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Natural-Born Brand Builders
“standfirst”>California is still showing impressive growth in the UK and brands are in the driving seat. It’s all about knowing your market, says Penny Boothman
Pick a brand, any brand – Coca-Cola, MacDonalds, Ford, Kellogg’s, The Gap – they’re all American, so it comes as little surprise really that American wine brands have also found massive success in the UK.
You might drink Chianti with pasta, Barossa with a “barbie”, or Bordeaux with haute cuisine, but Californian Chardonnay? American wine doesn’t have quite the same culinary link as its rivals, yet it is growing in the UK at a faster rate than any other country except New Zealand (which starts from a much smaller base). California has a lot to offer, from extreme value to extreme quality, with a long ladder of labels in between. You have to admit one thing about our friends from across the pond, they certainly know how to build a brand.
The total light wine market in the UK is growing by about 4% (MAT to w/e 03.09.05), while the New World as a whole has been growing at a very respectable 11% by volume and 10% by value. Meanwhile, the US has been bounding ahead with 18% volume growth and 19% value growth in the last year. Even though the average bottle price has dropped by a penny from £3.97 to £3.96, this is still well ahead of the total light wine market’s average price of £3.84, and behind only New Zealand, Australia and France.
The US, 95% of which is Californian wine, has a 14.1% share of the UK offtrade by volume (ACNielsen to July 2005), up from 12.5% in 2004. I think it’s safe to say that Australia is now comfortably out in front with 21.2% of the market, but the next competitor up the list from the US is France, whose 17.5% share is down from 19.2% last year, leaving just over 3% of the market between them in the race for second place. US wine exports to the UK rose by 20.05% in volume and an impressive 40.53% in value between 2003-2004 to reach 142,858 litres, or $299,050 (Wine Institute of California). So the wine is getting to the UK alright, but how are brand owners to increase sales and grow the category share once the wine arrives?
“I suppose I would say this, but we need to reinforce the role of the brands,” laughs Blossom Hill’s senior brand manager, Helen Wright. But she’s right, branded wines make up 90% of the American market, and own label is 12% down this year. “Brands are the majority of the share and they’re also driving the growth. It’s such a branded market, California, and there are a few really big players. We are the biggest Californian brand and we’re a third bigger than our nearest competitor, so that’s pretty hefty. We’re growing in line with the market, at 17%, and our penetration is up quite significantly – 30% year on year – so we’ve now got 14% household share,” says Wright. “That means that 14% of households in the country have drunk Blossom Hill over the last year.” Which is staggering, I think you’ll agree, but then the people at Blossom Hill know what they’re dealing with, they know their market.
“One of the things we try to do at Blossom Hill is to be very, very consumer-focused, as well as trade-focused,” continues Wright. “We are listening to consumers and we’re styling the wines to match what consumers want. I think people know that we’re consumer-focused and we want to continue pushing that in terms of trade PR because we do have an incredibly good understanding of the consumer.” Which, it seems, equates to an incredibly good understanding of sales.
Multiple targets
Blossom Hill began in the impulse sector, an area of the trade where the US in general is still very strong. However, multiple grocers predictably now form the major part of the brand’s sales. Are all US brands aiming at the same target?
“To be honest, we focus on all trade sectors,” admits Simon Legge, marketing director Europe, Brown Forman Wines. “Fetzer started off life in the Oddbins and Threshers of the world and has grown into the supermarket sector, but it’s always had a following in the on-trade. So the eggs are spread pretty evenly over the three main baskets.
“Coldwater Creek does extremely well in the on-trade, particularly with customers such as Wetherspoons, and is probably the third bestselling wine behind Stowells and Blossom Hill in that sector,” adds Legge. As ever, exact figures for the on-trade are difficult to come by as ACNielsen doesn’t collect data from a number of on-trade establishments, including Wetherspoons.
Legge credits a successful relationship with national distributor Matthew Clark for much of his company’s ontrade triumph. However, Fetzer has not been ignoring the supermarkets and much of its growth – an impressive 109% year on year – has been in this sector.
Horses for courses
“One of the reasons we do well is that we’re sensitive to the needs of different trade sectors,” continues Legge. “So when we’re talking about an entry-price wine in the ontrade such as Coldwater Creek, it’s exclusive to the on-trade, and in the supermarket trade our £4.99 Pacific Bay is basically aimed at supermarkets. So at entry level we have specific sub-brands that are tailored to different sectors – we have different horses for different courses.”
