Who is the weakest link?

The great and the good gathered for the drinks business/Codorníu consolidation seminar to find the threatened species in the supply chain. Patrick Schmitt reports

BILL BREEN, Codorníu’s md, may bear little resemblance to Anne Robinson, but that didn’t stop him asking "Are you the weakest link?" at The Drinks Business and Group Codorníu Consolidation Seminar in early November, in the hope of finding out who was being squeezed out of the supply chain, and asking whether this process, where evident, is necessarily bad.

The panel included Somerfield’s Angela Mount, Waitrose’s Simon Thorpe MW, Lay & Wheeler’s Hugo Rose and Tragus Holdings’ Harry Morley.  Breen made the point that although there is likely to be further consolidation in retail purchasing points, he didn’t see this as a pan-European trend, because, "I believe you cannot ‘consolidate’ all consumer tastes and traditions across many different cultures."

As for suppliers, Breen comments that the top 10 wine brands are supplied by five companies, while oversupply will most likely encourage further consolidation.  Nevertheless, growing consumption, an increase in the number of routes to market and whole new countries beginning to enjoy wine will help temper the process of consolidation.  In other words, the situation is still far from bleak. 

He then handed over to the buyers, and firstly Somerfield’s Angela Mount, who appeared baffled by the idea that consolidation is "a dirty word".  She prefers to talk about "pace of change" and suggests that while "consolidation is a factor of a rapidly changing world," so is "fragmentation", before noting that "there will always be a role for the specialist wine merchant", it’s just that places like Somerfield "are focusing on the mainstream".

Polarisation of buyers

For this reason, perhaps "retail polarisation" is the process, not consolidation?  But as for Somerfield’s instore wine offering, Mount points out that she is trying to make the "range more targeted and relevant" as, after all, Somerfield "can’t stock everything", while emphasising the importance of individual store formats.

Lastly, and importantly, she made the comment that "the mainstream customer does not consider the concept of consolidation", implying that it is us in the trade that appear perhaps unduly worried by the process.

Or even, as she said at the outset about the wine trade of the past: "It was more focused on the pleasures of working in the trade rather than the needs of the consumer." 

Waitrose’s Simon Thorpe followed Mount with some hard-hitting facts, recalling how Fullers was swallowed by Unwins, which may be taken over by Castel; Victoria Wine was incorporated into Thresher, and Safeways no longer exists.

He said he’d listed as many as 140 significant mergers and acquisitions when he studied the market and the evidence for retail consolidation was compelling. 

The point of difference?

As for selling wine, he remarked that by encouraging consumers to buy on price, or rather discount, "We are forcing the majority of wine consumers into a small part of our assortment", while noting that there appears to be a "polarisation of wine consumers in the UK.

There is a sophisticated/knowledgeable consumer but it is a very small part"; the much larger section he refers to as the "commodity buyer".   And Thorpe believes we need to convert this latter consumer to something more aspirational.

Then again, when discussing supplier consolidation, Thorpe is grateful the wine department is different from the fruit section at Waitrose, which is supplied by a single company.  And he makes the vital point that range is not necessarily the most important aspect of any wine selection, but point of difference – an argument Mount also made, suggesting that she was trying to avoid any duplications on shelf.

As for a weakest link, he thinks it’s increasingly those suppliers which specialise in certain countries, and concludes that it’s important for large retailers to talk to small producers, not just other big companies.

Next it was time for the independent view, and who could be better equipped to give it than Hugo Rose MW, sales director for Lay & Wheeler.  He suggested that independents, without the buying power of the multiples, "have been obliged to adopt the mantle of defender of the fine wine faith".

Furthermore, to some extent the independent sector has benefited from the growing "emergence of smaller, artisanal-scale independent producers" whose wines have given independent merchants a "vital point of difference".

He even said: "I think this sector has been the shield for the independents, a defence against consolidation elsewhere."  But Rose is not blind to the impact of supplier consolidation, noting how this, coupled with oversupply, has led to the domination of discounts and deals, "incentives which are frequently not available to our sector".

This makes it hard to sell at list price to a "dealaddicted customer".  Rose also points out that there has been consolidation at the distributor level, but he put some of this down to "the ebb and flow of business, where fortunes rise and fall all the time", and added that there have been a number of new entrants in the mail order/independent sector.

He ended on a positive note, suggesting that "a willful desire on the part of many dedicated producers to remain small scale is something we are in a strong position to lever to our advantage".

On-trade opportunity

Finally, Harry Morley, CFO of Tragus Holdings, the third largest restaurant-only operator in the UK and owners of Café Rouge and Bella Italia, represented the on-trade.  He made the important point that he’d "eliminated all heavily promoted brands", not least because wines not widely bought in the off-trade "give the staff more to talk about".

As he explained: "With a brand, the consumer thinks he knows what he’s getting, which means minimum communication between a waiter and a guest."  On the other hand, having no branded wine does increase the need for comprehensive staff training. Nevertheless, the ontrade for Morley provides an opportunity to offer variety not available in the off-trade.

And the weakest link? It’s not the supplier, multiple retailer, independent merchant or on-premise operator.  It is, however, the business that fails to understand fully the consumer it’s targeting.

Consolidation is not the problem, it’s the sympton of particular industry problems, as is specialisation.