News

UK RETAIL OVERVIEW: On the money

30 July 2007 By db staff writer

“standfirst”>After a long period of sustained and unrelenting growth, wine volume sales finally plateaued last year. The trade is now focusing on creating growth through value, finds Clinton Cawood

At a glance, not much seems to have changed for wine in the UK off-trade recently. Multiple grocers still wield vast amounts of power, and there have not been any major changes in terms of overall sales figures. There is far more to the market, however, and in the last year a number of factors have had their effect.

Last year saw the trade come to terms with the fact that, after such a significant period of consistent growth, wine sales in the off-trade had become static. Whether this is merely a feature of a mature market, the result of having recruited all available wine consumers, or the product of more pernicious factors, the fact is that growth in one area is now usually at the expense of another.

Latest figures from Nielsen (MAT 16.06.07) for wine sales in the off-trade do in fact report 2% growth in volume in the last year. While this volume growth remains quite low, an opportunity still exists in terms of value. Overall, according to Nielsen, off-trade value is up nearly 5%, bringing sales to £4,454 billion. This increase equates to a rise in average bottle price in the last year from £3.88 to £3.98.

While sales in both multiple grocers and impulse outlets are growing in line with the market at 2% by volume, the former channel is having the most success in growing value (up by more than 5%, according to Nielsen). Impulse achieves a far higher price point, however: £4.41 compared to £3.81 in the multiple grocers.

Smoking ban

As the wave of smoking bans in one country after the next continues, it leaves endless amounts of speculation and analysis, fuelling countless hours of debate and contrary statements of opinion.

It is safe to say that the recently introduced ban in England, like any other, will undoubtedly have some effect on the wine trade. Its impact on the off-trade is likely to be an indirect one, as it stands to benefit from the likelihood of some smokers choosing to drink at home.

Conversely, while drink sales may decline (temporarily, some say) in the on-trade, wine is likely to be the least hit by this, if at all. As strategic drinks consultant Hew Dalrymple points out, “Wine can potentially benefit from a greater emphasis on food.”

Constellation’s Peter Spencer points out that in the on- and off-trade, “it’s the same consumer”, and yet wine’s share in the on-trade is significantly less than in the off-trade. He speaks about identifying occasions other than the obvious bottle of wine with a meal in a pub. The wine trade looks likely to suffer very little from the ban. In fact, it has the potential to benefit significantly.

Aggressive expansion
In contrast to, and possibly explaining, these steady increases, are Nielsen’s figures for the multiple specialist channel, down 7% in volume, with a decrease of over 5% in value. This channel may account for a comparatively small amount of the overall market, but the ongoing decline in this sector is perhaps indicative of a greater trend. Shoppers are undoubtedly going elsewhere, as other channels offer an increasingly diverse offering.

A striking example of this has just been unveiled by the biggest multiple grocer: Tesco. A massive overhaul sees the giant retailer’s wine offering increase by 300 wines, bringing its range to over 1,100 wines. As wine category manager, Jason Godley, explains: “In a stagnant market, to continue to grow we have to appeal to more people – to get people to take a fresh look at Tesco.” For strategic drinks consultant, Hew Dalrymple, the new range is a “throwing down of the gauntlet, not just to Sainsbury’s, but to retailers like Majestic. They will certainly not be sitting back on their laurels – this is essentially a direct attack”. He adds, “There is no question that Tesco have put in a huge effort to keep ahead of the game in the last 12 months.”

Some of the specifics of Tesco’s overhaul suggest even more about the current retail environment, and where it is headed. For example, a major priority for Godley is the £6.99-£10 sector. Over 200 of the wines being added to the range are priced above £6.99. Another indication of an ongoing trend is Tesco’s rosé offering, now doubled in size.

Given the scope of this retailer (accounting for an estimated one third of sales within the vast multiple grocer category), changes such as these are of particular significance to the rest of the market. Godley also points out that this overhaul is not in keeping with current trends, which have tended towards consolidation of ranges. This broader offering poses a challenge, not only to other multiple grocers, but to other channels as well.

