I see many more positives than negatives. Consider for example the growth of premium own label ranges. This may be bad news short term if you are a premium brand owner wanting listings but it’s great for the category. The premium sector will continue to expand, certain consumers will be encouraged by the endorsement of Brand Tesco, Waitrose, Sainsbury, M&S etc to try wines at high prices. And this will in turn generate room for premium brand owners and help specialist retailers.

      Back in 1990 own label made up 90% of Sainsburys range. In 2000 I think Im correct in saying the figure was below 40%. Brand owners took advantage of Sainsburys developing wine franchise to sell in branded propositions which the retailer saw as advantageous to their wine sales as a whole and corporate image. Everybody benefited.

      I do accept that history doesn’t always repeat itself and I also accept, as I mentioned in my piece, that supermarkets, as non wine specialists, have a broader agenda that will not always suit the category. However I do see them as integral to category development…much as I see big suppliers. The more they are intellectually engaged with wine the greater the opportunities for suppliers….and the opposite also follows.

      In the end I suppose it depends on what one considers to be the ideal wine market- where would one like the UK category to be in 10 years time ? Maybe I should have started with that question, because of course everything follows from it. Maybe we have different ideals.

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