The supermarkets and the retail paradox

The search for the elusive sweet spot

 

Much consumer research into wine purchasing patterns notes that the majority of consumers find the experience of buying wine in supermarkets quite stressful, unless they know exactly what they are intending to purchase. There are constant references to “the wall of wine”.

Yet any experiment to date by the supermarkets which has involved reducing their range below, say, 100 lines, has failed. Not only were sales lost, but the operators found their credibility as wine retailers was threatened. This implies that on some level consumers are attracted to the very cause of their apprehension. Hence the paradox.

This paradox is not unique to wine, but given the relative complexity of our category it probably implies that the process of discovering the sweet spot – that point on the spectrum positioned perfectly between losing significant credibility and having too many lines – is more complex than most other categories.

I say probably, because I really don’t know. My experience in wine retailing was very brief and not exactly successful (viz the Destination Wine Company). I soon retreated to the dark side.

So, as a non retailer, this post represents a collection of questions rather than any real thoughts on the way forward. And there are a number of questions which particularly intrigue me.

What is the ideal range?

Firstly, how scientific is the process of deciding the ideal range? Presumably it’s much more deliberate than it was in the past, given the amount of data available and the development of category management techniques. This would imply that the number of “passengers” in the range is more evident as the knowledge of how wines complement each other is now more objective.

Having said all that, there must still be a great deal of subjectivity involved. For one thing wine has always been portrayed not only as an image builder for a supermarket, but as a category that attracts the more valuable shopper. How does this affect the range? And crucially, is the difference in value between the average wine buyer’s shopping basket, and that of the non wine buyer, increasing or decreasing?

For another, each retailer has to decide on how much it wants to lead and how much it is happy to follow, and this must have a profound effect on the range. As a recent example, Morrisons has decided to place a major effort behind wine in order to, by its own admission, make up ground on its rivals. This not only involves a substantial investment in people and reformatting its range, but also in a doubling of its wine offering from 550 to 1,100 bottles. This can only be good news, but I wonder how many of these additional wines will, as individual lines, make an acceptable return on investment as opposed to simply playing a marketing role – however valuable that may be.

Finally, as wine retailing becomes more sophisticated, and the wine range varies by store format and sometimes by locality, to what extent does this more complex offering affect the consumers’ perception of a chain’s overall credibility as an outlet for wine?

What are the trends?

I would also like to know whether the sweet spot is at a lower figure than it was, say, 10 years ago. I would imagine it is. Wine has become more of a day-to-day commodity, and therefore less aspirational. The number of regular drinkers of wine who have little interest in understanding the subject in much detail must therefore be increasing as a proportion of the total. These consumers will obviously be judging the wine credentials of a retailer with a different mindset. Are such consumers less valuable shoppers than those more interested in wine? I would guess they are.

And lastly, how does the rapid development of online sales affect all of the above? Undoubtedly the overall effects are profound, but in terms of their influence on the sweet spot in store does it imply that a retailer can afford to stock fewer wines?

At a Harpers/Wine Option seminar last year, when the paradox above was very briefly discussed, the view of the panel was that 300 wines represented the minimum range for any retailer – both in the UK and elsewhere in Europe – if they wanted to be perceived as credible. Where did that figure come from? Is it just one of those statistics that people quote but has actually no sound basis? More importantly, what will it be in five years’ time, and what are the implications for producers?

Why is this important?

The actual size of a supermarket’s range, in store and online, is of course only one of a number of variables of importance to their suppliers, and the category as a whole. How they segment their range between producer brands and exclusives, and between special occasion and everyday wines, is of course critical. Their promotional policies and formats are hardly less important. However the overall size of the range is an obvious barometer of their commitment to wine, relative to other categories.

Given supermarkets account for some two thirds of all wine sales in the UK, and given that their commitment to wine has been, in my view, by far the most important single contributor to the growth in wine consumption over the last 40 years, it is a barometer we should study with more than a passing interest.

We seem to have moved on from the time when supermarkets were risking their wine credentials in attempts to reduce their range to more manageable levels. Currently the focus seems, if anything, to be on range expansion. It would be dangerous, however, to assume that this will continue.

Some people, of course, feel pretty uncomfortable with supermarkets as wine retailers, and even more with their pre-eminence. Certainly my ideal would be for a better balanced market. However, I can’t help feeling that if there ever came a time when they decided to de-emphasise the category, particularly if they did so in favour of other alcoholic beverages, the UK wine category  might well find itself in a more critical state than it is today.

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4 thoughts on “The supermarkets and the retail paradox

  1. Some very good questions Mike.

    A couple of years back I looked at what was the most popular wine store in the US by using social media. I did this through some expensive Netnography software called Netbase that the Netbase team kindly let me demo. It costs US$2000 a month and finds, understands, and automatically analyzes social media conversations about a brand or topic, and then generates graphs and reports on the emotions, behaviors and levels of passion surrounding that brand.

    Anyhow the result was that US consumers valued wide selection the most, price was second and service third. Specifically 21% said something positive about ‘great selection’ whereas only 5% said something about ‘best price’. You can see screenshots of the report here:
    http://www.mylocalwinestore.com/wine-social-media/social-research/

    I wasn’t prepared to pay $2000 pm so I never took it any further but it does support the contention that selection matters for a wine retailer.

    I certainly look forward to any comments fellow readers make about your other questions.

    • That’s very interesting feedback on the US consumer Bruce.The view here tends to be that we are more price conscious but it would be good to see whether or not similar research validated this. On your general question one gets informal feedback from retailers suggesting that category management, in its purest form, doesn’t work for wine implying there’s a large element of subjectivity but I would also be interested in more detailed feedback.

  2. if we look at Europe and the UK currently, there are two radically different approaches to ranging (in all grocery goods not just wine) competing for supremacy – the discounters (Aldi and Lidl for instance) with very limited and WIGIG driven ranges and the mainstream retailers with much fuller ranges crafted to suit their particular demographics. Which will dominate in the long run is the interesting question – price v choice!
    on a subjective note, I suspect wine consumers behave much as I do when buying something I know very little about (which is pretty much everything!). Taking olive oil as an example, I like to be reassured by the range on offer, for my choice – somewhere in the mid price section – to be validated by having offers above and below it and for my limited (and almost certainly incorrect or at least incomplete) knowledge of the technicalities of olive oil to be satisfied by having impressive sounding information (cold pressed / extra virgin / varietal) on the packs and finally having the choice of PET, cans or glass – some plain and some richly embossed. I can convince myself my rather random choice is based on knowledge driven criteria….
    as consumers gather more information from multiple sources though mainly the internet, I suspect they will be satisfied with more and more limited choices as they will actually know what they are buying while the happy fools (me!) will continue to prefer choice until we fade away.

    • I agree that as one grows in confidence in a particular category one needs less reassurance but I think we are a long way from the point where the size of a range doesn’t have a greater effect on us than it should rationally.I am sure however the size of the ‘sweet spot’ is declining and the rate of decline may well accelerate….and the growth of on line purchasing will as you suggest play a key role in this. Whether or not retailers respond to this decline will then depend on the role they feel that wine plays as part of their broader proposition.

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