Anacondas and Sacrificial Lambs

The relationship between producer brands and retailer brands in the UK table wine market

Back in the early 90s at Southcorp we were having trouble getting UK supermarkets interested in our Penfolds and Lindemans brands. The Australian sector was in its infancy and therefore of relatively little importance to them. Jacob’s Creek was the go-to brand, and there were few Aussie own-labels.

At that time I was a classic brand marketer. My business school training and marketing education within the Courage Group had taught me that “proper” brand owners should focus on building their own brands – not supply own-label and certainly not countenance retailer exclusives. Both would represent a sign of weakness.

Own-label back then represented around 35% of all table wine sales in the off-trade, much as it does now, but becoming a supplier of, say, German own-label at the same time as building the Black Tower brand was not an option we considered. The strategy was very simple: invest in consumer advertising to build a franchise and make the brand a must- stock line. The supermarkets were simply one route to market; developing relationships with them was important but not to the extent that one offered them cross-category solutions.

My “road to Damascus” experience came at a meeting with Sainsbury’s, who were more committed to own-label than most. They were concerned that Jacob’s Creek was getting too important and wanted to develop an Australian range that brought it down to size. We came up with a cunning plan.. We would supply a number of own-label wines to sit under JC and a few Penfolds/Lindemans wines to sit on top: Jacob’s Creek would become Jacob’s Squeak. The result of  ‘Project Anaconda ‘ was interesting. We did extraordinarily well, but so did JC as Sainsbury’s developed a reputation as a retailer of Australian wine

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Everyone’s a winner

The lesson to me was clear. The best way forward was to look for win-wins. You help the customer to achieve their goals and they are more likely to help you reach yours. If you need multiple retailer distribution to achieve your goals, then being viewed as a strategic partner clearly represents a vital part of the process. This increasingly has implied an openness to supplying own-label or at least offering exclusives.

There may be moments in time when brands can avoid this: Jacobs Creek, with it’s first in benefits, or, ironically, Penfolds between say 1995-2002 would be good examples. There may also be particularly impressive brand initiatives that provide exceptions to the rule (the recent Casillero del Diablo campaign comes to mind). However, when Dan Jago implied a few years ago that any supplier that didn’t offer own label supply as part of their proposition could not be a true strategic partner, he was merely voicing a point of view that had seemed pretty apparent for years.

This all came to mind at the recent WSET BACK course when one of the panel of senior retailers was asked about the growing importance of own and exclusive labels across the UK trade. “Why,” he responded, “would a retailer list a brand that aspired to broader distribution?” He stressed he wasn’t saying that such brands would never be listed but maintained that exclusivity was a major selling point. No wine brands, he went on to argue, are must-stocks: brands that the consumer wants so much that they would walk out of the store if they were not on the shelf.

The challenge for brand owners

The advantages of exclusive labels to a retailer have always been clear. At one level they ensure they won’t get embarrassed by their competitors’ approach to pricing or promotional tactics, while at another they facilitate promoting their own brand. In addition if the exclusive wine is recommended in the media, or becomes successful for other reasons, the retailer represents the only point of purchase.

However, in recent years exclusive labels have increased in importance. As an example, supermarkets have become much more confident in the strength of their brand. Not only does own-label now encompass premium wines, but much of the innovation on the shelf (for example new varietals) is now incorporated in the own-label range. The upshot of this is that there is inevitably less space for brands and that space is decreasing. Brands are having to work harder and harder, commensurate with margins becoming tighter and tighter.

When you also take into account the situation on the supply side the picture looks even bleaker for brand owners. Retailers ultimately go exclusive because they can. The volumes of wine available and the fragmentation of the supply base means that there are few if any regions where a retailer could not find exclusive supply of a wine (or at least a label) they wanted.

What can a producer do?

So what is a producer who desires to build their own brand in UK supermarkets to do? I would suggest there are two broad routes. Setting aside the option of investing so much behind consumer promotion that retailers have no real choice but to support you, given few wine producers have that ability, then the first is to develop a brand from scratch that clearly fills a gap in the market. While this is extraordinarily difficult to achieve there are examples of brands that have achieved  success  with propositions that appear to have real consumer appeal. A recent example would be I Heart . It will be interesting to see, however, whether I Heart is embraced by all  ( or even the majority of ) the major retailers, as its consumer proposition suggests that it should be, or whether the supermarkets’ increasing desire for exclusivity get in the way.

