Italy Analysis – Splinter Sell

06 February 2006 By db staff writer

“standfirst”>Although Italy’s share of the UK wine market has fallen steadily over the past few years, there are positive signs that this decline could be halted if the major issues it needs to resolve are addressed, says Giles Fallowfield

Although Italy’s share of the UK wine market has fallen steadily over the past few years, there are positive signs that this decline could be halted if the major issues it needs to resolve are addressed. Italy is at least performing better than Old World countries like Germany and France, if not as well as Spain; white wine sales are growing faster than the off-trade average and value is rising at a quicker rate than volume, although still just behind the overall UK market trend.

However, Italy has not really managed to take full advantage of the many positive factors that could work in its favour. For a country boasting over 1,000 predominantly indigenous grape varieties it surely should be giving New World producers a much better run for their money, particularly with its rich variety of red wine styles.

As Mike Paul, MD of Western Wines says, “If you had to pick just one country that could supply all your wine needs it would be Italy, and yet the average price languishes around the £3.50 mark. It’s criminal really. The problem is how do you persuade consumers there’s more to Italy than basic level Soave, Valpolicella, Frascati and Chianti, plus, to a certain extent, Pinot Grigio, although that is at a slightly higher price level. At the moment the consumer is not convinced enough to spend more.”

One of Italy’s handicaps is the lack of strong brands to compete with the likes of Hardy’s, Blossom Hill and Kumala. Although names like Canti, La Gioiosa, Inycon and Western Wines’ own Da Luca have emerged, Canti is the only one that has made it into the UK off-trade’s top 50 wine brands as yet. This slow uptake of the branded route is in part due to the difficulty in balancing the need to give consumers a simple, strong, easy to understand message while not losing Italy’s great advantages of diversity and its unique flavours.

“We want to avoid oversimplifying Italy as we don’t want to lose its rich diversity and the individuality of its wines,” says Paul. “If the marketing of Italian wines is too dumbed down you run the risk of losing these advantages, but consumers need a familiar hook to help them make a purchase.” While making Italian wines more user-friendly to help persuade consumers to buy them and increase their average bottle spend is important, Paul, like many others in the UK wine trade, sees the lack of a real and proactive generic promotional body as a major handicap in combating Italy’s declining share of the UK wine cake.

Contrary to popular belief, the value of Italy’s wine exports to the UK, its third most important market, have actually been rising slowly over the past few years. Between 1998 and 2004 their value rose from e226m to e320m, according to ICE figures. However, in the UK off-trade Italy has been overtaken by Australia and the US and, in terms of value, now sits neck and neck with South Africa. And while Italy’s volume is up by 3% (ACNielsen GB off-trade to 1.10.2005) the overall light wine market is growing at 5% year-on-year and competitors like Spain, the next largest player (up 13% MAT), the US (up 18%) and Australia (up 9%) are all growing faster than the market.

“Italy is performing better than most other  Old World countries – Spain and Italy are the only two growing – and for Italy value is growing faster than volume,” says Peter Bisley, PLB’s sales director. “Italian white and rosé branded volume is growing with Pinot Grigio a major contributor in both sectors. In volume terms out of the top eight countries in the UK off-trade, Italian white is up 8.9%, which is only second in growth terms to the US, that’s ahead 18.3%.

“It’s own-label and Italian red that’s holding back the category, they are down 7% and 6% respectively. Red wine from the New World, especially Australia, has put in the investment required in terms of brand building and price promotions. As a result it’s the New World that’s driven the market forward at the expense of the Old,” says Bisley. He also believes the New World’s style of reds – more fruit-forward and easy-drinking – better matches what the consumer is looking for.

Pricing is another issue, inevitably. “Italian reds are not as competitively priced as Australian or Californian and, as a result, New World promotional prices are often lower than Italian wines on EDLP (every day low price) strategies,” argues Bisley.

One of the most worrying aspects of the UK market for the Italians is that its average bottle price is the fourth lowest in the light wine category with only Germany, Bulgaria and Portugal below it. Their average prices are respectively £2.50, £3.17 and £3.26 compared with Italy’s £3.38 and the light wine market average of £3.79 (ACNielsen MAT to March 2005). Even Romanian wines had a higher average selling price in the UK at £3.43, although that is currently dropping. The average price of a bottle of Italian wine in the UK off-trade did rise by 8p to £3.46 by the start of October 2005 (MAT to 1.10.2005), but over 73% of Italy’s sales in the UK are at under £4 a bottle.  

Many people deem the lack of strong brands to be one of Italy’s main problems. While Australia and California each boast six brands in the UK’s top 20 and South Africa has three, Italy doesn’t have a single player with this kind of volume. The performance of branded Italian wine is improving, with sales in the UK off-trade growing at 14% year on year (ACNielsen MAT to 10.6.2005) while own-label sales are falling, down 6% over the same period. Furthermore, Italian branded sales are growing faster than the overall branded market, which is up 10% year on year to June 2005. However, Italy’s branded wine sales are still low at 52% compared with the market average of 73.2%.

