The Port Paradox

If LBV sales drop away the minute deep discounting is ended and ruby sales rise significantly as soon as prices are slashed, what does this say about the true market value of Port? Patrick Schmitt investigates

A quick snapshot of the total fortified category in the UK off-trade reveals a somewhat less than positive picture. Overall, the market is down by 5% in volume (ACNielsen MAT to w/e 20.05.06) and by 5% in value, from £347 million to £331.3m. This demise has been driven by the declining sales of vermouth (down 3% in value, 4% in volume), Sherry (down 5% and 7%), British fortified (down 6% and 2%), “other fortified” (down 2% and 3%) and Port (down 6% and 2%).

The reasons for this are of course myriad, but for Port, much of this value decrease is “an indication of downtrading and promotional activity” according to Sarah Woodward, fortified brands manager at Mentzendorff. This is a result of price slashing at a time when discounting on Port is most effective – in the run up to Christmas. On the other hand, the Port styles at the centre of this activity have shifted recently, which explains the drop of 22% in value sales of LBV, while premium ruby is up by 16%. Woodward, in fact, attributes this change to a “one-off promotion in Sainsbury’s, which in 2005 was Dow’s Trademark, but in 2004 Dow’s LBV”.

Taking a stand
Ben Campbell-Johnson, senior brand manager at John E Fells, which handles the Symington Family Estates wines – including Dow’s – in the UK market explains, “LBV is down 22% because of the discounting of reserve and standard ruby Ports. We refused to do deep discounting on LBV this year to protect the integrity of the brand.” He points out that, “Graham’s LBV is down 20% in value and 21% in volume”, because of this new policy.

He continues, “We thought it was better to discount on entry point, for ruby and reserve ruby. Hence premium ruby is up 16% because there has been a shift to discounting these wines. Dow’s Trademark, which is sold exclusively in Sainsbury’s, now has a 9.5% volume share of the UK off-trade Port market from pretty much nothing.” (Its value share is somewhat lower, however).

Furthermore, explains Campbell-Johnson, “Standard ruby is down 10% in value at the expense of reserve ruby. While standard ruby might be discounted at Christmas from £6.99 to £5, reserve is also down to around £5.” And hence consumers are buying the latter, as it presents the more attractive deal. This might help explain the fact that Cockburn’s Fine Ruby, the leading ruby Port brand in the UK off-trade, is down in sales by 10%.

And it looks as though Symington Family Estates are going to extend this tactic to Graham’s, by launching a Graham’s Reserve which at time of writing is planned to be a Sainsbury’s exclusive. This Port “falls between Graham’s LBV and Graham’s ruby,” says Campbell-Johnson. Further explaining the success of premium ruby is the success of Cockburn’s Special Reserve, which, unlike Fine Ruby, is enjoying a 17.5% increase in volume sales, according to a spokesperson for the brand, who also points out that Cockburn’s overall represents 20% of total value sales in the Port category, and is enjoying a 1% increase in value despite the market decline.

Tawny terminology
Interestingly, tawny is up in sales value, by 1% overall, but the health of this style of Port is negatively affected in Campbell-Johnson’s view by the presence of cheap standard tawnies. “If these weren’t so important in France, for instance, the consensus would be to drop the term for any tawny that has been aged for less than seven years,” he says. “These could just be termed light ruby.”

On the positive side, he notes that Graham’s The Tawny, an 8-year-old, represents 0.2% of the total market for Port, of which tawny as a whole makes up 7%. Meanwhile back at Mentzendorff Woodward is also pleased to report that Taylor’s 10-Year-Old is up 1% and Taylor’s 20-Year-Old is up 6%, a result of widening distribution, price “tweaking” and the introduction of gift boxes.

Product innovation
Tawny and white styles are also key in helping to deseasonalise sales of Port, hence the emphasis on serving them chilled for summer drinking. Worth noting is the launch of The Rozès Color Collection, which includes three Ports in a red, white and gold bottle, all designed to be drunk chilled and aimed at a younger consumer. Rozès, which is owned by Vranken-Pommery Monopole, is distributed by Percy Fox in the UK.

Although vintage Port is in decline according to the MAT figures to the end of May, Campbell-Johnson says it is beginning to make a slight recovery. He believes this is because older vintages are less available. “People were asking why they should buy recent declarations when they could buy vintages from the 1980s at similar prices. But that is no longer the case. The 1980, 1983 and 1985 are all creeping up in price – there is more scarcity of vintage Port,” he explains. In any case, like others, he would encourage consumers to drink vintage Ports when they are still relatively young. “They are not just for laying down and forgetting about,” he argues.

Global environment
“No markets around the world are easy right now,” says Adrian Bridge, managing director of The Fladgate Partnership. “Although the US is relatively strong, the market has historically been driven by sales of vintage Port and we were disappointed by the amount of the 2003 vintage sold.” This attracted a lower level of buyer interest in the US because there were significant amounts of 2000 still unsold when it was released – a result of the economic climate in the country post 9/11.

However, Bridge believes the picture is  looking brighter this year since there is continued demand in the US for more 2003s. In addition he says aged tawny is growing in popularity in the US “both at a restaurant and retail level. You can put a 20-year-old tawny on the list and sell it at $15 a glass, knowing it is in good condition, and make a lot of money.”

Paul Symington of Symington Family Estates is equally optimistic. “Of the 420,000 cases we shipped last year, 65% of those were in the premium category, which is astonishing,” he says. “Such a figure is only bettered by Canada, with 71%. But in the UK 57% of total shipments are premium. In France it is 7% and the trade average is 18%,” he adds.

Developing markets
Bridge sees “more opportunities” in markets which have traditionally consumed high volumes of cheap Port as people start to trade up. “For example, in the Portuguese market, the special category is growing,” he explains.

Symington places emphasis on Eastern Europe, a market that he believes is starting to show promise, and should continue to grow as more states join the EU. “In the Czech Republic and Russia there is increasing disposable income and Port seems to be of interest,” he explains. Russia may only be the 17th largest consumer of Port, but the 23,000 cases it currently imports is a quantity that “would be unthinkable a few years ago”, according to Symington.

Finally, looking further east, Bridge believes that Japan is “picking up”, if from a small base. Both The Fladgate Partnership and Symington Family Estates exhibited at Vinexpo Asia-Pacific in Hong Kong in May, along with Sogrape’s Sandeman, indicating a belief in the potential of the expanding Asian markets.

Madeira
 
Madeira, described by Paul Symington of Symington Family Estates as “eccentric, but not dowdy”, seems to be enjoying something of a revival. For example in the UK – which is the largest export market for Madeira, importing 36,000 cases last year – the premium end of the picture is enjoying growth according to Joanna Delaforce, brand manager for Henriques & Henriques at Mentzendorff.

Ben Campbell-Johnson at John E Fells, who represents The Madeira Wine Company in the UK, supports this view, quoting a 20% growth in Madeiras aged five years and above (ACNielsen MAT to end of March). He attributes this to a growing on-trade interest. “Sommeliers are fascintated by the wine,” he says.

Worldwide sales of Madeira in 2005 were 377,000 cases, although only 292,000 of those were bottled. The bulk business was supposed to end, and having dropped from 60% of Madeira’s business to nothing in 2002, it had grown again to 1m litres by 2004, according to Symington.

The future for the drink? “Give Madeira more wine values,” says Campbell-Johnson. While John Cossart, chairman of Henriques & Henriques believes strongly in tastings – “pressing glasses to noses and lips”.

© db July 2006