DEBATE: AGENT’S ROLE: Adding value

Charlotte Hey talks to UK agents and distributors about the changing face of the market and the role of the agent/distributor within it

Troy Christensen, CEO, Constellation
The role of the agent was to open the door to a market for a manufacturer where critical mass didn’t exist, expertise was lacking or the cost of direct entry was high and risky. The successful agencies have strong networks and their capabilities bring value to the market and the manufacturer. There must be value added in this market in order to be successful.

A desirable agent will ideally have national reach and a broad spread of existing customers. In addition, the agent should be financially strong and supported by modern business and logistics systems, enabling high-quality and low-cost customer service.

Of course, as well as this, the agent must continue to add value through sourcing and maintaining quality, and ensuring that wines are carefully targeted at the correct customers. However, it is also vital that the agent has the ability to drive education and understanding of provenance, as well as understanding and acceptance of innovation. To do this the agent must be capable of having a much deeper relationship with the manufacturer and will need to be able to engage the manufacturer in a two-way relationship that will constructively improve the position for the manufacturer in the market.

To survive in the current environment, an agent must have more than a good trade relationship; they must leverage consumer insight and effectively bridge market demands with the manufacturer’s capability. This role is more than just replicating a basic sales and marketing function.

I don’t think there will be a growth in the number of agents. But, I do believe the best agents will get bigger and increase their scope in order to reduce their market risk. Those agents who add little value will eventually vanish.

Patrick McGrath, managing director, Hatch Mansfield
If you go back 10 or 15 years, the agent wasn’t as involved as they are now. Today the agent has a hand in every aspect of the business: planning, forecasting, informing the principals of what is going on in the market. I would say that now, in many cases, the term “agent” is no longer correct, some are wholly owned subsidiaries and not importer/distributors in the initial sense.

Today the “agent” is there to push and challenge the producers – whether they be the owners or not – especially in terms of what they need to do to succeed in the market. There is now much more of an interface between the producer and the agent. Both have to be much more switched-on and proactive, but at the same time reactive to what the buyers want. The agent is crucial in communicating that effectively to the producer. Efficiency is also key – we live in a busy world and our role is to help make their lives more simple by constantly coming up with new ideas while at the same time doing our homework, analysing the gaps in the market and coming up with the solutions that create excitement in the market.

The agent needs to ensure that the brands come first at all levels, after all that is what the consumer is interested in, with the retailer creating the pull mechanism and the agent very much in the background. Now the brands are the heroes and the job of the distributor or agent is to push the brand, not themselves.

I think in the future there will be more consolidation where the bigger players operate and more specialisation within the smaller distributors, who will target more niche markets. The challenge we will face is that the UK market is a very advanced market and that will only continue. In international terms, we are often the first to go back to a producer to ask them to try something new. That is a challenge for us as agents, but you only have to look at concepts like Stelvin, light-weight glass, six-bottle cases. We were the first to talk to our principals about all these aspects of production and now they are being rolled out across many other international markets.

Andrew Hawes, managing director, Mentzendorff & Co
I would identify the most fundamental role of the agent as that of creating a link or bridge between the producer and the local market. As such it is by definition bound to change as the needs of the UK trade and consumer change.

This is nothing new, of course, and the role of today’s successful agency is completely different to that of the original model in which the agent placed a handful of shipping orders a year with his producers and distributed all stock from a UK bond. If there was a “Brand Plan” it would have been discussed at an annual review, outside of which the sales and marketing strategy would have been left to the complete discretion of the agent, whom the producer might visit once a year.

Today the world has got a lot smaller, supply chains are shorter and communications faster, and agents have had to evolve to keep pace with this. Bearing in mind that agents in the modern world are no longer justified purely as part of the physical supply chain, they really do have to “add value” in order to justify their margin – the less value being added, the less margin is ultimately available to them.

I remember a well-known buying director of a successful multiple chain telling me 20 years ago that there were two sorts of agents he’d deal with: those that did very little, but didn’t add much to the cost, and those that did a lot – to whom he didn’t begrudge their margin. He had no time, however, for those in the middle, who he perceived to be adding on margin without a commensurate increase in value.

I think this “value” can be added in many ways: it can be service related, training and education focused, nowadays we almost operate as consultants to some of our major customers; and of course there is the ultimate added value of brand building. If you can build a successful brand with consumer franchise, then your product will be lifted out of the undifferentiated mass of alternatives available to your customers.

It’s probably time for consolidation and specialisation in the industry. The financial data on the industry’s performance shows clearly that some of the best-performing companies are new specialist entrants exploiting niches in the market, while the larger, powerful organisations are also gaining share at the expense of medium-sized operators. For many companies, consolidation can be a good solution, enabling them to concentrate on their core strengths in a more secure environment, and the urge to consolidate is equally attractive for dynamic companies eager to grow share rapidly.

David Gleave, managing director, Liberty Wines
The agent’s role is changing rapidly, and will continue to change at a brisk pace. This change is a result of increasing pressure to justify our presence. Why should our customers buy through us? Why not go directly to the producer? Those agents who haven’t evolved aren’t around today to see the changes that have taken place, and those who aren’t changing now will suffer the same fate.

