Paying for quality: premium wine potential

Despite the wide range of prices on offer in the UK off-trade, there are no prizes for guessing where most of the activity takes place. In 2009, according to Nielsen, some 217 million bottles pinged through the tills at between £3.76 and £4. 

That equates to a fifth of the total market squeezed into the narrowest of price bands. The 5.5% tax hike in the March Budget may have nudged some bottles up a notch, but probably not many given that £3.99 remains a sacred price point.

By contrast, just under 5% of wine was sold for over £7 in the off-trade, though the share of value was double that. At £3.99 any margin for producers and suppliers would be no more than a few pence.

 So there is obviously a huge incentive to grow the £7-15 category. But aside from significantly better returns, what else can be said of this critical price band? What about discounting?

“Between £7-10 with any major listing you’re still going to have to do some major promotions which will have a fairly negative effect on any margin,” says Giles Cooke MW, wine development director at Alliance Wines. In his experience the pressure begins to ease above £9 where “there’s more emphasis on press comment – so it’s about paying for a shelf barker once or twice a year”. 

Among the supermarkets, he praises Waitrose for being “very good at trying to establish premium products at premium prices”.

For Emma Biggs, national account controller at Bibendum, £7-10 is where the supermarkets sell their premium own-label wines without slashing the price: “With their ‘in partnership’ range, Waitrose doesn’t do big discounts, while Tesco Finest has moved away from heavy discounting and doing half-price deals.” 

Bibendum supplies Tesco with its Finest Prosecco at £9.99 which is “doing fantastically well”, says Biggs. Price promotions are limited to a couple of pounds off twice a year.

Discounting dilemma

Meanwhile, on a shelf nearby, the price of big brands like Hardys Crest zip up and down like a yo-yo depending on who’s on the gondola end that week. 

For Christopher Carson, the head of GIV UK and formerly of Constellation Europe, this does not really help get the quality message across. “The consumer is being given the wrong impression. It is confusing for them if they honestly think they are drinking £10 wine and only paying a fiver for it.”

Yet Biggs believes shoppers “understand the half-price mechanic” of heavily discounted brands, a view shared by Steve Lewis, managing director of Majestic Wines, who says “UK consumers are actually incredibly savvy”. 

At Majestic the average bottle price is now £6.41, and about a pound more for those buying less than a case. Last year’s decision to drop the minimum purchase was a gamble, but it appears to have paid off. “One of the big changes we’ve found in the move to six bottles, is for customers to be more experimental and buy higher value wines.”

According to Lewis you can track this simply by watching Majestic customers on a Friday evening who will spend more time tasting opened bottles than in the past. Then, “instead of buying 12 bottles at roughly the same price, they’ll buy eight they really want. 

There will be a Friday night comfort wine like an Argentine Malbec, a Saturday night posh wine to take to a friend’s dinner party and something nice to take to the in-laws for lunch on Sunday.”

To read the full article, see the June issue of the drinks business.

Tom Bruce-Gardyne, 14.06.2010