FEATURE: CALIFORNIA – Changing gear

Given the astonishing gains made by Californian wines in the UK, the Aussies must be glimpsing nervously in the rear-view mirror. The Americans are now well positioned to pull ahead, says Clinton Cawood

Looking at the numbers, Californian wine’s march towards domination of the UK market continues unabated. Progress is even more vivid thanks to the overall standstill of UK wine sales. In reality, though, there are still opportunities and challenges to be met before the armies of blush Zin scramble past France and start sizing up Australia for first place. A bit dramatic, perhaps, but 12% growth in the UK off-trade according to ACNielsen (MAT Sep 2006), is quite striking. The major growth recently in UK wine has been in rosé, a category that California contributes significantly towards. In the UK on-trade, California is firmly in fourth place, but figures from earlier in the year show spectacular growth of 39% in volume (ACNielsen, MAT May 2006).

With regard to the split of Californian wine sales in different sectors, John McLaren, UK director of the Wine Institute of California acknowledges that, “The impressive figures are in the supermarkets.” This multiple grocer sector is usually the preserve of the bigger corporations with extensive portfolios. Constellation Europe, for example, boasts a massive collection of brands, both from California and elsewhere, and is able to provide a number of options to its customers, regardless of sector. Claire Griffiths, vice president, brands marketing, for Constellation Europe, confirms that as far as its Californian offering is concerned, “We have a number of mainstream propositions, Echo Falls, Turner Road, Twin Fin…”
Helen Wright, marketing manager at Percy Fox, says, “Blossom Hill has a strong presence in the multiple grocery sector, as
it does in the wholesale, impulse and cash and carry.”

Brands leading the way

In addition to dominating the shelves in the multiple grocer sector, sales from these companies are growing faster than the overall Californian category. Gallo has seen growth of 22% in volume, and 21% in value in the last 12 months, according to Jane Hunter, marketing director for Western Europe. Similarly, “Constellation is outpacing the market. Our total US category is up 31%,” says Griffiths.

The focus, however, is on higher price points and increasing value. “A key challenge is to ensure we drive more value, and trade consumers up and meet their needs for different solutions,” says Hunter. One of the key drivers of growth for Gallo, according to Hunter, is its Sycamore Canyon brand, priced at £7.99, but discounted to £3.99.

The Wine Institute has continued its focus on its “benchmark wines” that demonstrate what California has to offer in the £6-£10 price bracket. As McLaren confirms, “The market is showing more interest in that sector globally. Growth in the over-£6 is above 15%. But that’s obviously higher up the triangle,” he says. At higher price points, volume is considerably less.

Pyramids and triangles

Simon Legge, marketing director in Europe for Brown Forman Wines (including the Fetzer brand), believes that maintaining the current rise in Californian wine sales “can only happen with the £5-£7 wines. It has to be an expanding pyramid. A
well-proportioned pyramid.”

Whether it is a triangle or a pyramid, a Californian producer at the very narrow end is Opus One. The way exports of this
iconic fine wine are handled has changed dramatically since Constellation’s acquisition of the Robert Mondavi Winery. Originally started as a joint venture between Mondavi and Baron Philippe de Rothschild, this structure was maintained after the acquisition by Constellation. As part of the accord reached between the two companies, the decision was made that all sales of Opus One outside the US would be via négociants. “It was a bit of a gamble,” says Roger Asleson, director of communications for Opus One. “We’re the first Californian wine to sell via négociants for the international trade – even to Canada.”

This has proved to be a good decision. “It’s been going just swimmingly,” says Asleson. “Our wine is now showing up in niche markets that our agency distributors couldn’t take it to,” he says.

The proportion of Opus One that is exported, according to Asleson, is at least 20%, “And we expect that to grow significantly. For a Californian producer, to sell more than 5% of your wine outside of the US is rare,” he says. Opus One may have a strong domestic demand, but Asleson believes that having a worldwide presence “makes us even stronger. What we want to project is a worldwide brand.” And the UK market is a priority, he says. “Not only does the UK have wines from all over the world, and is a crossroads for fine wine, but it has, arguably, the greatest concentration of English-speaking wine writers,” says Asleson.

Despite a buoyant domestic market, many other Californian producers are increasingly prioritising exports, with the UK remaining a consistently important market. Jackson Wine Estates, for example, places significant emphasis on this market. European sales manager, Peter Ferguson, believes that in the UK, “California has more to offer than is currently being demonstrated.” Yet he maintains that there is “no way we’ll give up on the UK. It is an exciting market.”

“I wouldn’t say that everyone’s jumping up and down with glee at the profits they’re making in the UK,” says McLaren. “But it is the most prestigious market. If you make it here you’ll make it anywhere.” Legge agrees, “Some of the premium brands that do well in America and other countries, relatively speaking, haven’t done so well in the UK.”

Pinot Grigio in short supply
There are undoubtedly producers that have been doing well, as the overall growth of the US category in the UK demonstrates. Honeywood, a Californian brand launched by HwCg earlier in the year, has had little trouble selling wine here. “We’ve been lucky to get two listings with multiples,” says Henry John, marketing manager at HwCg, who developed the brand. Sales have exceeded expectations, with the Pinot Grigio a good example. “We can’t find enough of it at the moment,” says John. “It’s a nice problem to have.”

The brand, according to John, has been successful because, “We saw an opportunity for California that goes above the invisible ceiling of the £5 price point. But the wines have got to deliver if they’re going to go that way.” One way this has been achieved is a combination of US grape growing and HwCg’s UK winemaker in California. “It is UK-focused so it is important to make a wine that consumers want,” says John.

