Why wine based beverages could solve several problems at once for the wine category.
In a recent edition of Off Licence News (8th March) Steve Barton of Brand Phoenix predicts that the UK wine market will fall by a further 9 million cases over the next three years, implying a continuation of the trend of the last couple of years. He believes that consumers will continue to be driven out of the market as the average price in the off-trade moves to £5 and above. He may well be right. The key question is, should we care?
How many wine producers make an acceptable return by selling wine to the UK off-trade to hit a price point of £5? With duty and VAT taking out not far short of £3 a bottle, and retailers accounting for close to £1.50, it’s hardly an attractive proposition.
Producers can look to make cost savings by moving bottling around, or by changing sourcing. But the inexorable rise in duty – and, no doubt, retailer margins, as well as general cost increases – suggests that this is hardly a long-term solution.
There is surely no question that the under-£5 segment, which currently accounts for around 50% of the off-trade, is close to becoming non-viable for suppliers with a standard wine portfolio. The only possible exceptions are large producers with substantial economies of scale, or those producers with radically different success criteria.
Ask yourself the question: if this market didn’t exist currently, would producers and distributors be targeting it if it suddenly emerged? Are consumers who are not prepared to pay £5 for a bottle of wine worth bothering with? On the face of it, the answer would appear to be “no”. However I would suggest it’s a much more complex issue than that.
On one level it could be argued that some of these “lost” consumers might in time have traded up to become profitable to us. There is, however, I believe a more important concern: we shouldn’t assume that they will return when times are less hard. Wine as a beverage now has more competition from other forms of alcohol than has previously been the case. Not only are beer and cider becoming more aspirational, but the boundaries between the categories will almost certainly become more blurred with the growth of branded beverages where the base alcohol used is not that relevant to the proposition. This trend will also, of course, affect the attitude to wine of potential new consumers.
The current response of some producers and brand owners to the crisis, as Steve Barton notes, is to focus on low-alcohol propositions which avoid the duty. This makes perfect sense: it is a win-win. Such propositions resonate with a real consumer trend, there is a clear cost saving and it fills the gap vacated by wines of “standard” strength moving over £5. Music to the ears of both producers and retailers; the latter being keen to ensure their wine offering remains relevant in price terms to the majority of their consumers.
Are we encouraging trading down?
I have, however, two concerns with this sector. Firstly, the successful brands appear to be (almost without exception) range extensions of existing full strength brands as opposed to stand-alone propositions. Not only is this bound to lead to some consumer confusion … it must surely compromise the parent brand proposition.
I quite accept, by the way, that if Western Wines was still going we might well be tempted to take the same route with Kumala. Leading mainstream brands tend to attract NPD like a magnet: it was certainly our default position. It’s an easier sell-in to the trade, and avoids the costs and risks involved in developing new propositions. But that doesn’t make me comfortable with it from a brand equity perspective.
Taking a broader view, my second concern is this. What will be the effect of such brands, as they gather momentum, on the wine category as a whole? Certainly they will help to keep the volumes up and consumers engaged, but surely there are downsides. Maybe some brand owner or retailer can convince me otherwise, but I find it difficult to believe, particularly given the way some of these brands are packaged, that there isn’t a fair amount of consumer confusion. If I’m right, haven’t we just found yet another way of trading the consumer down, or at least of keeping them in exactly the same place?
The attraction of Wine Based Beverages (WBB)
This is one reason why I’m much more excited about the WBB sector. Such propositions, by their very nature, cannot fit into current mainstream branded ranges, as they may not be labelled as wine. Wine producers will be forced to think laterally – and therein lies the excitement.
In my ideal world we would develop a highly profitable sector of WBBs. Most would be low alcohol, many would have bubbles. They would come in all shapes, styles, sizes and colours and not necessarily in glass. There would be money for investment in brand building, they would be marketed well within Portman Group guidelines and, finally, the sector would become so large that any oversupply of wine would have a ready outlet.
We have the opportunity to be bold, to prove that we can think outside the rather small box which, as a generality, we inhabit as wine marketers and brand owners, due at least in part to the expectations we have created in the minds of consumers. With WBBs we will not be able to fall back on excuses for our lack of creativity such as, “consumers expect wine to be packaged in glass”. Such brands can therefore take inspiration from other sectors in a much less constrained way.
So, am I bothered?
So to come back to my question at the beginning: am I bothered by losing consumers? Only if these consumers are lost to wine producers, as opposed to being lost to the wine category as currently defined. We have the opportunity to segment the category; to separate what one might call “real wine” from WBBs. In fact the less these two sub-categories look and feel like each other the better for both.