Canti, which is distributed in the UK by D&D Wines International and the only Italian brand in the UK’s top 50 at number 28 (ACNielsen Scantrack MAT to 14.5.2005) is increasing its product range in a bid to increase sales and raise its entry-level prices. Its most widely distributed red and white wines – a Chardonnay/Pinot Grigio and a Merlot/Sangiovese blend, sourced in Sicily and Puglia and selling for £4.49 – will soon be joined by a new pair of entry-level wines from the same regions, retailing at £3.99, a Negroamaro/ Zinfandel blend from Puglia and Catarratto/Chardonnay from Sicily at the slightly higher price of £3.99, says marketing manager at D&D, Rupert Lovie.

The new blends represent a step up from the previous IGT pair sold at 50p less, which were simply labelled as Rosso and Bianco. “The dual-varietal route with one international grape blended with an Italian indigenous variety is our way of respecting Italian tradition while helping consumers by giving them something familiar,” says Lovie. Extending the Canti brand into the territory over £5 is likely to be the next step for D&D, for it’s the area between £5 and £7 where Italy is currently weak and where volume and higher profitability could both be achieved. Lovie says it has already had considerable success supplying Tesco’s Finest Gavi, priced at £5.99

At Western Wines, which boasts two Chilean and one South African brand in the UK’s top 50, Mike Paul also believes this area of the market is a vital one for Italy to crack. But he concedes that it’s “difficult [for the Italians] to compete with the large promotional budgets of the New World producers in terms of marketing and availability of products in this price band. However, in the long term this is a key area. Most Italian wine is under £4 and while aficionados will buy at over £10, the gap in the middle is where you make your money.”

At Enotria which, according to marketing director Damian Carrington, has a 17% share of the UK off-trade in terms of volume, “The classic regions are showing a resurgence in sales with Piemonte and Chianti achieving real growth, not at the super-premium level but at more aggressive price points. We are extremely positive about the continued potential of Sicily; our Inycon brand continues to perform well and repackaging plus the arrival of Stelvin closures has given it a real boost.”

While such brand developments show the way and offer real hope of boosting volume and lifting the average bottle price as more premium offerings are released, Soave remains the UK market style-leader and the biggest seller at key supermarkets like Tesco, while the ubiquitous Pinot Grigio is the largest selling single varietal. Only when the biggest selling Italian brand is made from a recognisably and uniquely indigenous Italian variety such as Sangiovese or Grillo will the market truly have truly come

of age.  db February 2006

ALL TOGETHER NOW

One thing that Italy lacks, which could prove a significant boost for its wines, is any sort of organised, cohesive, generic campaign. “I think a generic campaign is central for improving things,” says Mike Paul, MD of Western Wines. “While it’s very easy to exaggerate what a generic effort could achieve – it won’t suddenly get consumers spending over £5 on Italian wine – it will have two obvious major benefits. Firstly, it will show that Italy really cares about the UK market. For South Africa, Chile and Australia the UK wine market is clearly of fundamental importance. But with Italy you tend to think they are more concerned about elsewhere. Opening a generic office with real clout would send a clear signal.

“Secondly, a generic effort is important to bring together the different strands of the trade – producers, importers, distributors as well as retailers – in order to hammer out the right strategy for a co-ordinated approach. But while it’s easy to see the objectives, it’s much harder to work out how to go about it. If you go the regional route you have to persuade some areas that they may have to wait and be the second or third area to be promoted. Perhaps it’s better to avoid a regional approach altogether and promote all wines at £5 and above.

“We need to convince the trade first,” Paul continues. “At the moment it thinks other areas have more interesting wines at around £4.99.”

“Italy has done well over the past 18 months or so, building to a position of growth in the UK market, and would be well served by a generic body to bring together what is a fragmented regional and corporate supply base,” says David Garlick, MD of D&D Wines International which distributes Italy’s leading branded wine in the UK market, Canti. “A united message can build on this in the same way as we have seen with many New World countries, who are obviously providing stiff competition for Italy in the marketplace. A concerted campaign could focus on encouraging the UK consumer to trade up via key areas such as branded wines as well as educating about regions and indigenous varieties,” believes Garlick.

“The absence of a strong Italian centralised promotional agency is, of course, not helping in the positioning of Italian wine in the UK market,” says Dante Cecchini, responsible for marketing and PR at Banfi, which has invested heavily in the UK market recently and has seen its sales grow by more than 10% annually in the past three years to reach over e1.5m in 2004. He sees one of the strengths of Italian producers as “their creativity, flexibility and capability to invent unique ways to promote their products”.

Former supermarket buyer, Mark Jarman, who now looks after the Italian category at Waverley TBS, says the only two occasions when the trade gets together currently are VinItaly in Verona and the Definitive Italian Tasting. He laments the lack of other opportunities to educate consumers and develop what he calls Brand Italy. “The strong regional differences are one of Italy’s great strengths, but make it difficult to promote generically. It needs to be done very carefully so as to not dilute the very thing that makes Italy special.”  db