Hunter is of the same opinion when it comes to Gallo. “We take into account very seriously the styles that consumers in the marketplace like. Chardonnay is a good example of that,” she explains.

Keith Isaac MW, general manager of Patriarche Wine Agencies, on the other hand, explains that although the company has produced a private-label wine for one of the UK multiples, the Hahn and Cycles Gladiator ranges are “the same packaging, same product. The 2005 in particular is more European in style. I saw no reason to start specifying.”

Hahn’s new Cycles Gladiator offering has been able to gain a wide distribution. “We’ve got two of the majors, and haven’t noticed any ill-effect with the on-trade and wholesalers. Because we’re £7, it’s not a price that’s going to antagonise the on-trade too much,” says Isaac.

For some, price comparison can be a problem when tackling the on-trade. As John at HwCg explains, “There’s always the thing that you could be open to comparison, but I don’t think it should be a concern. I think that brands are an important part of everyday life now, and this applies to wine as well. It’s all about consumers getting a good glass or bottle of wine that they can trust.” Now that the brand is established in multiples, the on-trade will be important for Honeywood in the next 12 months, he says.

Legge at Brown Forman believes that, for California, the on-trade, “has great scope for growth. There is an in-built Franco-Italian bias, but it’s a great place to do some brand building.” For Sutter Home, a PLB brand, this has been the primary focus. Trade marketing coordinator, Paul Shelton, explains that, “For the on-trade customers we deal with, if it’s in Tesco or Sainsbury’s then they struggle to sell it because it’s price comparable.” Sutter Home has achieved year-on-year growth with its on-trade accounts, however.

On-trade opportunities
Despite the fact that “the on-trade lags behind a bit”, according to Shelton, it is a focus for many major Californian producers, where it offers an obvious setting for increasing value. Constellation, with its wide range of wines, recognises “opportunities in the on-trade, such as white table cloth restaurants”, says Griffiths. “But we’re across the board in the on-trade. What we’ve tried to do is portfolio-map.” For Gallo, the on-trade is also an important platform. Hunter is less concerned with price comparisons. “The on-trade want brands in their wine lists,” she says. “Consumers know that to have a night out, you pay a premium. They want the reassurance of the high quality brands.” Blossom Hill has also recently placed more emphasis on the on-trade. “This year we have significantly increased our on-trade team internally, to ensure we are giving this part of the business the focus it requires,” says Wright.

For Opus One, a split between the on- and off-trade is also essential, but for reasons that are unique to premium producers. “The on-trade is important, but so is the off-trade, because of collectors. We have to do a balancing-act,” says Asleson.

For the Californian category, the on-trade presents an opportunity to develop higher price points, and drive value within the category. The off-trade can also provide these opportunities, however. Legge explains, “We are working on the £5-£7 area that will excite retailers. That kind of thinking and initiative is necessary, because if we don’t we will be a sub-£5 category.” Ferguson also recognises a “need to encourage retailers to continue to see potential in California.” For him, Jackson Estates has the potential to “showcase California. It’s not about channelling people to lower and lower price points.”

Recognising the potential for growing mid-price points in the Californian category, PLB is planning the launch of a new brand targeted at the off-trade, according to Shelton. “We’ve come up with a brand that will be £6.99, and will provide what consumers want at that price point,” he says. The new brand, called Blackburn & James, will be sourced from the Paso Robles region.

Despite a focus on price promotion as a major marketing technique, primarily in multiples, and at lower price points, there are other marketing methods being used. Hunter explains that Gallo has been placing increased emphasis on value-added marketing, using partnerships with companies such as Lindt and La Bottega pizza. For Blossom Hill, according to Wright, “Price promotion is, of course, part of the strategy, but the brand is only ever ‘on promotion’ for approximately 50% of the year. The best approach for achieving sustained growth is by dedicating the time and budget to each part of the sales and marketing mix.”

The use of Californian brand images and regions in the marketing of Californian wine varies drastically from one brand to the next. On packaging for Cycles Gladiator, “California is quietly stated,” says Isaac. “On the on-trade table cards we made a point of putting ‘fine wines from California’,” he says. For others, such as Constellation’s new offering, Twin Fin, Californian culture is primary to the brand. “Twin Fin homes in on the fact that lifestyle propositions have been successful in the US. We’re testing the water with Twin Fin. It’s still early days,” says Griffiths.

Asleson explains that Opus One’s marketing is not entirely reliant on its provenance. “It’s certainly specific that it’s from the Napa Valley, and the Oakville appellation, but we’ve always benefited from our dual (French and US) ownership,” he says.
One common feature is an increasing focus on consumers. McLaren explains that the Wine Institute has “gradually shifted focus in promotional activity from trade to consumer. We needed to get the trade to stock our range, but we are now addressing the consumer.” Fetzer has also had a significant presence in consumer marketing, with events such as The Big Chill festival and the Chelsea Flower Show. Legge explains, “We don’t just stand there sloshing out wine at a wine fair. We’ve got a story to tell, with brand information and leaflets, which we carry forward to things like The Big Chill.”

Biodynamic halo
Another aspect of Fetzer’s production, and consequently of its marketing, is its commitment to sustainability and responsible production. Earlier in the year this culminated in the launch of The McNab, a biodynamic wine. “It’s only a couple of hundred cases. We’ve sold all we made, but we didn’t make very much. It can, however, offer an apt halo to the rest of the brand range. In this case it’s a biodynamic halo for the brand,” says Legge.

There seems to be an increasing focus on this kind of varied marketing, as well as an emphasis on growing sales of wine at higher price points. These are precisely the areas of the Californian wine category that need to be addressed. While not quite there yet, if things continue as they are, eventual domination does seem likely.

© db November 2006