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Q&A: Mike Laing of Armit Wines
In the latest of our CEO interviews, Paul Haslam of Cesium Group – in association with the drinks business – spoke to Mike Laing, managing director of Armit Wines.
Paul: Mike, please could you give me an overview of Armit Wines as a business and some of the recent changes that you’ve been through?
Mike: Armit today is a very different business to the one that John started when he left Corney & Barrow in 1981. For a start we now have two offices – London and Hong Kong; employ about 50 people and are today a multichannel business, with agencies at its heart. We offer a distribution solution to our producers, working directly with the On-Trade, the Off-Trade, with other merchants and with our own private clients. We have the ability to manage the producers’ brands using our network and expertise and work together with the brand owners to achieve their brand aspirations and for long term growth. Although this is now a much broader business, we have been very conscious of the desire to keep top quality as a defining feature of our offer. That means there are areas of the market where we won’t go.
Paul: There has been a lot of change in route to market with reference to private clients verses E-commerce. What is your view on the role that E-commerce has to play?
Mike: I think it’s clear that in every business E-commerce is ineffably changing the landscape. And when I think about our own business there are very few parts that are not touched by E-commerce. Most obvious is the interface with private individuals. I think that the internet is clearly the place that people go first now to gather information to influence their purchase decision and to share their experiences, whereas in the past it was very much via verbal communication.
Social media is evolving rapidly but I don’t think that it’s a very effective direct sales tool at the moment, so we have to use it indirectly so that when customers go to the web they find us and our brands first. For those shopping via our site we know that you’ve got about two clicks to keep them so we are continuing to invest in our systems in order to enhance that experience. It’s fair to say that global ecommerce giants are companies with very different R&D budgets to us but nonetheless we have to try and keep up with the advances in technology and functionality as best we can and add value to the customers shopping experience which perhaps they can’t. On the trade side we do merchant to merchant business, we are active in the secondary market and we offer a broking service to our reserves customers. The internet has made pricing much more transparent but also connects us with potential customers incredibly quickly. The On-Trade is probably the area where there is currently least direct impact from E-commerce in transaction terms, but certainly in service I think there is an opportunity there to improve CRM and that’s something we are interested in getting better at. There’s no reason why we couldn’t apply E-Commerce to our Off-Trade customers as well but it depends on the scale of the customer you are talking about. For example, if it is a small shop with a couple of enthusiasts managing it who buy a couple of SKUs from you, you might not need to develop an app for them; whereas if it’s a larger multiple-site entity with greater complexity, then it could be very beneficial to the relationship to have something available that simplifies the interaction.
Paul: Do you find that there’s a different approach based on the price point and how premium the wine is? Also, do you find it more of a premium mid-market as a supposed to very high end wine that goes via E-commerce?
Mike: I think there’s a natural barrier to entry for somebody who’s just starting out on their wine journey, either as a first time customer of a business or first time buyer of wine, against placing a very large order for high end wine as their first order. It’s also not surprising that it’s the multiple and discount retailers who catch the less involved consumer who is driven more by promotions and the reassurance of brand recognition.. By definition, for niches to exist there has to be dominant mainstream and I think that mass consumer markets will continue to exist and that the grip of the multiple retailers on them will be hard to loosen. However, that then means that there will also continue to be a steady supply of people who at some point can be tempted become more involved wine consumers and as they do so, some will look to specialists and they will build a relationship. The question is whether we can have that relationship electronically as effectively as a personal, human relationship.
Paul: The reason I ask that question was really the traditional historic model for a lot of fine wine business is very much between private clients and relationship managers. What do you see is the future of that model?
Mike: I think there will always be a need for people- I think wine is intrinsically about people. The most successful wine brands are rooted in personalities and families and even through changes of ownership they can survive by keeping connection with people, most obviously the customers as well as the people who make it. For those who are serious collectors and enthusiasts I think they will always want to talk about their wine experiences. Also, as a product wine is such a subjective experience and that’s something that needs to be explored between people too.
If we’re sitting here sharing a bottle now (it’s too early in the morning!) but if we were, we would be able to debate about it but we’re having to basically trust each other’s own interpretations. It’s a very solitary thing to be sitting on your own nursing a bottle, you will only benefit from one point of view and I think wine lends itself beautifully to a shared experience. So, I think people will always be involved, particularly when there’s a real depth of relationship. When the relationship is more casual, where wine is not such an important part of someone’s life and could easily be substituted with something else, then there is no real reason for that person to depend upon someone else: they’d probably rather talk about something else frankly. I firmly believe, however, for those who are really interested in learning, sharing and discovering, there will be a need to have a human interface and as we know, wine has endless possibilities.
Paul: No doubt that’s a huge competitive advantage for the agency brands that you represent when you’ve got such passionate people within your private clients function really championing the benefits of the liquid that they’re representing?
Mike: That’s right. There are some brilliant marketeers out there, but I think the message is far more authentically delivered and remembered with experiential marketing and our private client team sharing their knowledge and advising their clients in the right environment for the brand. In the Trade, where possible we try and encourage our producers to come over and visit and to make themselves available for master classes, tastings and training also. By spending time like this, they can tell the stories and lodge the key messages into the minds of the wine waiters which helps enormously to get across what is special about these wines. It is hard to distill these messages into 5 or 10 seconds , possibly while opening a wine, but nonetheless that’s the thing that will keep the wine brand strong in the long term and therefore worth investing in.