The second is to link  brand investment or initiatives with cross-category solutions that involve exclusive and own labels. At Western Wines we developed a complex strategy which involved protecting our core brand, Kumala, from the worst excesses of discounting with “sacrificial lamb” brands which were generally exclusive to particular retailers and had no pretensions to brand equity. We were also entirely comfortable supplying own-labels. At the same time we were investing significantly in consumer advertising so we could demonstrate to a retailer that Kumala was a brand with consumer pull.

A word of advice, though: deciding to supply own-label and becoming an own-label supplier is not an easy step. Even when one ticks all the QC boxes it is still necessary to prove to retailers that one is committed, as we were at Western . Retailers soon pick up on hints that own-label is an irritant or something that is produced ‘on a Friday afternoon’. Commitment needs to extend to the winemaker, owner and marketing team and not simply rest with the sales team. This can be a problem with multinational producers where own or exclusive labels may be solely a UK phenomenon and therefore not considered of strategic importance.

Where is this all heading?

The way things are going one can envisage a retail scene where well over 50% of all wine on a retail shelf represents an exclusive label of some shape or form. And of course this trend is not restricted to supermarkets: every trade sector values exclusivity to a degree.

Given that supply dynamics are unlikely to change in the foreseeable future, it is in theory possible for every retailer, of all shapes and sizes, to have an exclusive range. Add to this mix the fact that most consumers are terribly confused about what constitutes a brand in the wine category, and many are looking for short cuts, and the only real surprise is that it has taken so long for retailers in general, and the supermarkets in particular, to develop their own brands to their current level.

And why stop here? In such a confused market (and it’s getting more confusing by the day as new regions and varietals emerge from the shadows) there is no natural order of things, no guarantee that producer brands are guaranteed a certain share of shelf space.

There are certainly constraints to own-label growth. As a retailer noted at the BACK course, with own-label retailers own the IP, and with that comes a level of responsibility that is quite onerous. It is often easier therefore to list brands owned by suppliers, but these could (in theory) all be exclusive labels.

It is not difficult to envisage a market in which the only producer brands with cross-retailer distribution will be those that have developed real consumer power and/or those that are truly innovative. And even these brands may also be offering retailers “help” in developing their own brand.

The caveat : to a brand owner, private label must be a means to an end.

And I’m ok with this. I have no philosophical problems with supplying own or exclusive labels providing that, ultimately, if you are a brand owner as opposed to simply a trading company, they represent a means to an end and not ends in themselves. If, as a brand owner, for example you decide to offer different elements of your brand exclusively to different retailers then that can work providing of course you remain in control of the brand ‘framework’  and the consumer proposition is not compromised.

With own label the risk is that you open a Pandora’s Box and create a proliferation of labels that have no real strategic value, clog up the system and detract focus.

How to avoid that situation, while at the same time giving those  labels of strategic value the level of commitment and respect that the customer will judge acceptable, is, in my experience, a tricky balance ; but it can be achieved.

A final thought, and to broaden the discussion: private label can offer a producer a safety valve in times of over-supply. I sometimes wonder, for example, whether, if the major Australian brand owners had been more into private label when the Australian oversupply hit the UK earlier this century, they might have been able to avoid such heavy discounting of their brands, the repercussions of which are still to some extent with them. It will indeed be interesting to see,  following any future bumper harvests, whether the greater strength of Australian private label these days  moderates the impact of any oversupply  on its mainstream brands.

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10 thoughts on “Anacondas and Sacrificial Lambs

  1. A good column, as ever, and I agree with most of it, but… One dimension you fail to mention is the arrival of the discounters with their high-quality-low-margin-own-label model. McVities has just announced that it won’t supply Aldi because the German company’s biscuits are too big (and cheap) a competitor to its own branded product.

