UK Retail Analysis: Independents’ day

The UK wine market is polarising, though more to the advantage of independent merchants than to supermarkets, according to Clinton Cawood. Brands, of course, continue to be big business

For the majority of wine retailers, these are not particularly bullish times. After dependable, consistent growth for so many years, ACNielsen reported earlier this year that wine sales in the UK are static. In the last year, the only category to experience any significant growth is rosé, and from a small base (now 6.5% of off-trade wine sales, according to ACNielsen). There are a number of reasons for lethargy in the market, and Stewart Blunt, wine specialist at ACNielsen, blames a mixture of increasing consumer debt and utility bills, council tax and petrol prices, as well as consumer concern with a healthier lifestyle, saying
that “Wine is a likely casualty when economising.”

Peter Bisley, PLB’s sales and marketing director, admits, “This year’s been a bit of a shock.” Like others in the industry, Bisley speaks of a “mature market”, and retailer Liz Aked, senior trading controller for Spar, has been seeing “a particular slowdown in the last two to four months”. Aked predicts that a decline will not, however, be as severe as those experienced by other drinks sectors in the past. The solution, she believes, is innovation to recapture consumer interest. “And I don’t think that’s happening in retail,” she says.

Despite this less than positive outlook for the overall off-trade, independent retailers are currently confident. As Andrew Shaw of independent Stone, Vine & Sun explains, “The consumer has become increasingly knowledgeable and interested in the product, and as a consequence is generally happy to spend more.”

Patrick Sandeman, director of Lea and Sandeman, agrees: “We’ve seen people trading up, and many more customers in our shops. A lot of people who have been introduced to wine drinking are now becoming bored and disillusioned by supermarkets and chains. So they are doing more specialist shopping.

The increases being experienced by the independent trade have little impact on overall sales figures. The impulse sector, which includes independents, but also convenience stores, multiple off-licences and co-ops, achieved an increase of less than 2% in volume sales in the last year (ACNielsen, MAT to w/e 22/04/06).

The independents currently look like the only positive sector of the wine retail market. As Mike Rogers, director of Philglas & Swiggot says, “The giants are not operating at their most potent at the moment. They now realise they need to recapture the strength they had.” He is grateful to supermarkets, however, for introducing consumers to wine. “Then people will trade up, and more and more people are coming to us. And they’re more confident, more knowledgeable.” Philglas & Swiggot thrives on this kind of consumer, with an average bottle price of £13.50 (compared to the current off-trade average of £3.86, according to ACNielsen).

Trading up at Tesco
The multiple grocers have had their eye on  higher-priced wines. Recently, for example, Tesco launched a new range of 50 premium wines, priced between £10 and £100,  supported by bespoke fixtures and point-of-sale material.
Bisley is sceptical, however: “Most retailers want to maximise that area, as they can see the margins are slightly larger. But although everyone likes to talk about selling higher price wines, when you look at the stats, in supermarkets it’s difficult to do.”

Independent retailers have been succeeding, however. “We are finding that the premium sector is growing for us,” says Rogers. “Wine is becoming an inseparable part of lifestyle. The first platform is that people have to make wine a part of their everyday lives.”

One way that multiples have been able to gain higher margins on wine is by moving into the convenience sector, such as Tesco Metro and Sainsbury’s Local stores. As Bisley says, “The market readily accepts a higher price in convenience stores.”

Kings of convenience
At Spar, Aked has felt this additional competition in the convenience sector. “We’re still the biggest convenience chain, but Tesco [Metro and Express] has gained 5% of the market in the last two years,” she says. Convenience retailing differs from the multiple grocers in that, as Aked says, “All wines are purchased to be consumed within three hours.” Practically, the major difference between a supermarket and convenience store is space. “We like to think that we’re a microcosm in terms of the market,” says Aked, going on to explain that the selection has a reliance on the ACNielsen top 20
wine brands.

Owing to these practical concerns, Spar does not offer discounts for case purchases, but Aked confirms that there is just as much discounting as there is in multiple grocers. Whereas discounting can often be a contentious issue, Steve Rosser, director of BrandPhoenix, considers price promotion to be vital, “as this offers the consumer great value for money”. He adds, however, “It is important that the right mix of offer is achieved and I believe that the retailers are offering more than just heavy discounting.”

