Discount and be damned

Who is responsible for the promotional predicament of Australian wine? Emma Nichols, Oddbins’ head buyer, and Graham Cranswick-Smith from Kingston Estate Wines, go head to head. Patrick Schmitt takes cover

Buy one get one free. It’s that simple. But that’s the problem for the wine industry. For a product associated with a certain level of sophistication, price promotion could hardly be a more unsophisticated selling technique. But who’s to blame for its advent, and now widespread use? The retailer or producer? Let’s find out.

Although it may seem about as sensible as lowering a cat into a pigeon-filled piazza we decided to put together a wine buyer and an Australian wine producer, and then hurl them the subject of discounting. In the ring was Emma Nichols, head buyer at Oddbins and Graham Cranswick-Smith, managing director, Kingston Wine Agencies.

The debate was kicked off by Cranswick Smith, who began by blaming both a wine surplus and aggressive retailers for the fact that some 80% of Australian wine is currently sold on promotion. “It is simply a fact of life that there is too much wine available,” he said. “I think the issue is how, as both producers and retailers, we manage that in such a way that we don’t ruin the last 15 years of work we’ve all put into building the reputation for Australia. And retailers, particularly multiples, are taking advantage of the surplus to erode our price premium.”

Nichols, however, couldn’t see why retailers should be held accountable, or tasked with the aim of undoing the damage that price promotions are doing to Australia’s image. “Retailers don’t have a responsibility to help Australia through this problem,” she began. “If growers wanted to take advantage of the growing market by making additional plantings five years ago then it’s not really retailers’ problem. What’s happened is that because of the marketing strategy or rather lack of marketing

strategy, Australian producers are undermining the price proposition themselves because in many cases the quality of the wine no longer justifies the prices being asked of it. And the pricing is being engineered  to allow for promotional activity.”
Cranswick-Smith listened, paused and then admitted, “The biggest disaster for the Australian category was the BOGOF promotion.” Not only does he believe it “completely demystified wine”, but also, “The BOGOF has given the consumer the impression that Australian wines were overpriced previously, which I don’t believe they were, and I think it will take us a long time to recover from that.”

It’s a stitch-up
At which point Nichols urged, “We have to acknowledge that Australian producers have changed the whole dynamic of the wine market in the UK. Oddbins were dedicated to improving the position of Australian wine in the UK market. We worked with larger producers to help develop their business and the profile of their wines, and BOGOFs in the supermarkets are effectively stitching us up. It makes it much more difficult for us to trade effectively with those brands.”

Furthermore, she added, “Australian producers did have a choice and they have to take responsibility.” How, one might ask? For Nichols, “It comes down to the quality of the product. A lot of producers pursue this perfect branding idea and then they are forgetting about what they are putting in the bottle. Often, on the presentation of a new brand, there is much discussion about what the bottle will look like, what the promotional plan will be and the marketing behind it. But I have to actually ask, can I taste it? Consumers increasingly want to see something real, with some authenticity – a good wine. Otherwise it comes down to everyone chasing figures.”

For Cranswick Smith, however, it’s not so much about producers looking for quick results, but retailers attempting to attract shoppers. “What upsets me is that the bogof philosophy has been used by grocery retailers as a loss leader to bring people into their stores to buy groceries.

That’s not something relevant to a pure beverage retailer like Oddbins but the fact is that wine has become a very attractive
draw card in the battle of the supermarkets for footfall.”

As for the surplus, he argued, “Unfortunately, we have probably another three or four years of very difficult times for Australia until demand and supply are back in balance again. But there is a lot we can do as producers. We can, for instance, introduce and develop new varieties to provide another point of difference for Australia. With the mass marketing of wine Australia has been brought down to Chardonnay/Shiraz.”

Commodity trading
Nichols agreed and feared that, “Wine is becoming commoditised and if bogof activity continues to strengthen we will end up with a handful of producers engaging in commodity trading of wine.

“Ours sales on Australia have been really hard in the last few years because consumers are looking for the big brands and deep, deep discounting and we can’t afford to do that. Specialists have been let down by Australia in the last couple of years because of discounting activity. Australia has changed the whole dynamic of wine retailing by allowing wine to be commoditised and used in supermarkets in such a fashion.”

Nevertheless, Cranswick-Smith sees “an enormous opportunity with Australia that wasn’t there five years ago”. This is because the surplus “is acute in the cool climate expensive areas, because a lot of the development went into those vineyards which five years ago were totally undersupplied. This means an £8/£9 retail wine five years ago is now available for £5/£6. It is a wonderful opportunity to try and reinvent the value and quality perception of Australian wine.”

But Nichols noted, “It is difficult for us to sell wines from new areas of Australia because our customers come in and want to buy Jacob’s Creek or Hardys.”

That doesn’t mean though that Oddbins has reduced its range of Australian wines. Nichols says that of some 1,250 wines, “180 are Australian, as well as around 20 rotating parcel lines. It is the second biggest range behind France in terms of lines and it has not expanded or decreased.”

Finally, Cranswick-Smith brought to Nichols’ attention the fact that, “Because of Australia’s need for capital to fuel rapid growth, many of our leading companies have been forced to go to the equity market and become public companies. They are under much more scrutiny and public pressure to deliver profit results every six months, and that has driven producers to make decisions they would probably not have otherwise taken. And Australia has one of highest rates of public ownership of any producer country.”

For Nichols the reality is stark. “I think Australia as a category has put the consumer in a position where they are starting to see through the promotional activity; a percentage of the population feel it is a transparent exercise and they will start looking for a different shopping experience. Those people will be looking for specialist retailers and something other than Australia, and that has potentially bad repercussions for all Australian producers.”

Cranswick-Smith pointed out, “There are 2,000 Australian producers, but only half a dozen have created the problems we have.” Nichols, on the other hand, concluded by saying, “Australia has indulged in promotional activity for its own benefit and it may have damaged its credibility.”  db  May 2006

Graham Cranswick-Smith is an Englishman living in Australia having moved there with Shell 25 years ago. He worked for Diageo, later launched Australian wine company and brand Barramundi, which became the sixth largest Australian producer, shipping around two million  cases to the UK. It merged with Evans & Tate three years ago. Cranswick-Smith now works for Kingston Estate Wines, Australia’s 10th largest wine producer.

Emma Nichols first worked at Oddbins when she was 18 (she’s now 34) and later held senior posts at Safeway and Vinoceros before returning to Oddbins in November 2004 as head of buying. Australia has always been a big focus for Nichols.