Traditionally, the agent’s role in the process of getting the wine from producer to customer was a separate and distinct stage; we represented a producer’s wines in the market, and if you wanted them, you had to buy them through us. Few producers made good wine, so those who did were sought after. 

Today, most producers make decent wine, so the customer has much greater choice. The agent, in order to survive in this environment, has to be a Janus-like creature, facing two ways. We are an extension of the producer, or sometimes the producer, working to forge a space in the market for their products; and at the same time we are responding to our customers’ requirements, increasingly an extension of their buying team.

This is the same whether dealing with the on- or off-trade, with the multiple retailers or the Michelin-starred restaurants. Too many of the large companies have taken value out of their wines in the past decade; today, it is the role of the successful agent to add value – in terms of service and quality – to their offering. This can largely be done by getting more involved in the production process, thereby removing a layer of margin from the price of the wine, and at the same time adding a layer of quality to what is in the bottle.

It is only by getting involved in production that we can justify our link in the chain. This need to justify our presence is a direct consequence of the way customers, in both the on- and off-trade, are consolidating their supplier base. To remain a key supplier, the agent needs either to have distribution clout or be an agile niche player. This will lead to more polarisation in the market, with those in need of the necessary clout looking to consolidate, while the agile niche players will need to specialise. Liberty Wines is very much in the latter category. But the thought of Liberty being, for instance, a pure Italian specialist, as used to exist, doesn’t really bear thinking about. We will need to continue to extend our reach to other specialist areas, and to more than one category, in order to justify our existence.

Chris Davey, managing director, OW Loeb
The agent has had to become more professional and much more efficient in terms of informing the supplier now that there is a much more regular interaction between the agent and the principal based on fact, statistics and buyer information. Previously an agent based its information on a much more intuitive feel of the market. Today it’s facts, facts, facts – an initiative that has come mainly from the New World-based suppliers who want all the “i”s dotted and the “t”s crossed.

They want trends and forecasts about how the market is going to operate or grow, it’s no longer just about selling the wine. Principals now tend to have a much more coherent idea about how they want a brand to be perceived. It’s about placing the wine in the right outlet, in keeping with their vision for the brand. The supplier’s needs are just as important as the buyer’s; placing the product erroneously could lose you either an important listing or an agency. Our role is that of the middle man: agent, buyer/importer, distributor and, increasingly, brand manager.

When I am buying I sell myself, and my company. The supplier has a certain amount of power dependent on their profile and the quality of what they produce, and we have to be able to live up to their expectations in this market.

When it comes to the customer-facing side of the business, again things have got much more sophisticated. The market is saturated with good wine and people trying to sell it. In London especially, there is huge competition. It’s no wonder sommeliers don’t want to see you. That is when relationships come into play. Again, as with the supplier, you have to sell yourself first before you sell the product. And to sell yourself successfully you have to believe in the product you’ve got.

Going forward I see more pain. Ultimately, our challenge is to sell more bottles and make more margin. That’s the painful bit. The great thing is that, despite the challenges and difficulties, it is a very exciting business to be in, but you have to have total confidence in what you are selling.

Richard Cochrane, off-trade director, Bibendum

Channel flux, consolidation and vertical integration have all dramatically changed the classic role of the agent in the UK wine industry. The emergence of a large grocery channel helped drive the significant shift in agency focus during the ’70s, ’80s and ’90s, with some focusing specifically on this emerging segment, others building a channel strategy to work harder in other areas and the arrival of a few who had a strong interest in all major channels.

Further channel flux occurred as consumer habits shifted. For instance, people started to drink good wine in pubs, wanted to buy wine conveniently and started to enjoy ordering wine online rather than just in the male crèche facility of the wine aisles or specialists. The odd producer also started to emerge on our own green and pleasant hills making some decent kit. Retailer consolidation drove a further round of change, with production following suit. With fewer customers and producers controlling ever-larger shares of the market, it was little surprise that fewer, bigger or more focused agents resulted.

Ultimately this well-documented consolidation delivered a level of vertical integration from vineyard to shelf that had previously been unimaginable, which in turn reduced the stage for some agents or led others to form joint ventures, such as our Argento Wine Co and Lion Nathan creations, to deliver a competitive edge. This pace and scale of change is unlikely to change.

The future is about fitter, more agile agents who manage to accommodate the changing consumer needs and access these through a deep understanding of what the retailer wants (on- or off-trade) and what the supply base is capable of. The ability to align these potentially opposing interests and keep evolving them will differentiate the agents of the future in the same way that the previous driving forces did. The independent minds necessary to drive this remain the vital continuing ingredient.

To survive in today’s market an agent has to think, do and deliver profitably. One casualty of consolidation has been thought. Already busy days with ever shorter time frames mean most players don’t devote sufficient time to finding the most efficient and best ways to address the market from an evaporating profit pool. Profitable consumer-relevant innovations, juxtaposed to transactional efficiency, are essential elements for ongoing agent vitality, but unless they are timely, and apposite to the consumer and retailer needs, they are not certain to succeed. Agents who achieve this will emerge as the strong players in today’s market.

Looking forward, I believe the middle ground will continue to consolidate, in part due to the old drivers, but also due to bankruptcy. This will leave a small, but interesting gap for those that specialise.

© db September 2007