The Sherry Challenge

06 July 2005 By db staff writer

“standfirst”>Delegates at the drinks business Sherry seminar were assured that Sherry’s dry, sophisticated taste is a plus-point, but investment in image and promotions is needed, says Patrick Schmitt

If you’re going to analyse exactly how to bring new customers into a category you might as well choose a really tricky one – a product or sector with a tarnished reputation, or a challenging profile. That way, others will at least feel, “Well, if they can do it, so can we”. Hence, when the drinks business considered the topic of drawing, at times dragging, a fresh generation into wine, it seemed appropriate to team up with the Sherry Institute and take this much-maligned fortified wine as a case study. In other words, Sherry’s image is poor and its taste is unusual – making it popular, trendy even, must be impossible? Or so the thinking went. However, our panel decided at a packed Waterfront room at the London International Wine & Spirits Fair that even Sherry can turn itself around.

db’s very own contributing editor, Chris Orr, introduced the discussion, raising a range of topics focused on the act of brand building. Key to his message was, “If you want to take control of your brand, you do need to invest in it, both in terms of time and money.” He cited Tio Pepe’s sponsorship of Hell’s Kitchen as an example, and held up Jacob’s Creek as a mainstream success story. As he reminded the gathering, Jacob’s Creek is on promotion for only around 45% of the year, while some brands are on discount as much as 75% of the time – Jacob’s Creek’s success is, in fact, attributable to the brand owner’s decision not to invest heavily in price promotions but rather in marketing using sponsorship and advertising. This has encouraged a consumer following for the wine that isn’t based on price alone, giving the brand owner, not the retailer, “the power,” as Orr said, “so the buyer has to put it on the shelf.”

New Users

At which point it seemed sensible to hand over to a buyer, in this case Somerfield’s Angela Mount. She began by asking, “How many years have we been debating how to save the Sherry category?” before immediately answering, “Too many and with little effect.” The category has been showing “continued decline for the last 10 years,” she said, “but it is the wine which we in the industry believe in passionately and want to see succeed again.”

Part of the problem for Mount is the Sherry buyer who tends to be comparatively old and downmarket, and Sherry has “the lowest consumer profile of all fortified wine.” For instance, according to TNS, 86% of Sherry buyers are from 1- or 2-person households, meaning these consumers are only ever likely to buy an occasional, and single, bottle. “The Sherry market has declined over 20% in the last five years and 5% in the last year alone,” she said. “Why? Not just because it’s fortified – Port sales increased 1% this year and have risen over 15% in the last five.” The reasons, or rather problems, are “image, usage, understanding and communication.”

Mount then briefly considered the Sherry market, which is “dominated by two brands [Harveys and Croft] which account for 45% of the market, and both are sweet styles. The top Fino brand,” she continued, “has only 3% of the market, and while the value of the total wine and fortified market is rising at 13%, Sherry is up 0.1%, while the average spend per buyer is down 4.8%.” She also explained that while consumers are leaving the Sherry market, new ones are entering it in the multiples. “Almost 80% of all Sherry is now purchased in major multiples,” she said, “but customers are still buying less and less often.” To reverse this Mount suggested recruiting “new users.” But who? As she noted, “The under-35s only account for around 17% of all wine consumption in the UK,” while “over 50% is consumed by the over-45 age group, and this figure is set to rise over the next 10 years as the average UK age increases.” So Mount’s message is to target the younger market – with various communication and trial mechanisms – but without ignoring the older market. “50 is the new 40,” she exclaimed.

As for buying incentives, Mount suggested using recommendations, like the fact Fino is a natural food wine, and possibly employing some crossmerchandising. She did counsel brand owners to warn consumers about the taste of Sherry, which can come as a “shock,” and that price promotions are important, “because they reduce the financial risk of trial.” She expanded on this latter point, noting that even deep-cut promotions “have a role in the Sherry market if used tactically – 55% of customers buy on promotion in order to purchase a wine they could not normally afford, or would not risk.” The point being that consumers have been trained to look for price reductions and if, as Mount says, “’special offer’ is the hook to increase penetration, trial and consumption, then Sherry needs to be involved”. As she exemplified, “Port is getting it right with the strategic use of one or two periods of deep discounting per year in most multiples … and the category is showing volume and value growth. There is no reason why Sherry can’t do the same.” As she summed up, after pointing out the importance of education and communication in reversing the erosion of the Sherry market, “build a strong strategic promotional programme – promotions have their role too.”

Massclusivity

Next up to offer some advice on how to attract new drinkers was Jason Danciger, purchasing and catering director at SFI, the company which owns on-trade chains like The Litten Tree, The Slug and Lettuce and Bar Med. He painted a far from rosy picture for the on-trade with his opening comments, noting in particular that consumer spending is increasingly fuelled by debt, and we should expect people to “become more cautious in their spending”. Further, consumers seem to be financing home-based activities, like decorating, and are therefore less likely to spend time in bars and restaurants. Danciger even predicted, “Spending on maintenance and decoration is forecast to grow 22% over the next five years to £20bn.” He also listed factors such as the enthusiasm for health and fitness, interest rate rises, the lure of travelling abroad with low-cost airlines and the expense of mobile phones as reasons why “consumers have a limited amount of time and money they can spend on leisure – and they are choosing to spend less in bars”. Apparently, for instance, less than 50% of drinks are now bought in the ontrade while even value sales have started to slip.

