Many unhappy returns

Spoiled wine, especially cork taint, is a major problem for the UK trade. However, as Andrew Catchpole discovers, it is far from clear who should foot the bill

The incidence of wine spoilage remains unacceptably high, with industry estimates for TCA (cork taint) alone at around 5%. Consumer confusion over the identification of faults, coupled with retailers’ placatory policies of “no questions asked” money-back guarantees, means that returns are commonplace. Retailers argue that this hits their profit margins twice because both faulty and non-faulty goods have to be refunded, while customer confidence in the retailer is damaged. 

The retailer’s view
Peter Greet, head buyer at Laithwaites, which typically sources direct from producers, has a zero-tolerance policy to spoilage. “We pass the costs back to the producer, including the costs of keeping customers happy,” he says. “Business is usually based on long-term relationships, so it is in the producer’s interests to swallow the problem. In the case of cork taint, the producer should have built in up to 5% tolerance of spoilage costs in its contract with the cork supplier.”

Waitrose also refunds without question. “Around a third of complaints about wine are cork-related,” says spokesperson Nathalie Winder. “But by the time wine is returned it is obviously difficult to analyse exactly what was wrong with it – if anything.” Refunds for single, low-cost bottles are made at branch level and thus absorbed by the retailer. Finer wines and batches from which several returns have been made are sent for analysis and if a problem is detected
the producer or distributor is informed and billed.

The distributor’s view
Unsurprisingly, distributors feel that they should not have to bear the cost. “We credit for stock to retailers where problems occur,” says Charles King, managing director of agent and importer Maisons Marques et Domaines (MMD). “With the big retailers wielding so much power we have to agree to their terms. Faults such as cork taint can be tested in a lab, but there is a subjective nature to many returns,” King argues. “We are still charged a £20–25 administration fee by some retailers and have to refund the bottle.”

If a spoilage problem affects a significant number of bottles or high-value wine then MMD will report the problem to the producer and demand either credit or replacement stock. However, with individual or small batches of spoiled wine it is often unfeasible to seek such recourse, so the cost of spoilage is absorbed by the distributor.

Ashley Sale, logistics manager at Stevens Garnier, confirms that a levy of £25, on top of the costs of replacing the goods, is common. “Despite distributors typically being rigorous in their quality control, both tasting and analysing wine from every batch or lot, problems do still occur,” he says. “So we build in a percentage, along with the costs for marketing and so on, to cover faulty wines.” The impossibility of detecting all spoiled bottles means that, once the distributor accepts a shipment and sells it on, it may be difficult for that distributor to seek recourse in the event of returns by a retailer or other customer.

The producer’s view

Producers differ widely in the business relationships they have with their distributors and retail customers. Charlotte Jenet at Chablis producer Domaine Laroche reveals that producer and importer often split the costs of faults outside reasonable control of the winemaker 50/50. Winemaker Michel Laroche is frequently in London and, should a serious problem occur, has access to queried samples via his UK agent and so can personally assess the situation.

However, a problem for many producers is that faulty samples are rarely returned to source because of transportation costs. “We expect 100% of our corks to be good, otherwise we return them to the cork company. But a major difficulty is that we rarely, if ever, see any returned goods,” says Madeleine Jones of Fairview Estate in South Africa. This means that producers are asked to bear the cost of cork taint and other spoilage in wines without being able to verify the problem.

Conclusion
While it should in theory be possible to pass the costs of spoilage back to the cork or packaging producer, the length of the supply chain can make this difficult. Wine is also an inherently unstable, natural product and, despite the best efforts of all concerned, what left the winery in good condition may not arrive so with the final consumer. Rather than insisting on their strict rights, it seems that those in the trade expect these problems to be approached in
a spirit of compromise, with preservation of goodwill being paramount. 

The legal view
Andrew Park, head of wine trade specialist solicitors APP Law, suggests that for small-scale problems, the pragmatic solution is for retailers and distributors to insist that a specified spoilage rate of, say, 5% is factored into the price at which they buy. “That should encourage producers to monitor and reduce their spoilage levels, in order to justify a lower percentage.

Large-scale problems are a different kettle of fish. They necessitate a more legalistic approach by all concerned, as the retailer seeks to pass substantial direct and consequential losses back up the supply chain. The terms of the relevant contracts will play a crucial role in risk management. “But the risk of large problems is not always fully addressed when contracts are being negotiated,” says Park. “And that could prove to be a very costly mistake.”

© db July 2006

A fuller version of this article, plus a detailed review of liability for defective products in the wine trade, can be found on-line at www.winelawcentre.com