Cheap But Not Cheerful

Port producers would be much happier about growing sales if it weren’t for the frustrating fact that most Port is sold on promotion. Long term, this can only harm the category, says Chris Orr

It’s been a mixed year for Port sales in the UK. On the one hand overall sales have gone up, which is a positive result for a trade that has been fighting hard to gain an increased audience, against a pattern of falling sales across the fortified category as a whole. However, it seems increasingly clear that the battle over price in the supermarkets – where during peak promotion over the past two years, the price of branded LBVs has fallen to as little as £4.99 – is far from over.

Overall, the category grew by 6.1% as a whole last year (ACNielsen MAT to 14.05.05) moving from 625,200 9l cases to 663,500 during the period – significantly above the growth of the wine category as a whole and topping the charts in terms of the fortified category. Also positive, but less so, is that value for the category rose by 3.6% for the same period, from £49.9m to £51.7m, which actually represents a drop in bottle prices from £6.65 in 2004 to £6.49 in the same period this year.

 “The issue is complex,” explains Paul Symington, joint managing director of Symington Ports, “and also, to be perfectly frank, pretty frustrating for all those firms involved. There’s excessive discounting in the UK market of that there is no doubt. In the seventies, we had the port and lemon market, which was essentially a relatively low priced market. There was ruby port at the bottom end of the market and vintage port at the top end and little else between. What’s frustrating is that we’ve spent the last thirty years building a middle market, putting value into the market. Only to see it stripped out slowly so that, to some degree in value terms, we’re heading back to the original offering that we had thirty years ago.”

And Symington isn’t alone in feeling that way. “It’s a simple fact that the majority of port is sold on promotion,” says Adrian Bridge, managing director of the Taylor Fladgate Partnership, owners of Taylors and Fonseca. “But whether the current situation is engendering any brand loyalty or creating value within the market, then that’s a different question altogether and the answer is not likely to be overly positive.”

Over the past two years for example, both the Symington and Taylor brands have been the “victims” of unauthorised discounting. Both have agreed to discounts with major retailers, only to see the retailers cut the price further at peak times, essentially to increase footfall. The result is that the promotional price has fallen to an all time low.

 “The premium sector as a whole is actually doing well,” claims Bridge, who under the Taylors and Fonseca brands controls some 21% of the total UK market, (MAT to 16.04.05), “but the deep discounting at key periods of the year is stripping much needed value out of it. The challenge we face is whether these discounts are feasible and can continue within this sector. In the independent trade we are conversely doing very well.”

“At some point something has got to give,” says Symington, whose brands Dow’s, Graham’s and Warre’s, share 26.6% of the UK market. “If you look at the statistics, you can see that each of the major brands rises or falls in volume depending on how strong the promotion is. But there’s only so long it can go on.”

 “The UK market is still incredibly important to us,” says Christian Seely, MD of AXA Millésimes, owners of Quinta do Noval. “But it has to be said that compared to the US, getting growth and value out of the market is significantly harder work in the UK. “

Perhaps indicative of the challenge that the sector faces is that sales of BOB in the UK have gone down from 39% over the last five years, to just 25% in 2004. In 2005 the share of the off-trade market held by BOBs fell to just 19.9%. It would seem that the supermarkets have little need to buy unbranded product to sell on price, when they can do the same with branded product and offer more perceived value to the consumer. What the cost of that perceived value is to the brandholders long term is yet to be seen.

MADEIRA UPDATE

“We’re in growth, but it’s a slow growth and it’s just a case of finding out what it is that will help capture the consumer’s imagination when it comes to Madeira,” says Dominic Symington, who runs the Madeira Wine Company for the Symington Family Estates, who control in excess of 80% of all port shipments. “When people taste a properly made Madeira, they are astonished how good it is,” says John Cossart, president of Henriques & Henriques. “But progress is slow despite very low prices. I’m feeling optimistic because our marketing and distribution is improving.” And the figures back it up. In 2004, according to shipment stats from the Instituto do Vinho da Madeira, 3.58m litres of Madeira, with a value of E14.1m was shipped worldwide in 2004, representing a 6.8% rise in volume but only a 3.75% rise in actual value. However, it’s important to separate out declassified Madeira (essentially bulk Madeira that has had salt, pepper and other additives put in and is essentially only intended for cooking). Once that is done, the stats read slightly different with Madeira volumes shipped rising from 2.50m litres to 2.57m litres globally – just a 2.67% rise. Value however, rose by 1.78%, from €11.85m to €12.07m – representing only a slight downturn in value compared with volume. The biggest country for export in terms of “quality” Madeira is France, which took 558,048 litres last year, with a value of €1.8m, equating to €3.2 per litre. The UK comes second in volume with slightly more than half of those shipments, bringing in 286,758 litres in 2004, up 9.1% on 2003. However, in value terms the UK is significantly more lucrative, with value racking up €1.72m, up 6.7% on 2003, and representing an average price per litre of €5.8 – almost double that of France.