James Handford from Handford Wines argues that, “Anything promoting wine is good for wine.” Rogers agrees, pointing out that, “Discounting has helped to expand the size of the market.” Both are quick to highlight the downside, however. “There is no question that the wine trade has got itself into a vicious circle by down-pricing itself. The money the wine trade makes is, frankly, silly,” says Handford. Rogers adds, “We are discouraging people to trade up.”

He puts some of the blame on the media as well. “A lot of wine writers have a propensity to write about good value discoveries as if they are as good as something twice the price. And they’re writing as if we deserve to have them. You read about luxury holidays in Barbados, then you turn the page and you read about a £4 bottle of wine. And then you read about Aston Martins on the next page. It’s inconsistent.”

Discounting is not frequently a technique used by independent retailers, but can sometimes be found at Philglas & Swiggot. “We do occasionally have price promotions, but in a less strategic way. It’s more to reward our customers, to introduce people to new wines,” says Rogers.

Catering to curiosity
This desire to discover new wines is one of the main reasons for the independent sector’s current success. Patrick Sandeman explains that the range at Lea and Sandeman is specifically sourced from small producers with individuality in mind. The size of the business, he believes, allows for the flexibility to take advantage of opportunities, and provide better value for money. “We want to be seen as leaders in the anti-brand movement,” he says.

For the retail sector in general, however, branded wine sales are critical. For multiple grocers, for example, branded wine sales account for 70.8% of sales, the equivalent of 46.4 million 9-litre cases (MAT to w/e 22/04/06, ACNielsen). This percentage has been steadily increasing (2.4% in the last year). Given this reliance on branded wine, Bisley recognises a potential pitfall. “A number of retailers, especially supermarkets, are looking to differentiate themselves from their competitors. As brands become more powerful, that difference is becoming less.”

Rogers probably speaks for many independent retailers when he says, “We’ve gradually gained more confidence in selling more and more of the better wines. As retailers like Oddbins have moved closer to bigger international brands, we’ve gone in the opposite direction.” As Handford says, “It’s not about the branding. It’s simply about customer loyalty.”

Despite this, major brands continue to enjoy growing sales. Hardys, Blossom Hill and E&J Gallo, the top three brands in the UK off-trade, have all experienced an increase in sales in the last year, according to ACNielsen. Hardys, for example, accounts for 6% of sales in multiple grocers, while Blossom Hill now commands 7.5% of the impulse sector. As Aked says, any of these brands is a “huge beast”, but it still is a “hugely segmented market”. An important aspect of the market for Spar is own-label wine. “We have been increasing our Old World offering, and by September will have redone our New World offering,” says Aked.

Own-label wine accounts for 24.4% of the market, according to ACNielsen. This is declining, but Aked is not the only retailer who is optimistic about own-label sales.

Bisley explains that PLB “does a lot of own label, for supermarkets, cash and carry, etc. I see own-label coming back again. Maybe not to the same amounts that we saw in the 1970s, but I do see it turning again.”

Own-label sales have the potential to provide retailers with the means to differentiate themselves in the market, he believes. In terms of independent retailing, “there’s an element of cynicism about own-label wines,” according to Rogers. “We prefer to sell estate wines that we’re endorsing.” Handford Wines does not produce own-label wine either. Stone, Vine & Sun, however, has begun developing a portfolio of own-label wines with the intention of representing the company, as well as the wine’s origin. The wines, according to Shaw, are sourced from “estates that have the same philosophy as we do, and have a track record for producing good wines, so we can launch the own-label with some conviction and credibility”.

Own-label dependency
According to ACNielsen, however, own-label wines are still more important to the multiple grocery sector, accounting for nearly 30% of volume sales, compared to 12.3% in the impulse sector. In both sectors branded wine sales have been continuing to steadily increase. Despite an emphasis on own-label wines, Aked admits, “It depends on what the big brands do. It’s purely a space issue.”

