Trouble brewing for the wine business?

Beer has come a long way in the last decade. Now it’s brimming with premium artisanal products, and wine marketers should take note

Back in 2007 I was asked to speak at a couple of UK brewers’ conferences and to discuss what the beer category might learn from wine. It sounded an interesting topic so I readily accepted but without, I admit, giving the subject too much thought. As the date grew closer, nothing obvious came to mind. It was very easy to list all that wine could learn from beer … but that was hardly the point.

It was only when I pondered why someone in the beer category might think it worth asking a wine person for advice that I got close to having anything useful to say. Anyone who had been in brewing for the last forty years, I realised, would have witnessed the metamorphosis of wine from a rather arcane and elitist category into one that had a larger “share of throat” (and of the retailer shelf) than beer. Crucially, it remained significantly more aspirational. Wine had gone mainstream but remained relatively upmarket, and had a price spectrum that most other categories would die for.

Yet at the same time they would also have seen no great evidence of consumer-oriented marketing, and certainly little evidence of branding as beer professionals would understand it. It would all appear, as a generalisation, extraordinarily haphazard, whimsical and no doubt rather perplexing.

Perhaps they assumed I might be able to let them into a secret: the reality behind this perception. Surely such great success must be the result of some extraordinarily cunning plan, or collection of plans, which I might be prepared to share?

Much, no doubt, to their disappointment I had to tell them that there was no cunning plan. They were probably even more disappointed when I informed them that, despite wine’s extraordinary success over that period, the levels of return on investment were staggeringly low. And despite wine being so relatively aspirational, the margins when selling to the UK supermarkets were around half those of beer.

My conclusion was that beer had absolutely nothing to learn from wine in terms of either making an acceptable return, or in terms of sales and marketing tactics, with the possible exception of attempting to link beer and food. What beer could learn from wine, I argued, was more intangible, philosophical and, in marketing terms, more cultural.

I pointed out a number of things that made the wine category different. There is relatively little consumer oriented marketing and real brands are scarce. This coupled with the extraordinary diversity of the range available and the producer base, together with the complexity of the ‘language’, makes it in many ways the perfect category for consumers cynical about marketing and also goes a long way towards explaining its aspirational nature. The perception of many is that it remains a category with an artisan ethos at its very heart.

The way forward for beer marketers, I argued, was first of all to hold on to the advantages they had over wine. These were a relative lack of production constraints and, in particular the ability to more easily match demand and supply, coupled with a more structured approach to business planning and a strong consumer-based marketing and brand building culture. They should then build on to that base some of the values that they lacked in order for beer to become more aspirational.

I summed up my message in two words: they needed to “embrace complexity”. Not just accept it as a potential value adder but celebrate it, make it part of their culture. However, unlike wine, they should embrace it in a structured way and one that was relevant to the target consumer. Ideally, as part of their proposition, they would also achieve that difficult balancing act of giving the impression to the consumer that they were not being marketed at when the reality was very different. In such cases the product itself rather than the brand must therefore be seen to be the “hero”.

The beer revolution

This all came to mind recently as I read various pieces about the development of the craft beer and premium ale sectors in Off Licence News (16th August and 6th September).

The beer category appears astonishingly vibrant currently both in the UK and elsewhere. And I would suggest one reason for this vibrancy is down to the beer category taking lessons, consciously or subconsciously, from the wine category.

The “revolution” (and I think it’s fair to use that term) has broadly come from an astonishing diversification in the range, coupled with a strong focus on quality and artisanal values. And behind all of this there has been some pretty sophisticated marketing. It’s a very effective combination.

For some consumers, beer is not only more acceptable – it’s also aspirational. But this is not of course down to complexity or diversity per se. It’s about relevant complexity as perceived by the consumers (and retailers) who are driving the category. The general impression of a large number of consumers is that beer is higher quality than it once was, that there are more options available, and that this change has been brought about by small producers, both in the UK and abroad, with artisanal values, as opposed to multinationals. This is all highly positive.

Where does the beer category go from here? I see three main challenges.

Firstly, producers have to avoid getting into complexity for its own sake and forgetting that most consumers are, beyond a certain level, just not that interested. Once one climbs on to that “complexity treadmill” it can be very difficult to get off.

