The changing face of the UK wine trade

The last few years have been tumultuous for the British wine industry. Rising consumption reversed in trajectory during the recession and is yet to recover.

Image credit: Grand Parc Bordeaux

As wine consumption fell the value of wine as a speculative investment rose rapidly. Values hit a high during the summer of 2011, only to lose almost a third of their worth over the next three years. In the wake of this collapse the summer saw several high profile insolvencies of wine merchants who catered to this market. In some cases, the companies folded owing seven-figure sums to their creditors.

Against these rather gloomy facts, Britain is seeing a surge in the number of vineyards and a steep upturn in fizz consumption. Spending and confidence is finally on the rise too, with Deloitte’s consumer tracker showing a three year high. Importantly for wine retailers, discretionary spending is on the up, despite a decrease in essential items.

How can retail businesses capitalise on these trends without becoming another industry casualty? What’s behind sinking consumption levels?

Dropping levels of wine consumption don’t necessarily mean that the British public is falling out of love with wine. It’s not even entirely due to pressures on household budgets. And it’s worth remembering that the UK is still the sixth biggest global market for wine according to figures collected by VinExpo, one of the industry’s leading international organisations.

One major influence on wine drinking in the last few years is an ongoing shift from quantity to quality. People are drinking less, but spending more. VinExpo predict a 19% rise this year in people willing to part with more than £6.07 a bottle. Even discount supermarket Lidl is positioning itself to capture this market, spending £12m on a Bordeaux offensive that will see them stocking a range with price points between £4.99 and £24.99.

This correlates to a trend seen throughout the food and drink industry, as consumers move towards choosing high quality artisanal products. In the white spirits sector a boom in small batch vodka even took manufacturers by surprise, while sales in the premium cider sector increased by over 10% year on year.

This offers retailers opportunities to diversify their offering. This doesn’t just have to mean building up their premium range but also joining the increasing ranks of wine merchants, bars or restaurants offering wine-tasting or showing customers how to pair wine with food.

Image credit: Galiano Living

Are the right people being targeted? It’s not just what you sell, it’s who’re selling it to. Drinkers between 25 to 34 are the biggest spenders on alcohol nationally, yet wine retailers are failing to capitalise on this opportunity, according to report by Dutch bank Rabobank. This backs-up data from Wine Intelligence, which highlights that the industry could do a lot more to engage millennials (those born between 1980 and 2000), particularly those aged 18 – 25.

Key factors in engaging this age group include using social media, offering ways to buy online and offering promotions in bars and restaurants. It’s worth noting that the Rabobank survey picked out middle-aged women and Baby Boomers as other key demographics for the industry, ones that are currently showing strong performance.

Where are they drinking? Location is also important, both in term of where consumers live and where they are drinking. It’s not news to anyone that more people are choosing to drink at home, even though overall levels of alcohol consumption are declining.

Off trade average spending increased by £500 year on year, a rise of 3.3%. The biggest winners are sparkling wine, up 5.1%, and cider, up 6.5%. Meanwhile white wine is losing out to rosé, as tastes diversify from the Chardonnay-fuelled early and mid-noughties.

Nationally, data from Bibendum shows that the biggest off trade winners are wines from South Africa and Argentina, regions which are benefitting from the lowest price rises. This indicates that despite the rise of premium wines, retailers would be foolish to neglect their mid-market options.

On trade is a different story with volumes dropping over 10% in the last 5 years and just 14% of wine drinkers saying that they consume more when they’re out rather than at home. According to Bibendum, mid-market sales are losing out to craft beers and cocktails, which tend to be better marketed and make the most of the gourmet fast food zeitgeist.

There’s a strong geographical divide in on trade consumption too, which retailers need to take into account. Londoners are the most willing to part with more than £25 for a bottle of wine and are also the most likely to drink more in bars or restaurants than at home. In contrast, the market for bottles which top £25 is minute in the West Midlands and Yorkshire, as only 3% of consumers are willing to pay this much. People in the Midlands and North East are also the most likely to drink more at home.

So what’s the conclusion? Perhaps one reason for struggle in the retail wine sector is sheer confusion, as so many of these statistics seems to contradict each other. People are spending more, but wine producing nations who have strongest off trade performance are the ones who have seen the lowest rise in price. Not to mention that attitudes and habits seem to fluctuate dramatically according to age and location.

To rise above this retailers should carefully define and target their audience. They can learn from the problems mid-market supermarkets are currently experiencing, of trying to cover premium and discount markets and succeeding at neither.