In terms of countries, France provides the majority of own-label wine to the off-trade market in the UK, with a significant percentage produced by Italy. Ever the leader in brand development, Australia still ranks first in off-trade branded wine sales, followed by the US and France. For volume sales overall, multiple grocers sell the most wine from Australia, followed by France and the US. In the impulse sector, the US provides the greatest volume of wine, with Australia and France in second and third place.

Despite overall optimism from independent retailers, Handford believes, “It is a bad time for retailing in general. Everyone whinges, but there’s no question that there’s pressure. Rent, rates, licences, regulations – they don’t come around any less often.” He has, however, a practical reason for the increase in independent sales. “Most wines we sell are £8–£18. The market is polarising, and consumers have nowhere else to go for these wines.”

Doing fine
While retail sales of wine look likely to remain static, with retailers, as Bisley says, “looking for that next blip”, the independent sector seems likely to remain buoyant. Fine wine sales, in particular, look promising. Shaw believes that, “Frenzies such as Bordeaux 2005 just keep the market alive and biting at the bait. It is bound to continue. With plenty of money around at the moment this trend will develop until a time of depression.”

The complexity of the retail market goes beyond many conventional categorisations, and this may be the clue to revitalising the market. “We’ve got promiscuous wine drinkers,” says Rogers. “People move from the supermarkets to retailers like Oddbins. If those consumers then come into Philglas & Swiggot, they don’t necessarily turn their backs on Oddbins. But we don’t get upset by the lack of 100% loyalty.”

If wine retail really has reached the “mature market” equilibrium, something significant will be required to drive growth once more. In the meantime, it looks like a good time for consumers, with more choice and better deals on wine.

© db August 2006

Online Retailing

The major development in wine retailing in recent years has been the internet. Tesco has become an increasingly major player, now responsible for 48% of online UK wine sales. As part of its commitment to this retail channel, Tesco offers 100 exclusive wines to its online customers. It has offered wine as part of online grocery sales for the last 10 years. This activity has increased with the introduction of the Tesco Wine Club, which now boasts 550,000 members.

A major name in UK online wine retail is Direct Wines, owners of Laithwaites and The Sunday Times Wine Club. With a history as a wine merchant, the online activity was a natural extension of the business. “It’s another channel that customers can use,” says head of events, John Kemp. Online sales have increased in recent years, going from 9.7% of Direct Wines’ sales in 2004-2005 to 14% in 2005-2006. In the same period, mail order and phone sales decreased by about 2% each.

There is a difference in the kind of wine offered by Direct Wines and supermarkets online, but Kemp acknowledges the competition. “It’s terribly competitive, but that’s a good thing,” he says. “Buying from us is different. There’s much more personal service, even online.”

While these dedicated sites cater for their particular markets, the independent retailer has a different take on internet retailing. The feeling from many independents is that the personal touch that characterises this kind of retailer is lost online, resulting in less customer loyalty.

James Handford of Handford Wines believes, “If you’re an online retailer, you’ve got less chance of establishing loyalty, but much more freedom. We’re looking to combine the two.” Mike Rogers has a clear idea of the purpose of Philglas & Swiggot’s online presence.

“The internet will be a shop window – open when we’re closed and providing superficial information about the wines. We prefer a one-to-one.” Andrew Shaw of Stone, Vine & Sun admits that the internet is a less expensive way of retailing, but thinks there is “little emotional loyalty for consumers as they never see or talk to any employees”. Kemp agrees, “It’s about how you address your customers and what you offer them, as well as the service. The web page is really just the start of it.

Market breakdown

According to ACNielsen, the retail market in the UK comprises a total of 47,507 outlets. Multiple grocers make up 6,402 of these. The remainder represents the impulse sector, the majority being the 27,906 independent retailers. The 6,098 symbol stores, 3,130 co-ops, 3,437 multiple off-licences and 534 multiple forecourts make up the remainder of the impulse sector. As successful supplier to the UK market, Félix Solís Ramos of Félix Solís, owner of Viña Albali and Altos de Tamaron brands, says, “It is easier to reach higher sales through several accounts in the multiple sector than to try to cover a lot of independents, although the good thing about the independent sector is that it can provide you with a wide network of points of sale making your wines easily reachable.”

© db August 2006