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
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.