    The astonishing growth of the discounters, whose margins are often quoted as being “0-7%” and their impact on the established multiples (see Sainsbury’s deal with Netto), will continue to squeeze prices across the board. Producers will happily continue to supply the UK with white label and own-label wine on which they make small margins, but will they really bother with selling branded wine here in volume, while other markets offer more potential? Next Christmas, my spies suggest, we will see a LOT of nicely packaged own-label Australian wine in the UK at VERY low prices. If I were trying to build a market for £7+ branded Aussie wine, that’s not a prospect I’d be relishing. Even if I happened to be supplying that cheap own-label wine.

    • Thanks for this Robert. I have to say I wrote this piece with some trepidation. On one level it’s a straightforward subject: when producers ask me whether or not they should consider supplying own or exclusive labels my advice is along the lines of the arguments put forward here. However it is a multi layered issue and two of the layers I didn’t get into were, firstly, the difference between supplying discounters and ‘standard’ supermarkets and, secondly, the differences between the approaches\strategies of the individual supermarkets. Both will have a major impact on a producer’s approach.And I completely agree with you that the development of the importance of the discounters represents a fundamental change in the dynamics of this market.

      Your second point, that the UK is becoming more and more unattractive to producers I would also agree with…and the development of own label, and the subsequent pressure on branded space\margin is one reason for this. My piece was however aimed at those producers who had for whatever reason decided to develop branded sales here in the major retail sector. For them it is certainly more difficult than it was to get the right balance between branded and own label sales but if one doesn’t supply \refuses to countenance supplying own label ( as some do ) then this makes it even more difficult.

  2. A good description of the trading reality facing suppliers and brand owners. Retailer own label, exclusive brands and a surprisingly small number of supplier brands appearing in more than one or two major retailers make for a kaleidoscope offer to consumers. Too much drinkable wine fighting to fill bottles on a small number of market dominanting retailer shelves of course means the latter call the shots. And so they should, it is after all their business. No one is forced to supply them.

    But this reality is not necessarily benefical to the confused consumer. The Carpe Vinum document and talk at the London Wine Fair pointed out that under 35 year old consumers, generally less wine involved, are generationally much more comfortable with brands. Their lives are about brands and the values and consistency they supply. Wine should be no exception . As Mike says, the market dynamics make it enormously difficult today (more so than in the days of Kumala because of the way the market has evolved) to build a supplier owned wine brand across all the major retailers. But it remains the holy grail for suppliers and, I think, consumers. So we need to be smarter.

    • the era of the great aussie brands was driven by the fact that they offered something genuinely better than the consumer could buy outside the brands. how many brands can now genuinely say that what they are offering is worth the price differential from a retailer exclusive label (and retailer premium own labels mostly have better wine than the brands…). tough to sell brands to consumers – especially young savvy consumers -in those circumstances.
      fabulous wine in fabulous packaging is what drives brand creation – not anodyne offerings with no discernible added value. but maybe I am biased..!

  3. I find all of this very interesting, especially as I have wanted to build a brand for a number of years . however working in the Languedoc it is to say the least very difficult. We must not forget that the costs involved in the marketing are added on to yhe price of the wine, which means that your branded wine is more expensive on the shelves than the non branded. How can I justify the difference in price? I am not sure that it is possible. The desire now of all the major multiples to produce their “own label” wines is taking up more and more shelf space. The economic reasons behind this are very simple, when a Producer supplies a branded wine the Producer owns the label. When the supermarket buys an own label they own the label, so if one supplier is not up to scratch (or wants to increase the price) they can switch supplier.
    I have seen with interest what has been going on at Naked Wines, where the idea of a Human, behind the wines, again we come back to the emotional approach (or personal touch). I have seen comments like I liked so an sos other wines so I tried this one. Perhaps this is the way to go?
    Please excuse the English!

    • Thanks for this Simon. Your dilemma is not uncommon. If you are competing as a producer for shelf space with producers who are not investing in branding to the same extent…and your own branding work is not putting you in a different league ( as perceived by the customer ) then you will end up simply making less margin than them. And this is exacerbated if retailers are prepared to accept lower margins on own label wines. Also in an area like the Languedoc retailers can pretty much pick and choose given the vast number of suppliers.