What amused me in the OLN articles is that brewers are beginning to sound like wine producers. Read the debate about the definition of craft beer as an example. Some argue large producers cannot make craft beer; others (presumably the larger producers) say that craft beer “isn’t about the size of the brewer, but the brewery mindset”.

Then there is the problem the trade apparently has in distinguishing craft beer from premium ale. Do consumers debate such issues down the pub? I somehow doubt it. Probably no more than wine consumers debate the relevance of Appellation Controlée to the quality of a French wine or whether or not Albarino and Rioja are regions or grape varieties.

I’m not belittling the importance of such conversations between marketing people, in the sense that there are clearly core consumers in each sub sector who need to be looked after – and you ignore that at your peril. But as the “revolution” goes mainstream one shouldn’t assume all beer drinkers are aficionados.

The second challenge is how retailers manage the explosion of new launches to best effect. How do they balance the need to reassure consumers with brands they already know with the need to encourage new brand development and ensure the category is constantly re-energised, without unduly confusing the consumer?

And thirdly, given there will inevitably be consolidation at some stage, when it comes the large producers must invest heavily in “behaving small” in terms of how the consumer understands the term. This is not easy. For example, consumers like brands that are readily available, but if they become ubiquitous then they endanger their franchise: the early adopters, who could well be the core users, move on. It’s a delicate balance.

And as for wine … well, not only does it appear now to have absolutely nothing to teach beer, but it needs to watch out. Interestingly in neither of the OLN pieces was wine noted as a competitor to beer, yet of course it is, as an alcoholic beverage. And if the progress in the beer category gathers momentum, as it assuredly will, and moves in the direction of wine, which is clearly happening, then I would hazard a guess that within the next five years that will become a significant issue for our category.

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11 thoughts on “Trouble brewing for the wine business?

  1. Another good piece Mike. A few years ago, I was asked to talk to Richemont, the company behind brands like Montblanc, Cartier, Van Cleef & Arpels, Alfred Dunhill, Chloé, Net-A-Porter, James Purdey and Shanghai Tang. The theme was “what can luxury goods learn from wine?”. Apart from Champagne (which is a luxury good), I found it very hard to come up with any useful lessons. Quite the reverse.

    I tried to say that there was some value in promoting the man/woman who actually made the wine rather than the model or actor paid to promote the watch, clothes or scent. But I couldn’t offer any evidence to support this. People who buy £10k handbags do not seem to worry about who actually made them, or precisely where they were made. Instead of analysing this and considering what lessons we might learn from it, we wine people prefer to laugh at the handbag – and other luxury good – buyers, and go on working in an industry where profit margins remain dangerously low.

    • Thanks Robert. Yes, it’s difficult to think of how luxury goods’ marketers might learn from wine. As to the question of using winemakers that’s a post I want to get around to writing. It works brilliantly as a tactic in trade marketing and of course that is as far as many wine producers get. It also works well in terms of promoting to those consumers who are in to the ‘language of quality wine’ ( as I used to find with Penfolds ). However the danger is that for brands that need to appeal beyond that audience ( ie most brands with any real volume aspirations ) one, in effect, rolls out the winemaker marketing role beyond the point where its relevant. And, as you imply, that illustrates one of the key problems of our industry….we tend to look at branding from the wrong end. We start with the trade and extend from there. Most luxury goods sectors start with the consumer and therefore, inevitably, have a more holistic view of branding.

  2. Good post Mike maybe Albury Vineyard should produce “Craft” wine! Looking forward to seeing you next Wednesday.

    Nick

    Nick Wenman Albury Organic Vineyard e. nick@alburyvineyard.com m. +44 (0)7768 863650

    P Please consider the environment before printing this email

    From: the mike paul blog Reply-To: the mike paul blog Date: Friday, 4 October 2013 11:16 To: Nicholas Wenman Subject: [New post] Trouble brewing for the wine business?