So what are the consequences? Well, as Danciger points out, “Outlets must find ways to compete as the market becomes over-supplied.” Some places are focusing on a particular theme, others on food, but, “The standard on-trade experience is seen as less pleasant than before…and the ontrade needs to show it can adapt to appeal to the slightly older, more affluent 25-plus age groups.”

 Danciger believes the on-trade can  benefit from what he terms “massclusivity”, the type of luxury people can have everyday, be it driving a BMW or being on a nightclub VIP guest list, “which often reach 150-plus, or 50% of capacity!” This increasing move towards regular enjoyment of little luxuries can be harnessed by the on-trade to encourage consumption of more profitable premium drinks. Danciger also points out that, “A key trend for women is treating and rewarding themselves,” and hence sales of indulgent foods are on the increase – “premium ice-cream is now worth £150mplus, growing at 25% over the last five years.”

 As for the wine list, Danciger makes the point that it is “simply the platform” and promotions are necessary to encourage people to try different wines on the list, pointing out that it wasn’t the list alone that prompted the sale of 400 cases of white Rioja through The Litten Tree in a single month, or 150 cases of Cloudy Bay through the Slug & Lettuce in two weeks. He mentioned techniques such as buy two glasses get the rest of the bottle free or try a premium wine at the house wine price. He also stressed the value of staff recommendations, talking to customers, and the importance of clear, easy to read labels, and the value of treating “wine as a drink, not a mystery”. The environment is also key, and Danciger suggested ripping out the old carpets and putting in proper lighting if you want to attract women to your establishment, while he also emphasised the importance of merchandising – “stylish presentation, not in-your-face cardboard cut-outs”. Staff training is also crucial because, as Danciger said, “The key idea for the ontrade is that it must offer an experience which is better than the ones consumers can get elsewhere.” Lastly, for the sector as a whole, he warned, “If the on-trade wants to continue to operate profitably it must deliver a premium quality, exclusive-feel experience to a wider range of adults.”

 Image investment

And talking about a wider range of adults, next Jeremy Rockett, marketing director for Tio Pepe, took to the floor, to talk us through how Gonzalez Byass (owner of Tio Pepe) has worked hard to ensure its brand appeals to a broad cross-section of consumers. Showing us a picture of Eastenders’ Dot, he said, “Every time a glass of Sherry is served in The Vic it doesn’t do us any good,” before adding, “It’s almost the law to serve it warm in a tiny glass.” The problem for Sherry, in Rockett’s view, began over 10 years ago when the Sherry industry stopped investing in advertising (from around £10m in 1990 to almost nothing by 2000), and thus failed to attract new drinkers, leaving the sector with an ageing drinker profile.

Nevertheless, consumer research showed that existing Tio Pepe consumers drank the fino because they liked it, although they were almost loathe to admit to this, embarrassed by the image of the drink. Furthermore, when younger drinkers were served Tio Pepe, having being warned it was dry, they too liked it, and became converts.

So, having established that the taste wasn’t the problem, Tio Pepe set about repositioning the brand, key to which was the new bottle. This had a capsule like a wine bottle and green glass, both vital in suggesting the wine was “dry”. The label also stated the grape variety, a first for a fino, while other touches like a deep punt indicated quality. The overall effect was “to position Tio Pepe as a type of dry white wine, to be drunk chilled, in a wine glass and to be drunk alone as well as with food”. And to reinforce the last point, Gonzalez Byass pushed the idea that Tio Pepe makes food taste better by sponsoring Hell’s Kitchen, as well as the ITV London Restaurant Awards. The results, according to Rockett, “have been better than we could have hoped for, sales are up 40% in Tesco, and we experienced a growth of 30% while Hell’s Kitchen was being shown.”

The whole process has proved that it is possible to buck category trends and attract younger drinkers, but as Rockett says, “You’ve got to be prepared to change, be brave and invest.”

THE SPEAKERS

The Supermarket Wine Consumer’s Behaviour and The Discount Dilemma                 Angela Mount, wine buyer, Somerfield

The Crisis Facing the UK Wine Business Learning to Build in Value not Drive Down Price Chris Orr, contributing editor, the drinks business  

How the On-trade Wine Consumer Behaves Don’t blame on-trade prices, our consumers are thirsty, can you give them what they want?                                                                          Jason Danciger, purchasing director, SFI Group

What can the Producer do? A Masterclass in Image Overhaul                                           Jeremy Rockett, marketing director, Gonzalez Byass

The Drinks Business organises a number of business seminars and events throughout the year. If you would like to receive information about our forthcoming schedule please email: angeline@thedrinksbusiness.com