Slideshow

Top 10 trends in UK retail (5-1)

27 September 2012 By Lucy Shaw

We take the temperature of the nation’s wine retail sector, and find 10 trends making the biggest impact on the industry.

Over the following pages, we complete yesterday’s countdown of the key themes affecting wine sales in the UK off-trade.

1. SUPERMARKETS

Dan Jago

In the last few years we’ve witnessed the supermarkets increasingly up their share of the UK wine market to claim a decisive monopoly. However, things have levelled off this year, with multiple grocers owning an 80.6% (commonly rounded up to 81%) value share of the market, up just one decimal point on last year.

With such a large chunk of the market already, continued growth is difficult, and with tough trading conditions due to the wettest June on record, supermarket wine sales have become stagnant.

The Queen’s Diamond Jubilee in June helped to inject much- needed sparkle into Champagne and English sparking wine sales, with Asda reporting an 85% uplift in Champagne sales, and Waitrose saw sales of English sparkling up 96%, in its biggest week for English wine on record.

Tesco also performed well, selling over 750,000 bottles of Champagne. Marks & Spencer meanwhile shifted 50,000 bottles of Ridgeview and Chapel Down, with sales of English fizz up 50% on its normal rate.

Supermarkets remain the number one outlet of choice for buying wine in the UK. In a recent study by Wine Intelligence, 95% of those surveyed said they bought their wine in a supermarket, while 31% used high street off-licences and 22% used a corner shop. However, the thinktank reported an increase in the number of people using off-licences and independent merchants in the past two years.

Interestingly, younger consumers bought more frequently from multiple specialists and corner shops than those aged 45-54, who were found to buy more wine online than 18-34-year-olds, dispelling the myth that the majority of online wine buyers are young professionals. Tesco dominated the survey, accounting for 54% of sales, with Sainsbury’s at 33%, Morrisons 31%, M&S 12%, and Waitrose just 9%.

2. OWN-LABEL ASCENDANCY

Own-label wines continue their charge as one of the most dynamic sectors in the UK off-trade, offering customers a chance to try more obscure grape varieties they might otherwise shy away from.

According to Nielsen, own-label wines such as Tesco Finest and Sainsbury’s Taste the Difference account for a fifth of the UK market value, with sales of Taste the Difference up 33% on last year and its entry-level House range now worth £60m.

“What we’ve witnessed over the past year is a rapid increase in ‘retailer exclusive’ wines such as Tesco’s Ogio, that are only sold in one retailer, but don’t have the same appearance as an own-label brand,” says Helen Stares of Nielsen.

Retailer exclusive wines are doing so well at Tesco, BWS category director Dan Jago has recently added 60 new wines to the line- up, which will form the “middle ground” between Finest and Simply, including Wine Route from South Africa and Lateral from Chile.

Jago however, is quick to stress the continued importance of Finest. “Our 100- strong Finest range is fantastically important to us and accounts for around 30% of our sales,” he says. “We were the first to market with Tesco’s own-label Finest Falanghina, Fiano and Picpoul de Pinet, now everyone has one.”

And why wouldn’t Tesco capitalise on this opportunity? Own-label and retailer exclusive wines are a win-win situation. Buying the wine in bulk, the retailer can cut out the middleman and make better margins in the process.

3. ONLINE SALES

No one can deny the increasing importance of the online sphere as an arena for wine sales. But the recent closure of New York- based online wine retailer Lot18’s UK operations highlights the fact that in order to succeed, online retailers need to get their messages and offerings right.

The company blamed the closure on the supermarkets’ stranglehold on the UK market, but also admitted it had overestimated its anticipated growth rate.

Another recent casualty of online wine retailing is Booths-owned Everywine.co.uk, which ceased trading last year. But despite Lot18’s failure to successfully penetrate the UK market, a number of online-only wine merchants, including Slurp and Naked Wines, are flourishing in Britain.

Simon McMurtrie, CEO of Direct Wines, recently revealed that 50% of the company’s UK sales, and 75% of its Hong Kong sales, were now online, illustrating the meteoric rise of internet wine sales in the past few years.

According to Jeremy Howard, CEO of Slurp, online wine sales are growing at a rate of 25-30% and now account for 10-15% of the total UK wine market.

In a bid to streamline their sales channels, supermarkets are upping the quality of their online offerings. Internet sales now account for 10% of Tesco’s total wine sales, according to BWS director Dan Jago, who has increased Tesco’s online selection to 1,400 wines, including 400 fine wines.

“The great thing about our site is that what you see is what you get. If it’s on the site it means we physically have the stock,” says Jago.

An attractive benefit of running an online wine business is that costs can be kept down: “We don’t have anything like the overheads of Oddbins because we have no store network – all our warehouses and offices are at the same base,” says Slurp’s Howard.

4. PRICING LEGISLATION

David Cameron

At the end of May, Scottish minimum pricing cleared its final parliamentary hurdle to become law at 50p per unit, making the cheapest bottle of wine £4.69; a move Gavin Hewitt, chief executive of the Scotch Whisky Association, called “misguided”.

The UK government meanwhile has proposed a policy to set a minimum price per unit of alcohol at 40p.

Prime minister David Cameron has also promised to look into deep discounting, such as three-for-two deals on bottles of wine, popular in supermarkets. The move will put an end to alcohol being sold below cost in supermarkets, which many believe would be hugely positive for the wine industry.

Tesco has spoken openly about being happy to cooperate with the government on its minimum pricing initiative, though BWS director Dan Jago has concerns about the way the currently booming cider category will be affected.

Sainsbury’s has been less welcoming of the move: “We don’t support minimum pricing, as it will unfairly penalise the vast majority of customers who drink responsibly. There is no simple link between price, consumption and alcohol misuse,” a spokesperson for Sainsbury’s said at the time of the announcement.

The Wine and Spirit Trade Association has also raised concerns about the plan, with chief executive Miles Beale describing the move as a “pretty aggressive change in tactics” from the government, saying the trade was quite right to “pause and consider” its co-operation.

5. RETAIL PRICING

According to the latest figures from Nielsen, supermarket value sales are up 3% on last year, which is likely due to the fact that the average bottle price in the UK has increased by 4% on last year, from £4.64 to £4.80, creeping ever closer to the £5 mark.

Last summer, Tesco’s Dan Jago commented that selling wine under £5 was becoming increasingly difficult due to VAT and duty hikes, admitting it’s “a good thing” that the Tesco under £5 range is getting ever smaller.

This year Jago remained characteristically sanguine, stressing the importance of bringing value to the consumer: “Everyone in the wine trade seems to think wine should be more expensive. I fundamentally disagree: wine should be great value. Consumers don’t view things the same way as the trade – they want wine to be an everyday luxury and will only be prepared to spend more if they have a reason to trade up,” says Jago, though he does admit that the days of really cheap wine are in the past.

Overall, this is a hugely positive thing for the wine trade – as prices rise, so does quality. Tax hikes have shunted the entire pricing system upwards; wine prices are rising twice as fast as inflation, according to the WSTA, and half the money for a £5 bottle now goes to the exchequer.