WBBs need to stand alone for their own credibility and profitability: they must not be seen simply as low-price offerings, we need to aspire to more than that. Real wine, on the other hand, needs to be distanced so that consumers have less encouragement to trade down and we can focus on endorsing as opposed to undermining its aspirational values.
Currently our category is in danger of achieving the worst of both worlds. We have declining profits, in part because we can’t persuade enough consumers to trade up, and we are losing consumers. Meanwhile beer, cider and spirits appear to be indulging in a frenzy of innovation which is putting us to shame.
We need to break the mould. The technology exists to both create brands which will broaden our consumer base profitably, without further debasing the core category, and to promote such brands cost effectively. If wine producers and brand owners don’t take advantage of this opportunity then producers in other categories assuredly will.
Hi Mike, please do keep your very informative blogs coming through as these are the open debates we should be having within the wine category at all levels. I have recently assumed the new PLB post of Strategic Director so happy to engage in these types of discussion with anyone else in the trade that has the appetite to drive change (in response to the March “Dead shark” blog). To make a few comments in support of Mikes observations:
> Wine needs to find a way of competing with other drinks categories with the “1st Steps ” into alcohol consumers that default now to fruit ciders and less complex spirit mixers as a less challenging taste profile than wine and then stay loyal to that sub category and broaden their repertoire.
> Learn from the cider trade as decades of double digit category decline was overturned by “dumbing” cider down in terms of its taste and serve over ice. The whole category has since broadened into an array of pack formats and styles from unchallenging mixed fruits to highly complex niche premium ciders, a clear progressionary ladder of styles from unchallenging to highly challenging on taste profiles (wine can do the same)
> lower alcohol wines could fit this bill of less challenging but the UK gatekeepers have defaulted, as is so common in the wine off trade, to devalue the new sub category with deep promotion to fill the 3 for £10/£12 void from the outset rather than launch via a premiumisation strategy led by drinking occasion.
> I like the idea of WBBs and see it as the way forward in various pack formats for all occasions. If I was one of the UK gatekeepers of one of the UK major mults, I would potentially be looking at creating a whole new alcohol sub category called “fusions” and merchandising beers, lagers, ciders, wines, spirits together so taking Mikes ideal world scenario to the next level. Contentious for those only thinking within the current paramaters of wine.
> In summary, “making wine less winey” should certainly form a large part of our thinking as a category. To truly succeed, we need to challenge and change the mindset of the current UK gatekeepers so they start to think about opportunities outside the current very narrow confinements of wine i.e. has to be in a glass bottle and taste within a very limited parameter of the full taste spectrum.
> Would like to hear Mikes view on British Made Wine. There is a real movement here across the whole of the off trade so it is a brave person to stand up and challenge but is this the single biggest factor in devaluing our category?? A worthy debate I feel.
Good post and comments from James. Two observations:
I suspect many people couldn’t give two hoots whether the drink they like is legally classified as a wine or a WBB. Nor whether a WWB style drink is made from wine or some other base. In years gone buy I used to sell zillions of boxes and bottles of still Perry and the majority of consumers referred to it as wine. It didn’t matter to them what the legal definition was.
Second, there is a good case to be made for the cultural importance of wine in enhancing life. But our job as business people is to profitably supply products that appeal to retail buyers and consumers alike. If we can’t do that we should not expect to go on selling grape based alcoholic products of any type at any price. Even less go on producing them.
Firstly Jerry I agree with both your points. Taking your first point there will always be consumers who make no differentiation between wine and other forms of alcohol. There is little producers can do about that.
To maximise the opportunity I agree with James. We need the major retailers to merchandise “fusion” brands of al shapes and sizes together.This would give credibility to the sector and also encourage brand development.In my ideal world ‘fusion’ brands would not be perceived as inexpensive alcohol but as a viable alternative to other alcoholic drinks. There would be premium propositions in there too; after all the product and packaging possibilities are infinite.
Such a sector would of course compete with wine ( as it would with spirits etc) but that would be fine if wine producers were brand owners and not just observers! It would become a profit stream which as you say is the point of it all.And at every price point the margin will likely be higher than with real wine given most of these beverages will incur less duty.
Within WBBs there will be brands which focus more on their wine base than others.I’m more comfortable with the latter as I would prefer to minimise the crossover. Whilst I also feel it would encourage more lateral thinking from a marketing point of view.However there are opportunities across the spectrum.