Two more labels reporting similar success in the multiple sector are Echo Falls and Turner Road. “Californian wines have a mainstream image, offering easy-drinking and accessible wine styles with accessible price points,” says Clare Griffiths, VP marketing, Constellation Europe. “To become even more successful, the Californian sector will need to offer a wide range of price points and a good differentiation of propositions, eg wine styles and contemporary packaging. When consumers buy Californian wine they are, to an extent, wanting a slice of the much-envied Californian lifestyle. We should respond to this by offering propositions which reflect all that is uniquely Californian.”
A harvest of two halves
The last few years have actually been fairly turbulent for Sutter Home following an agency change from Paragon Vintners to PLB Wines, but sales have now risen by 35% over the last 12 months. “Last year was certainly the best in a long while,” says Andrew Chapman, sales director Europe for Sutter Home. “And this year continues in the same trend, despite difficult trading conditions in the UK.”
The 2005 California harvest is looking mixed so far; picking is later than usual in the northern half of the state, but southern California has had a good harvest with high volumes – which normally translates to decent bulk prices. However, the Central Valley is something of a mixed bag, and this is the area that is usually the source for value brands.
“Probably, there will be some cheap opportunities for supermarket private label,” explains Chapman. “This will have a mixed effect on California category growth, with strong results but probably driven by the lower price tier. This may also lead to price pressure on the leading brands. It could translate into a lot of brand marketing activity which will only help to increase California’s position in the market and acquire market share from other sectors.”
Downward price pressure would actually be particularly unwelcome at the moment. Everyone has been taking advantage of the fortuitously weak US dollar of recent years, but it can only be a matter of time before Uncle Sam regains some of his former economic strength.
How serious could currency fluctuations in favour of the US dollar be for Californian wines in the market? “These have the potential to impact our continued success,” says Jeremy Gibson, brand manager for Beringer, which enjoyed treble-digit growth this year against last year, and whose Sparkling White Zinfandel has stormed to the top of the charts as the number-one sparkling wine from the US. “However, we ensure that we are aware of any fluctuations/trends which may affect pricing and plan accordingly to ensure that we continue to deliver premium wines to our consumers, offering quality and value for money,” Gibson adds. Californian producers are suddenly acutely aware of the need to encourage consumers to trade up to higher price points where the margin buffer zone is much more comfortable for brand owners.
Premium problems
Branded wines may continue to hold the reins of the US sector, but premium quality wines are bringing some much-needed value to the category. J Lohr’s UK agent, Enotria, works with a core of loyal on-trade and independent customers. As marketing manager Damian Carrington explains, “The premium Californian market continues to be small and requires hard work to be successful. In on-trade terms, premium California is not a ‘must-stock’ category, with the exception of a very few high-end restaurants. We have seen growing interest in premium New World wines as a whole, but California is having to work extremely hard to hold its own. To really be successful and serious about the UK market the category needs to work on communicating the diversity in California, work on enhancing their importance in the on-trade and independent retail environment and show both the gate keepers and the end consumer that California really is worth the money.”
Other premium producers, such as those from the Napa Valley, also prefer to focus on the on-trade where prices, and margins, are higher. Although volumes are lower, most of these smaller producers wouldn’t be able to keep up with the high volumes required by the multiples anyway. “The onpremise market is the most important sector in the UK for us,” confirms Warren Winiarski of Stag’s Leap Wine Cellars. “The premium Californian sector in the UK has held steady but has slightly increased on-premise. We need to do more competitive tastings. The more that we compare our wines with our competitors and the more that we educate people about the results of those tastings, the more successful premium Californian wines will be.”
Mid-range support
Wines with this kind of iconic status have a natural market with certain kinds of consumers, but what about the mid-priced sector? The Wine Institute of California has spent the last year trying to convince retailers of the strength of the US offering between £5 and £10, and to increase ranges on shelf, but what’s next?
“The consumer!” says John McLaren trade director, Wine Institute of California. “As these ranges arrive, we will reach out to the consumer, directly at shows or indirectly through retail support and media coverage, to develop perceptions of Californian wine. The goal should be for every potential consumer to have a clear, positive image of what Californian wine represents, within the context of the State itself and encompassing the virtues of value, quality and diversity.” There now, that’s a whole feature on Californian wine without a single mention of Sideways.