      The way around this is less difficult if you don’t need to sell significant volumes and can focus therefore on the premium or super premium market; have a look as an example of what Justin Howard Sneyd is doing with Domaine of the Bee. As you say; personalising the brand is definitely one way to go. But its still not easy. Even looking just at Languedoc Roussillon there are so many people now developing their own personalities to different degrees….though, having been down there for the last month, Im still constantly surprised by how many are not joined up in their approach to branding on quite a basic level ( eg coming up with a brilliant label with real stand out and then not bothering the story on the back label or even on their website ). Anyway good luck to you.

      • I like the comments, however as I work for a cooperative that does produce reasonable quantity the idea Domaine of the Bee is great, couldn’t work on a major scale. We add that we are an AOP producer, with zero marketing from our group organisation.
        I have been selling a branded win to a UK supermarket for 8 years with again no marketing, we haven’t even started using QR codes, but no one here in the south ses this a a problem.
        Competion in this area is so extensive, that if we don’t offer something different or special we loose a big slice of the market.
        I haven’t as yet been able to find the right niche/balance for our type of markets, despite the fact that we continue to do quite well
        If by the way you are still in the region your are welcome to come and visit
        I work for the Cave des Vignerons de Saint Chinian

    • Simon, I understand your point of view, but I do so as someone who, over the last decade has – with my two partners – managed to create and build a Languedoc IGP brand called le Grand Noir that sells around 2m bottles in 19 countries. Like others, we have found the UK a difficult market, but are in Wine Rack there as well as – by the glass – in the Gilbert Scott and Capital Hotel restaurants. Other markets, such as Belgium, the Balkans and N America are all currently more fruitful than the UK and Asia is showing great promise.

      The key, as in any business lies in creating a consumer demand to buy your product at a price that works for you economically. That requires an understanding of what the ultimate customers want to buy in terms of style and quality, investment in packaging, and at least a minimum measure of marketing. Champagne brands understand this perfectly, as do many table wine producers in the New World. Most Old World producers, however, are far too ready to talk about needing to “educate” the consumer (so that he/she can “understand’/”appreciate” the wines one is trying to sell) and far too disinterested in actually creating any kind of relationship with them.

      Ultimately, those relationships (like the ones you refer to that are being created by Naked Wines) offer something retailer brands can never do. But it says so much about the wine industry that it has had to wait for Rowan Gormley of Naked Wines to show them how to do something they could and should have done for themselves. (And so many New World wineries, with their successful Wine Clubs, do as a matter of course).

      • Mike, first of all the offer is open to you at any time. Let me know when you are in the region it would be a pleasure to meet you.
        Robert, I thank you for the comments, which are interesting, and to say the least you touch on some very important points concerning the French wine industry.
        Your comments about the other markets are very true, and we are developing these as well, however my personal interest is in the UK market,as it is this market that I am responsible for.
        Your comments about finding the right product for the right market, is something that has been annoying me for a long time. I have worked in the French wine industry for 25 years, as both a winemaker and now in sales, it annoys me when the average French comment is “it is a good wine so the consumer will like it” (therefore easy to sell). I spent 2 years studying what the UK consumer drinks before starting to present wines to them. This cellar now gives me carte blanche for blending for my UK markets. We MUST please the consumer. I will say that certain buyers in the UK have not as yet understood their consumers, but that is another discussion.
        My questions remains how do I justify a higher price for an AOC Saint Chinian, when the average consumer is going to compare that to an AOC Corbieres, Minervois and Languedoc. What is the difference?
        A better wine, perhaps, but does that justify the price difference.
        We in the Languedoc need to pull out of the rut that says we are the cheap wines of the world, however on our own is not easy

  4. My apologies Simon for the late response…I somehow missed this. I have sadly left the area now and won’t be down again for a while. When I do I might well pay you a visit ( we have a place not too far away ). More importantly, I sympathise with your problem. It is extraordinarily difficult if you need to sell significant volume and the margin available for marketing or adding value is very low because the sector you are in, whatever the quality of the wine, is in effect a commodity where price is the key determinant of listings.

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