Peter Spencer, senior vice president of UK sales for Constellation Europe, believes that consolidation, in terms of both retailers and supplier base, “is always going to be a challenge”, but adds that this “throws up market opportunities, and keeps the market competitive”.

Some channels are emerging from this competition more scathed than others. The number of outlets in the off-trade, according to Nielsen, is an indication, showing a slight decline in multiple grocers, with significant declines in the impulse sector, in all categories but symbol stores. The multiple specialists appear to be the most vexed, with both declining sales and number of outlets.

One consolation for the multiple specialist channel, in the face of these declining sales, is its high, and rising, average bottle price, now up to £4.76.

Cash and carry and wholesalers

An essential part of the supply chain, mainly for independent grocery retailers and symbol stores, but for part of the on-trade as well, is the wholesale and cash and carry market. And as wine has continued its rise over the years, so has its importance to this sector increased.

Omar Ansari, wine buyer for the Bestway Cash and Carry Group, confirms that the wine offering is still growing at a moderate pace, “almost the same as the industry norm”. An indication of the importance of wine to this sector is the emphasis placed on own-label brands. For Bestway, this is represented by a brand called Cellar Estates, including 80 wines and accounting for an estimated 25% of its business.

Much like the rest of the trade, Ansari confirms that the cash and carry business is also reflecting the growth in popularity of rosé, as well as wines from New Zealand and Chile. John Murphy, director general of the Federation of Wholesale Distributors (FWD) adds, “We would follow the national trends.” He goes on to mention issues such as responsible drinking and health issues, all of which are undoubtedly concerns for the wine market on the whole.

The FWD has the potential to influence this sector as well, primarily through the development of the Take Home Blueprint – a plan for retailers that suggests brands to stock, complete with recommendations for the amount of shelf space to be dedicated to each region. While this is undoubtedly a useful resource for retailers, the specific list of brands mentioned on this plan does not encourage a particularly diverse offering.

Murphy claims, however, that this sector is indeed providing a more diverse offering. He explains: “A trend is that wholesalers have traded up their offerings. There were the days, going back about 18 years, when it was all Lambrusco or Blue Nun.”

But, while the off-trade as a whole has succeeded in raising its average bottle price, Dalrymple is quick to point out that “duty increase has a part to play in that”, adding, “It’s still going to be fiercely competitive from a supply side. Even if Australia gets its supply and demand closer together, there will still be suppliers from different countries maintaining price deflation in wine. This is in the sense that the quality of what you get today is better than what you’d get for the same price yesterday.”

Discount drinkers

According to TNS’s research into wine sales in the grocery retailer channel, Australia appears to be having success in terms of addressing these issues of supply, with its increase in value of 13.2% (MAT 17.6.2007) compared to increase in volume of 10.6% for the same period. Other countries showing dramatic increases in this channel are Chile and, to a lesser extent, Italy.

According to TNS’s research into wine sales in the grocery retailer channel, Australia appears to be having success in terms of addressing these issues of supply, with its increase in value of 13.2% (MAT 17.6.2007) compared to increase in volume of 10.6% for the same period. Other countries showing dramatic increases in this channel are Chile and, to a lesser extent, Italy. According to TNS’s research into wine sales in the grocery retailer channel, Australia appears to be having success in terms of addressing these issues of supply, with its increase in value of 13.2% (MAT 17.6.2007) compared to increase in volume of 10.6% for the same period. Other countries showing dramatic increases in this channel are Chile and, to a lesser extent, Italy.

Despite increases in supermarket wine prices in general, John Murphy, director general of the Federation of Wholesale Distributors (FWD) remains “worried about the propensity to below-cost sell”. Murphy explains that he is referring to “promotions at certain times of the year – and not just wine, but alcohol in general”.

