Let’s seize this opportunity for radical change – and involve consumers too
I don’t envy Ross Carter, the man responsible at Brintex for the London Wine Fair, as it will be officially known in future.
On the one hand, he has to make sense of all the emotions that the event evokes, both negative and positive. On the other hand, he has to listen to a multitude of suggestions about the best way forward from retailers, distributors, agents, producers, generic bodies and journalists, all with their own often quite different agendas. And, lest we forget, he has to make an acceptable return for Brintex.
The pressure is most certainly on. My feeling is that the trade will give Brintex greater support next year, and that exhibitor numbers will return to the levels of 2012. Brintex is saying all the right things and there is talk of reducing prices. There is a feeling of renewed energy about the event. And the return to Olympia, an air-conditioned Olympia at that, has met with widespread approval.
But expectations will be very high: it is perhaps not an exaggeration to say that for some companies and generics, the 2014 event represents the last chance saloon. And as an outsider I will be intrigued to see how these expectations are managed.
Few deny that climate change is happening. The problem for producers is that it can be hard to predict what this will mean for their area.
Last summer I sat in the conservatory of an English wine producer on a gloriously sunny day. We were discussing his business plan and, in particular, the launch scheduled for the following year.
Suddenly the heavens opened and hailstones clattered on to the roof. In a remarkably short space of time the lawn looked as if it had been covered with a thick layer of icing sugar. The producer rang his vineyard manager, and it was immediately clear that the launch plans might need amending.
On the journey home I couldn’t help thinking that I needed to get out more. As someone who tends to feel that producers don’t spend enough time thinking about commercial questions, it is occasionally useful to be reminded that growing vines and making wine is not only a pretty time-consuming pursuit, but also one that is fraught with risk and subject to a fair degree of chance.
Some thoughts on the way forward for Independent Wine Merchants.
Whenever I read the results of a survey about the wine business there are always answers that surprise me, or follow up questions I’d like to ask. The recent reader survey in Wine Merchant, the publication which goes to some 700 independent wine merchants in the UK, proved to be no exception.
How viable is an exclusive range?
The first point that intrigued me was this. Is it really the case that only 34% of respondents thought it ‘very important’ to be certain that suppliers are not selling the same wines to nearby rivals or trespassing on their wholesale business? To be fair a further 40% thought it fairly important, but this still implies that 26% weren’t that bothered. If I was running a regional Wine Merchant my ideal would be to have a range that was unique to myself, excepting perhaps at the super premium end, and only deal with suppliers who didn’t embarrass my retailing or wholesaling activities.
Maybe this is a naive aspiration? When it comes down to it is this ideal compromised by the realities of the marketplace: the lack of suppliers perhaps who can offer exclusivity in addition to other key elements of the business mix? Or does it simply depend more fundamentally on the strength of one’s finances or the absence of time to go direct to some producers? Perhaps there is something else going on here that I don’t understand?
Too many producers are over-reliant on generic or varietal success.
Ask anyone in the UK wine trade to name a success story of the last decade and the chances are that Prosecco and New Zealand Sauvignon Blanc would be close to the top of their list.
There is no doubt that both have made a significant impact. There is no arguing with their percentage growth in terms of volume or consumer awareness levels: they are both now major categories in the wine sector. In addition, New Zealand Sauvignon has established itself at well above average prices, whilst Prosecco has achieved a higher status than Cava and is regarded by many as an acceptable alternative to Champagne. No mean achievements.
What intrigues me, however, is whether producers in these regions regard themselves as successful in the UK. Producers, of course, define success in many different ways: one of the fascinations of the wine business being the extent of the variation in people’s success criteria. For example, it is far from being all about money. I entirely accept therefore that one has to be careful when discussing success to define what one means by the word.
However let us make the assumption for the purposes of this piece that financial return (long or short-term) is somewhere near the top of producers’ success criteria. This in turn implies that marketing success must be aligned largely with financial success. After all producers don’t (or at least shouldn’t) indulge in marketing activity which bears little relation to their success criteria. The whole point of marketing is for it to be integral to a producer’s efforts to create or add value, not be some kind of peripheral puff.
