WINE: Not out of the woods yet

Despite the odd glimmer of hope, 2011 looks like being another tough year for wine in the UK, says Gabriel Savage.

No fire and brimstone, but hardly a walk in the park either; all in all, 2010 marked a fairly stagnant picture for the UK wine trade.

Stewart Blunt, wine and spirit analyst at Nielsen, reports: “Volume sales are ‘hesitant’ at the moment, based on sales up to the end of October; while we are buying at the rate of 98.5m cases (9l) pa, it is 1% less than the previous 12 months.”

Meanwhile, in terms of value, Blunt notes: “Average prices are edging forward as the lower-price wines contribute less each year to the market; overall we’re paying £4.47 average price for a bottle of wine, which is 4% up on previous year, and total sales are up by 3% to £5,281m net retail value.”

Positive though this sounds, this price hike is not the result of healthier margins or higher-quality wines, but rather rising costs, exchange rates and tax. Loss leader distortions aside, the definition of what constitutes a “cheap” bottle of wine is shifting up the price spectrum.

Within this unexciting picture, however, lie some more energetic developments within certain styles and countries. Those looking to identify potential avenues of opportunity for 2011 may wish to read on as we consider key trends, both new and ongoing, currently in evidence across the drinks trade.

Let’s get the inevitable question out of the way first: what about Pinot Grigio? “Despite recent rumours, Pinot Grigio is still driving a substantial portion of market share for the whites,” confirms Faustino Peratoner, general manager of Gruppo La-Vis.

This feedback is corroborated by Nielsen, whose MAT data to the beginning of October 2010 show not just that Pinot Grigio sales growth was surpassed only by Sauvignon Blanc, but also that this success helped Italy to emerge as one of the few countries to increase its off-trade share of the UK wine market.

However, it seems that UK consumers are also enjoying increasing quantities of Italy’s more charismatic indigenous grapes. Peratoner picks out Fiano, Greco di Tufo, Pecorino and Lagrein, observing: “Customers are looking for more authentic flavours which retain a strong link with the terroir.”

La-Vis is not alone in its upbeat assessment of Italy’s fortunes. Richard McKeown, marketing executive for Fratelli Martini, notes that while “the most significant trend that Fratelli Martini has identified is the cessation in growth of the market as a whole”, nevertheless, “the Italian category is still growing both its market share and size”.

As if Italy wasn’t painfully trendy already, Prosecco continues to shine, as many consumers prove happy to settle for this cheaper alternative to Champagne.

Nor is it just Italy which is benefiting in this sparkling arena. Paul Schaafsma, general manager UK & Europe for Australian Vintage, comments: “Such is demand that we are introducing a number of new sparkling lines across our portfolio, including a sparkling Shiraz rosé in our McGuigan Black Label range and a Blanc de Blancs in our premium Tempus Two range.”

Another “significant” trend picked out by Schaafsma is the ongoing demand for low-alcohol wines. By this, he clarifies: “not necessarily low alcohol in terms of 5% or so, but around 11% to 12.5%, far removed from the hefty 15% wines of the past”.

As a leading perpetrator of these blockbuster styles, Australia in particular is now moving to convince consumers that it is also capable of showing a lighter touch in the cellar.

Yet another trend that the trade feels has plenty of distance left to run is rosé. “Having recently broken the £1 billion barrier [Mintel October 2010], rosé is forecast to continue growing throughout 2011, and the next five years, at the expense of traditional red and white wine varieties,” says Henry John, marketing manager at ViVAS, the joint venture between Bibendum and distributor 3663.

While still rosé is leading the way, John notes “a halo effect” driving “a significant uplift in volume sales” for sparkling styles as well. Moreover, he adds: “It’s these sparkling wines that provide an opportunity for operators to encourage customers to trade up to something a little more special this Christmas and deliver greater cash margins this winter.”

Despite its growth, John suggests that the trade remains somewhat slow to capitalise on rosé’s popularity among consumers, saying: “There is still some way to go for rosé wine to be taken seriously as an all-year-round listing, with ongoing debates as to whether there is even room for more than one option on wine menus.”

Offering a more broad-brush view from a UK on-trade perspective, Adrian Burns, London & regional sales manager for Fields, Morris & Verdin, finds “France and Spain still doing well, Australia and perhaps South America suffering a little”, and “South Africa still struggling to make much impression.”

In addition to an ability to offer excellent value compared to many of its European competitors, another factor still boosting Spain’s performance is the ongoing success of its cuisine in the UK. Andre Neves, marketing executive for Paternina at Ehrmanns, maintains: “The on-trade market is the way to go with the help of gastronomy for Spanish wine, both premium and mainstream.”

As these global perspectives remind us, the nature of its product means that the UK wine trade is perpetually in thrall to international exchange rates. Tony Allen, category purchasing manager for wine at Matthew Clark, notes that the present state of the sterling offers few positive currency trends, observing: “The GBP continues to be weak versus historical levels against most major currencies including the USD, AUD, NZD and euro; but these changes happened more than a year ago, with the exception of the ZAR, so there will be little impact on buying decisions for 2011.”

Linked to this problem, at the mainstream end of the UK market in particular there are signs that the belt-tightening remains fiercely competitive. Peratoner notes: “Multiple grocers are strongly developing their own-label ranges, consequentially affecting the branded category.”

He also remarks on the “high demand for bulk liquid”, with a growing number of these producers “moving bottling lines to the UK to decrease costs for the retailers”. All this only serves to reinforce the message – hardly a bombshell – that it is price, more than any trend, which is going to determine listings for the majority of the wines sold in the UK next year.

Of course, on top of all the usual pressures, January heralds an additional millstone in the form of the 20% VAT rate. For John, “the VAT increase will bring a sharper focus to many businesses, with operators needing to decide whether they want to make a healthy GP throughout their wine list, a cash margin or a mix”.

Meanwhile, McKeown predicts: “The VAT increase will have a distinct effect on the revenue split of a supermarket multibuy promotion. This will inevitably have a knock-on impact on consumer activity and subsequently the trade if price-points change.” Over at Ehrmanns, Neves reveals: “Many of our customers have already been subtly raising prices so that the impact is not very abrupt.”

Even looking beyond this prospect of an even leaner January than usual, trade forecasts for 2011 vary from cautiously non-committal to gloomy resignation. Geoff Brown, product category director for Matthew Clark, comments: “We expect consumer spending to be slightly subdued in early 2011, but as the year goes on, other dynamics like employment levels and credit availability will come into play.

For the on-trade it is important that brand owners do not attempt to drive over-aggressive pricing at this fragile time.” Likewise, having described the on-trade’s 2010 as “tougher than 2009”, Burns remarks: “I can’t see much change in 2011. I think people will remain cautious and continue to stay in.”

If all this big picture analysis sounds unbearably depressing, the trade can take heart from the upbeat signs appearing on an almost weekly basis.

The steady trickle of bar openings, exciting new listings and appearance of dynamic smaller retailers all act as a welcome reminder of the tenacity and creativity within the wine world.

Pair these qualities with the resourcefulness required when times are tough, and you create fertile ground for new trends which could shape the future of our drinking habits.

Gabriel Savage, taken from the drinks business Trends Report 2010