Promotion and discounting activity remains, as always, a significant feature of the UK retail landscape. As a recent Mintel report on wine retailing (June 2007) states, “Brits are discount drinkers.” The report suggests that one reason is “the complexity of different wine varieties, making price an easy lowest common denominator for purchasing decisions”.

Mintel’s report states, “10% of consumers will pay full price for a wine they have enjoyed on promotion,” a fact which undoubtedly encourages retailers to continue this activity, as well as placing at least some of the responsibility on the consumer.

Spencer comments, from Constellation’s perspective, “We’ve invested a lot of money into our brands, so we’re selling more off-promotion. We have to work out a way to educate consumers that 50p more on the cost of a bottle is a huge increase on the amount spent on the wine.” This is because expenses such as duty and packaging are largely fixed costs.

A myriad number of other trends currently have an effect on the wine trade – factors such as greater consumer awareness of ethical issues, as well as greater concern about health. Godley evidently believes that these are trends worth paying attention to, with Tesco now offering twice as many organic, as well as Fairtrade, wines. Spencer believes, however, that “we’re still pretty much in the infancy of understanding that market. Fairtrade is becoming more prevalent, but from a small base”.

Related to these environmental factors, yet with the potential for a far more practical effect on the trade, is actual climate change. Godley believes: “This is changing dynamics in wine. As the weather is consistently changing, people want more refreshing drinks. Hence the success of cider.” Dalrymple points out that something related to this is “the rosé trend, and critically you have to see the growth of Pinot Grigio and Sauvignon Blanc as all a part of the same trend towards lighter, more aromatic wines”.

Feeling the heat
In a practical sense, higher temperatures generally result in the production of higher-alcohol wine and yet, paradoxically, seem to be a factor behind higher demand for lower-alcohol offerings. Both producers and retailers are aware of this potentially emerging trend. For example, Tesco has added eight new wines with ABVs below 9%. Mintel’s report also mentions the introduction of lower-alcohol wines from retailers such as M&S, predicting, “Others will follow, paying attention to those products they can promote that they have health benefits and dietary qualities.”

In a practical sense, higher temperatures generally result in the production of higher-alcohol wine and yet, paradoxically, seem to be a factor behind higher demand for lower-alcohol offerings. Both producers and retailers are aware of this potentially emerging trend. For example, Tesco has added eight new wines with ABVs below 9%. Mintel’s report also mentions the introduction of lower-alcohol wines from retailers such as M&S, predicting, “Others will follow, paying attention to those products they can promote that they have health benefits and dietary qualities.” In a practical sense, higher temperatures generally result in the production of higher-alcohol wine and yet, paradoxically, seem to be a factor behind higher demand for lower-alcohol offerings. Both producers and retailers are aware of this potentially emerging trend. For example, Tesco has added eight new wines with ABVs below 9%. Mintel’s report also mentions the introduction of lower-alcohol wines from retailers such as M&S, predicting, “Others will follow, paying attention to those products they can promote that they have health benefits and dietary qualities.”

In matters such as these, there is a “chicken and egg” scenario, as Dalrymple explains. “To some extent, the multiple grocers dictate the trends. For example, I don’t think people want to drink wine from PET bottles, but if they adopt it, it’ll be interesting to see whether consumers purchase it,” he says.

Mintel’s prediction for wine retail in the near future is that “supermarkets will undoubtedly continue to consolidate their position” and that “the position of the specialist off-licence remains unsure as long as they are unable to offer any clear point of difference in the marketplace”. This sector is being undeniably challenged, and will need to make significant changes to respond to this.

Until quite recently, volume growth was a consistent feature of wine retail in the UK, but the room for growth seems to lie primarily in terms of value now. A culture of promotions, as well as irregular supply levels, poses a challenge to this. To achieve ongoing value growth will require concerted effort on a number of fronts, from producers and retailers, as well as encouraging trading up by consumers. Whether it is multiple grocers or consumers that are setting the trends, the trade seems to at least be moving in the right direction.