    WordPress.com Mike Paul posted: “Beer has come a long way in the last decade. Now its brimming with premium artisanal products, and wine marketers should take note Back in 2007 I was asked to speak at a couple of UK brewers conferences and to discuss what the beer category might lea”

    • Thanks Nick, I look forward to Wednesday too. And I think you already are producing the equivalent of craft beer ! The problem you face relative to beer ( as do all other wine producers, particularly in more marginal climates ) is a lack of control over supply. I was in South Africa with a producer ( Charles Back ) who is now in the artisanal beer business as well as wine. This really brings home the relative constraints within the wine sector when it comes to production.

  3. Mike, I don’t think the craft beer market and the fine wine market is comparable in the way it’s being discussed right now. What is happening, is that the beer category is becoming like the wine category. You have to go back 15-20 yrs. The wine offering comprised a few brands/regions: Lambrusco, Claret, Beajolais, Chianti etc. and the odd brand. (i.e. there was little choice). Then what happened? Different varietals and blends started being offered, regionality and new regions came into play, a myriad of new brands and exclusive labels came in. So what we have now is as we all call it a wall of wine – a wall of choice… and it continues. Beer? The beer category has traditionally been comprised of a few key brands. So in a beer market with very little choice, the craft beer segment is providing choice and variety, offering exploration and new choices. In the future the consumer will view the beer category as a category with loads of choices and where do they begin to choose. Premium wine is driven to a large extent by the economy. Ultra premium wine is not even really viewed as wine. It’s viewed as a Luxury Good. I haven’t seen the latest stats on beer vs. wine growth and market share from Nielsen (bad me) but if people are switching into beer, maybe it’s because they are bored of wine and like the new offerings coming from craft beer. It’s really up to us, the wine industry, holistically, to figure out how if we either pull the choice back (you can see this happening in UK grocery) or whether we keep the choice as is. But, the relevant people in the wine industry whether they be winemakers or marketeers or brand owners etc. need to start figuring out how to tell better stories to the consumer, how to offer exciting points of difference and innovation. Wine brands/wineries/winemakers need to start realising that they need to form communities with engaged consumers around their brands and all of that and the opportunity is in their hands… with online as the future and social and tech evolving everyday, there is an enormous opportunity for wine to really create excitement and change and be meaningful for the people who are listening and the new people who will come in via word of mouth or research etc.

    • Catherine, I would certainly agree that beer ( even premium beer ) and Fine Wine have very little in common and agree with you too on your points on how we have reached this point. My concern, in summary, is that certain consumers of wine will find beer ( and indeed cider ) more appealing than they currently do because both beer and cider are adding more aspirational values to their categories, which implies that wine will have more competition in the mainstream sector. I would suggest that wine people have never taken these two categories as serious competitors until now and I think that attitude needs to change if you selling to ‘mainstream’ wine drinkers.

      In addition, we can learn ( as you imply ) from the methods used by many of these brands ( and of course from brands in other sectors too ). A key advantage many in the beer and cider category have is that they understand branding…its in their DNA in a way that it isn’t generally in our industry. That’s the challenge

  4. Yes but… the margins in the UK industry are depressing vs. Asia/Usa… so the wine biz needs to use social media and consumer interaction and marketing tactics/methods that do not cost them a lot. Once they learn how to do this on their own then it’s fine, rather than paying someone thousands and thousands who doesn’t really understand their wines or their message… Have you seen the new Casillero del Diablo ad? It’s amazing what you can do for wine with a little bit of cash…. http://www.youtube.com/watch?v=XTdfN_i61IU

    • I completely agree. The great irony is that to make the most out of very small budgets requires more skill marketing-wise than if you have large budgets ( assuming similar goals ). The wine industry is in therefore a particularly tricky situation : its very difficult to generate marketing funds when you are making a marginal return and its very difficult to increase ones returns without marketing investment. On top of this we could increase our returns for less marketing spend if we were much better at marketing than we currently are as an industry, yet we won’t get much better at marketing without increased investment in marketing resource\training !!

    • Absolutely….that’s the importance of WineStars. And, on a related subject, competitions need to encourage producers to look at things more holistically by rewarding producers who do.

      • That would be good to see but I can’t see that changing. Great article in wine.co.za on the pointlessness of more and more competitions just handing out medals and not encouraging business sales etc. I will email it over.

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