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.
Ladder branding in the wine business
Back in the mists of time when BMW launched the 3 Series, I can remember reading an article suggesting that this was a serious mistake. By making BMWs more widely available, the argument went, their image of exclusivity would be irrevocably damaged, an image that had taken years to establish.
This came to mind as I read of the launch of Margaux de Chateau Margaux, which represents the third of four rungs in the ladder; below Pavillon Rouge and Chateau Margaux itself and above Margaux AOC. I’ve heard criticism in the trade about this move: some implying they are cashing in on the value of the parent brand, others suggesting that it represents a devaluation of Chateau Margaux’s brand equity.
One thing is clear: neither BMW nor Chateau Margaux will have taken the decision lightly. In the end, the decision on whether to cash in on exclusivity depends on the company’s long-term goals and financial position. Some companies’ success criteria may be satisfied by selling broadly similar volumes every year at high prices; others may decide that their goals can only be achieved by broadening their customer base, even if this means that their premium image is put at risk.
Should wine writers put a well-aimed boot in when necessary?
Back in 2006 I wrote a piece in Off Licence News following the publication of The Complete Polysyllabic Spree, a book by Nick Hornby on books and reading. In it he expressed his concern that too many people are put off reading because it is promoted as something you should do to improve yourself rather than as something to enjoy.
He criticised promoters of books for perpetuating the perceived divide in many people’s minds between “trashy” and “worthwhile”, which simply discourages the readers of so-called trash from broadening their choice. The task within the book industry he saw as making “worthwhile” books more accessible by promoting the pleasure they can bring.
There are clear parallels with wine in the above, but I focused on what was possibly Hornby’s most controversial suggestion. This was that book critics should not criticise books: they should either say something positive or say nothing at all.
This came to mind as I read Tim Atkin’s recent column in OLN (April 5th), “We must not pull our punches”, in which he reviews the role of the wine journalist in the UK market. He concludes that “most wine journalism is uncontroversial stuff” and that “the relationship between wine writers on the one hand and producers, importers and retailers on the other is too cosy”. He goes on to argue that “real wine writing should do more than simply review bottles. To put it bluntly, it should inform, engage, enthuse and, on occasion, upset.”
The dynamics of running the UK subsidiary of an international producer .
Sometime in the late 1500s the Duke of Alba, who was attempting to govern the Netherlands on behalf of Spain, wrote in frustration: “If death came in an order from Madrid, we would all be immortal”. Read any book on the development of the British Empire and what may come as a surprise is how so many key decisions – many of which still have repercussions today – were made in the absence of any grand plan from “head office”.
Well, I would suggest that most of those running companies which are subsidiaries of international wine producers are more likely to complain about too much direction as opposed to too little. But either way it is not easy for a parent company (or indeed a central government) to get the balance right.
Too much control from the centre and there is a risk that the subsidiary loses the flexibility it requires to realise its full potential in the market. Too little control, and one loses the synergies, and puts at risk the global strategy.
One of the key reasons that producers set up subsidiaries is to control the approach to a particular market, so it stands to reason that they will err on the side of too much control rather than too little. But in my experience at IDV (now Diageo), Southcorp and Vincor there is a remarkable variation in the philosophies of international companies when it comes to how much flexibility is given to the regional team.
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.
The search for the elusive sweet spot
Much consumer research into wine purchasing patterns notes that the majority of consumers find the experience of buying wine in supermarkets quite stressful, unless they know exactly what they are intending to purchase. There are constant references to “the wall of wine”.
Yet any experiment to date by the supermarkets which has involved reducing their range below, say, 100 lines, has failed. Not only were sales lost, but the operators found their credibility as wine retailers was threatened. This implies that on some level consumers are attracted to the very cause of their apprehension. Hence the paradox.
This paradox is not unique to wine, but given the relative complexity of our category it probably implies that the process of discovering the sweet spot – that point on the spectrum positioned perfectly between losing significant credibility and having too many lines – is more complex than most other categories.
I say probably, because I really don’t know. My experience in wine retailing was very brief and not exactly successful (viz the Destination Wine Company). I soon retreated to the dark side.