Common mistakes made by wine producers when considering their export strategy
In a recent post, “The Quest for the Holy Grail”, I considered the potential for wine producers cutting out the middleman and selling direct to consumers in international markets. My conclusion was that while the potential was significant it was not yet a serious possibility for the vast majority.
Assuming such companies have also ruled out the possibility of appointing subsidiaries in key markets (and for most small to medium-sized producers the costs of doing so are likely to be prohibitive) then this implies that, in the main, they will continue to work through agents and distributors.
As a consultant I have spent a fair amount of time helping producers with their route-to-market strategy in the UK, and I would argue that it is the most complex and least understood element of the marketing mix. Seven common mistakes, or omissions, come to mind.
1 The lack of a plan
Producers should start by detailing their objectives in the UK. What is the desired volume and level of financial return over, say, a three-year period? This should take into account the dynamics of their regional sector as well as the positioning and activities of their key competitors.
Crucially, thought needs to be given to their competitive advantage, particularly if their sector is quite crowded. How are they going to break through? As part of this plan they also need to consider the trade sectors on which to focus or rule out.
What is surprising to me is how rarely sufficient consideration is given to such a plan. Decisions are often made on too opportunistic a basis, which in turn suggests that the approach to the market will likely need reviewing sooner rather than later. Precious time and money will have been wasted.
2 Ruling out those “beastly” supermarkets
It is common for smaller producers in particular to be quite open about wanting to avoid selling through supermarkets. They may feel that such distribution is simply wrong for their brand or it may be more about having too many eggs in one basket.
However the reasons, in my experience, are as much emotional as rational. The question I always ask is this: if a supermarket buyer arrived at your winery and offered to take all the wine you wished to sell, at the price required, would you say no? If you are not sure, then it’s best to keep your options open.
A related problem is that even larger producers occasionally rule out major retailers, only to discover that their volume expectations cannot be met through the remaining trade sectors. They then find themselves in a real dilemma.
3 Looking to get the best of both worlds … and possibly ending up with the worst
Producers can give the impression they are playing fast and loose with the UK trade. As an example, they may launch through the independent sector and on-trade, but then find they need the major retailers to achieve their sales targets, so they then offer them the same brands without considering the feelings of those who helped them get established in the market.
Not surprisingly, this can leave a distribution strategy in tatters. Once you get a reputation for failing to play by the rules of the market, however informal they might be, it can be very difficult to redeem yourself. Every market has its nuances and sensitivities and wise producers study these carefully as part of the planning process.
4 Selecting the wrong agent
Selecting the right agent is not easy. For a start, the most appropriate agents may be already taken particularly if you are a late comer. However, even if you are in a position of having “perfect” choice, it can be difficult to achieve the ideal balance between market power, focus and empathy.
National agents will give you market coverage, but unless you have real stand out qualities or are particularly important to them in terms of profit contribution, then you may not get the focus and empathy you would receive from a smaller player. On the other hand a smaller player may well lack the strength and status to achieve your goals. In my experience most producers compromise to some extent when making their decision and it helps to go into discussions with a clear idea of where you feel least uncomfortable compromising. Some producers, for example, need ‘loving’ more than others!
5 Assuming the agent will do all the work
Producers’ responsibilities should not end with the stock leaving the cellar door. They should ensure they are up to speed with developments in the market and are able to have a proper discussion with the agent on the correct strategy to be followed. Most agents too are very keen on the producer, particularly the winemaker, helping promote their wines in the marketplace. In fact with niche brands this can become a key competitive advantage.
6 Launching at a discounted price
A common mistake is for producers to introduce wines at a discounted price to help the agent get going. The idea is usually that, when sales get to a certain level, the price may be increased. But this may well prove very difficult. In the intervening time you will have become a KVI (known value item) and your success may well be in part due to the fact that you are positioned at a specific price.
This can be a very difficult dilemma to resolve and if the launch price is not profitable for you then it represents a serious problem.
7 Relying on a handshake
Unless both parties feel that a “trial marriage” is beneficial, producers, in my view, should always have written agreements. These can be ‘one pagers’, but they should in particular be clear on issues relating to performance and “divorce”. It is often said that written agreements are worthless because either a relationship works or it doesn’t, but that is to miss the point. Agreements make the relationship more robust and professional and if circumstances or personnel change, which in a dynamic industry like ours is often the case, then they become a key reference point.
Abraham Lincoln and chopping down trees.
In summary, most of these seven deadly sins relate to inadequate thought prior to launch.
Abraham Lincoln once said: “If I was asked to chop down a tree in six hours then I would spend the first four hours sharpening the axe.” Many people in my experience (including myself) are far too impatient to spend much time on sharpening axes. However the downsides of not doing so in this particular instance are just so considerable.
At worst, a poor route-to-market approach can undo all that good work in the vineyard, winery and on brand development. At best, it results in a failure to realise one’s potential.
Brilliant Mike….but didn’t you just give us all a free consultancy session!?
I love that Abraham Lincoln quote – it applies to so many aspects of business and it takes massive self restraint to plan properly and not jump in.
Thanks Simon….old Abe is a good source of quotes. If you haven’t seen the film Lincoln yet its worth taking in a notebook! And reference the free consultancy, listing the problems is, as you know, the easy bit.
my preferred quote from Abe L is “it is better to remain silent and have people think you are a fool than to open your mouth and remove all doubt” – i have seen various versions of this quote but that one remains my favourite. not that I necessarily follow the excellent advice…
appointing a distributor is like meeting a new love and getting engaged – all the excitement of novelty and a blissful belief you are soulmates. Then is perhaps the time to remember Ambrose Bierce’s words “love: a temporary insanity curable by marriage”…not a bad dictum for managing supplier / distributor relationships!
I agree Peter, that’s a good one…though I didn’t realise it was one of his.And on agent\principal relationships one could write a book let alone a post. I’m sure I shall return to the subject, perhaps next time however looking at things from the agent’s point of view.