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Tesco adopts Aldi and Lidl’s fixed price model
Having observed the success Aldi and Lidl have had with their fixed price wine model, Tesco has revamped its entire range and adopted the same practice.
Graham Nash
The supermarket giant’s wine range has been reduced by 27% to 660 wines in a category review that went live in stores nationwide this week.
Speaking to db at the Tesco autumn tasting at The Hospital Club in Covent Garden yesterday, product development manager for wine Graham Nash said: “We’ve run a lot of wine promotions over the years, which has been the strategy as it was always the right thing to do, but we’re going with stable prices this year.
“Aldi and Lidl have stolen a bit of everyone’s market share. We’re always looking at our competitors and they’ve done a really good job – their fixed price model has impacted on consumer buying habits.
“We’ve done some consumer research and have found that our customers want more stable pricing, so a lot of the range has moved towards that. From this week there will be no more half-price wine promotions in our stores.”
As part of the category review, a significant number of wines within Tesco’s range have been lowered in price, dropping, for example, from £6.99 to £6.
“We’ve reduced and rounded our prices but we haven’t reduced the quality of the wines – we’re working with the same winemakers as before. This isn’t a percentage game – we’re hoping to do more volume,” Nash said.
As to whether the price cuts will translate to a smaller profit on the part of producers, Nash said: “We need to negotiate with our suppliers to get the right prices for our customers.
“We want to improve choice for the customer – there are less wines in the range but the breadth of the range has improved.”
Despite the fact that selling wine for £5 and under in the UK is becoming increasingly unsustainable, around 200 of the wines in Tesco’s range come in at that price point.
“A lot of the wines come from Spain, Chile and South Africa. It’s still important to be present in that price point as the average UK bottle price isn’t far north of £5,” Nash said.
As for deciding which wines to cull from the range, Nash revealed that they haven’t just gone after the poorest performing countries in the range.
“That would be a blunted instrument approach – every country has lost a few things. The biggest, like France and Australia, are still the biggest for us.
“Every wine really needs to earn its place now but all the major wine brands still have some representation within our range. Some of our own-label has gone but it still accounts for around 40-45% of our range. We probably haven’t got it 100% right but it’s a learning curve,” he said.
Nash admitted that the last year had been “difficult” for the wine team and he’d seen more change at the company this year than his entire 14 years with Tesco.
“It’s been a difficult year but we’re pretty resilient. We’re focusing on our day jobs. It’s been challenging but it has led us to a more exciting and sustainable future for the wine category in terms of pricing and availability,” he said.
Among the changes to the range are a revamp of the Finest* packaging to make the branding more prominent on the label. Following on from the success of its Tesco Finest* Albariño and Fiano, a Frappato and Grechetto have been added to the range.
“We’ve added a couple of obscure Italian grape varieties to our Finest* range. No one will have heard of the grapes but we think they’ll be popular as consumers trust the Finest* brand,” Nash enthused.
“It’s all about getting the balance right between keeping the shoppers’ favourite wines and introducing them to exciting new styles without going back to the wall of wine model,” he added.
As for the future of wine retail in the UK, Nash believes value for money and a variety of buying channels is set to dominate consumer buying habits.
“People are looking for value now and I don’t see that changing. Customers have always had choice of where to shop for their wine – it’s important to have a lot of options,” he said.
Proescco remains the best selling wine at Tesco, closely followed by Pinot Grigio and New Zealand Sauvignon Blanc.
When are the supermarkets going to stop misleading growers and consumers with their antics. The wine trade is doomed if we allow this to continue. I can’t wait for the ridiculous pricing on Champagne that will inevitably happen at Christmas. There is no need to be crazy at Christmas as that is when people actually buy wine and yet it will still happen.
Kevin, I see your point, but the only people who are doomed by this type of strategy are the misguided producers who are prepared to go along with Tesco’s antics. More enlightened and forward-thinking producers will continue to avoid the likes of Tesco (they are not the only ones guilty of dragging the UK wine business through the mud) with a barge-pole as they realize that the future is in building quality distribution lies in the diversity, professionalism, enthusiasm and passion that the independent sector provides, rather than on the butchers’ table of the mass retailers. Very revealing is, quote (from Nash) : ““We’ve reduced … our prices but we haven’t reduced the quality of the wines – we’re working with the same winemakers as before.” – So, the producers are now being forced to sell to Tesco at a lower net price, probably under the threat of otherwise being delisted. And : As to whether the price cuts will translate to a smaller profit on the part of producers, Nash said: “We need to negotiate with our suppliers to get the right prices for our customers.” Says it all. Bye bye any producer margin that there might have been : a totally unsustainable state of affairs for any supplier with an ounce of business sense.