Dead – End Deals

Most wines bought in the UK are sold on special offer. Ironically, it is the Australians who have encouraged consumers to buy into the deal rather than the brand. Patrick Schmitt reports

AUSTRALIA HAS been treating the British market a little like a barrow boy peddling perishing pears, but without the cockney cries.  Two-for-one deals and half-price offers have become commonplace and, although they have certainly helped shift surplus stock, this has not been achieved without significant side effects.

Of course, there is nothing unusual in price promotion to pull in the punters – in the UK most wine is bought on so-called special offers – but the frequency and depth of deals that have come to characterise Australian wines have encouraged a fickle consumer, hungry for a bargain but loyal to no particular brand.

The shopper has also started to question the true value of many once-iconic wines, as is proved by slowing sales off-promotion. 

However, is this situation the case with premium wines as well as entry-level ones? Certainly Penfolds brand manager Fiona Boundy denies price promotions are a focus for the brand in the UK, claiming, "we do them perhaps once or twice a year". That’s probably because, "at higher prices it is more important to get the brand perception right," explains Alistair Morrell, commercial director at Stratford Wines.

"The message must be of total quality and above-the-line activity is very important for the brand," he continues. 

This view is supported by Peter Darbyshire, managing director of Thierry’s, who comments: "There is less impact at premium level – people do look at absolute price." And Stuart Purdey, wine buyer at Morrissons notes: "The majority of price promotion is in what I call the ‘fighting prices,’ which is the £5 area."

At high price points, on the other hand, he believes sales success is "frequently down to recognition of the name," a feeling expressed by David Gleave, managing director of Liberty Wines who admits that most of the company’s Australian brands "are £8.99 and above, and in that sector price promotion is not as important as at the £4.99 level and below.

"At the top end it is more hand-selling and quality that encourages consumption," he adds.

This story is similar for wines from other countries and is closely connected with the fact that consumers operate in extremely fixed price bands. For example, ACNielsen figures have shown that once a wine crosses the £4 boundary its sales plummet.  Thisis probably because on average, shoppers don’t spend more than £7 a week on wine; therefore they can just about afford two wines if the price is below £4.

So, bring a £5.99 wine below £4 at particular times of the year when people are likely to drink more and it will not only hit a key price point, but the consumer will buy greater quantities to take advantage of the temporary promotion.

However, do this too often and the consumer is less likely to buy the brand off-promotion. As Chris Thompson, marketing manager for Beringer Blass Wine Estates comments: "There is a danger of eroding your brand equity. If price promotions are too deep and too frequent, consumers will question the real price of that wine." And at the moment it seems supermarket-led price promotion is being used to drive traffic rather than as a lever to get people to trade up, encouraging consumers to constantly crave deals rather than quality brands.

However, the situation is rather different in the on-trade, where added-value promotions are a more effective solution than slashing prices. For example, Cranswick Premium Wine’s Salisbury brand is supported in the on-trade with menu cards, ice buckets and corkscrews, not price promotions. "The best way to increase volume in the on-trade is through wine-by-the-glass programmes," according to Bill Page, managing director of Mentzendorff, who also admits the agency are researching the possibility of setting up a scholarship for sommeliers, although it is currently only in "embryo form".

"We may do tutored tastings in restaurants to support the brands that we handle," he concludes. 

Diana Thompson, marketing manager at Waverley Wines adds, "Price promotion is not as important in the on-trade – it is generally geared around merchandising," while Michael Saunders, joint managing director of Bibendum points out, "At the top end, price promotion doesn’t really come into it – the wines are more sommelier- or recommendation-driven.

If you know what Grange is and you can afford it, you will buy it, but mostly it is due to a sommelier saying ‘drink this Shiraz.’  And the trick is to get the restaurant manager or sommelier to buy into a particular boutique through trips, tastings and winemaker events." However, Saunders adds that "at the lower end, promotional mechanics are more important," and in the leisure market offers such as BOGOFs are effective.

But there are several Australian brands that have attempted to temper the trend towards what some have described as "ridiculous" price promotions in the off-trade, while others have simply been swept along with the tide created by larger Australian companies.

Certainly Cranswick has held Barramundi at £3.99 and supported the brand with above- and below-the-line activity because, as Mike Awin, European managing director for Cranswick Premium Wine says: "Our policy is to heavily support our brands but we can’t offer deep cut promotions. Others have inflated their prices and then cut deeply to our price.  This is training the public to just buy on promotion."

Stratford’s Morrell cites in particular the Yellow Tail brand which he describes as breaking the mould. He argues: "We have seen a product from the Australian sector that thrives off promotion." But Morrell, like Awin, does note, "Some of the big brands have pushed prices up too high, which has meant that some consumers only buy on promotion. You don’t want a product that sells on promotion, you want one that can sell everyday.

I have had more than one national multiple buyer say to me ‘the big brands have the name but not the brand franchise because they don’t sell off-promotion’." 

Other producers, such as Brown Brothers, have admitted to using price promotion as a strategic short-term offer to get people to try the brand. However, Brown Brothers’ marketing executive Melanie Owens explains: "We try not to do silly promotions like ‘buy one get one free.’ It is usually £1 off or, at the absolute most, £2 off."

Anthony Mills, European manager for the Wingara Wine Group, says: "With Oddbins, who is our biggest partner, our strategy is to add value and do shallow discounting. With our red varietal wines, which sell at £5.99, two or three times a year we do offer two for £10. We don’t go too deep on price because we know we’re offering good wine." He also notes that  aitrose in particular embarks on "fewer promotional spots and does shallower cuts".

But although many believe it’s the large producers who are responsible for the BOGOFs and 40-50% price cuts, quite simply because they’ve got the volume they need to get rid of, there is Jacob’s Creek, which seems to have steadfastly avoided the price promotion route, yet is currently the best-selling red wine. 

This is probably because the brand has everyday pricing that’s attractive, as well as being established as the market leader. And, interestingly, the company is extending the brand laterally with the introduction of reserve and limited release ranges, rather than experimenting with new brands.

But, despite a few exceptions which are conspicuous by their absence in the price promotional push, it appears that Australia has led the way in encouraging consumers to buy the deal rather than the brand.

However, the approach is unlikely to continue, partly because it is doubtful that similar wine surpluses will amass in the future, and partly because of the appointment of new heads at the top of some of the biggest Australian companies.  But mainly because both the brands and supermarkets are driven by a much more powerful incentive ultimately – the need to make a profit.