Paul: Much has been made in the press and not just the industry press, but the broad mass market press too, around wine as an investment. What’s your view on wine as an investment opportunity?
Mike: You mentioned the broad press interest in it. It’s one of the few instances with wine where there is broader interest (the other being the health debate). By and large, wine is a marginalized part of journalistic content and certainly won’t pay the bills for national-scale publishers. If one looks at a newspaper regrettably there is perhaps a 100 word ‘article’ squeezed in somewhere in the middle of it and we have to go searching for it. But if investment is the focus then we’re talking about money and there is a different case made for the amount of content. Could it be, therefore, that there is a skewed awareness of wine as an investment simply because of editorial preference? I’m sure there are statistics that you can find that will show you the number of bottles bought for investment versus the number of bottles bought for consumption and I’d be willing to wager that the latter is significantly more important than the former, but there’s really not much of a story to tell.
Notwithstanding, investment is part of the fine wine world. We do have people who come to us with a profit motive and whilst that may not sit entirely comfortably with the aspirations of some brand owners, I think the wines that generally perform well as investments over the long term are those that keep consumer demand strong. Wines have to be opened and drunk, that is what they are made for. And if it just piles up in a warehouse somewhere so that someone is holding all the cards- well that big demand might never come because you haven’t allowed people access to the product. So there is danger here that starting to hold back large quantities of wine from the market in the hope of driving up the price point will actually achieve the opposite because through less circulation, the wines will be seen less and the demand will drop away because people will just choose something else. Rare is the brand that has such prominence that people would always want them and will make the extra special efforts to get them. We’ll just have to see how this one plays. As for the existence of professional wine funds, a lot of those have come and gone, so that has definitely dented people’s confidence in wine as an investment and because a lot of those funds focused on exactly the same products, again, they’ve essentially taken them out of the hands of consumers and therefore have done themselves no favours in providing a return for their investors as they have killed the regular market. There is a lot to think about in that space but we continue to advise people on what we believe would be long term wines that will go up in value because they’re based on consumer demand and that’s why I believe that successful brand owners will always want to focus on well-managed distribution for their wines, meaning an active role for the trade, particularly those who can reach all parts of it.
Paul: You referenced earlier Armit’s operation out in the East. With the slowing of the Chinese economy and the challenges around the gifting laws that were brought into play after the change of regime, do you still see China and the East offering good growth opportunities for the fine wine sector?
Mike: Yes, I think there are very interesting growth opportunities there, but China is an immature consumer market for wine. We have seen very fast growth over the last 5 – 10 years followed by fast decline, as you mention, which is down to a bubble effect of too much speculation by very well financed groups and individuals who expected that this would continue, an expectation which has not been met, not least as a result of the changes in the gifting laws. As you say, Chinese growth is slowing, but when you’re talking about 6 or 7% growth it’s still very much more interesting than in Europe and much of the rest of the world; so as a business, where would you want to be positioning yourself if you want to have access to that market? Have you got the right products to take to that market? Well, possibly at the moment we haven’t, so we’re still learning by having people on the ground out there so that they can work with people to understand what they’re looking for and take the opportunity to introduce them to things we think they might be interested in. Yes, I think China will be an interesting story for wine but over a much longer horizon; it might take a generation or two before you get a middle class professional, a teacher, a doctor, a lawyer coming home on a Wednesday night putting his or her bottle on the table saying this is what we’re drinking with dinner and that’s really what it’s got to get to before we’ve got a regular consumer.
Paul: Very different style point I suppose to more mature markets. What would you say are the key regions driving growth and value at the moment?
Mike: We were better protected when the fine wine market turned sharply in 2011 mainly because we already had a broader supplier base and a broader base of customers to whom we supply. We had a particular strength in Italy which I think has been a badly managed sector in the UK for many years for a multitude of reasons, (which we probably haven’t got time to get into here) but I think people have really woken up in the last 5 years to the quality and value that’s available in Italy. Bordeaux is considered by some to be overpriced and underperforming and people have looked elsewhere and realized that not too far away just over the border there are two or three options which can easily fill that gap. Now that heads have been turned to look elsewhere you know some may stay there… so I think there are trends here which will continue to help Italy, also Spain and also other parts of France too. Of the other classics, Burgundy of course doesn’t have the scale of supply compared with Italy or Spain but the competition for its best bottles continues to be intense. What Burgundy has to avoid doing is falling into the same trap as Bordeaux and losing your customer because as I said, once they’re lost there’s no guarantee that they’ll come back.
Outside of the Old World there are of course some fast developing fine wine areas. South Africa is a country that I’m really excited about. There’s a new generation of winemakers who are encouraging people in the Old World to really sharpen up their act – which is a good thing. Some of these wines are certainly very fine wines and I think for millennial consumers and more adventurous fine wine customers who perhaps have approached their wine drinking from a very different starting point, these wines are far more relevant than the more traditional regions of the Old World. Other examples are New Zealand, which has really grasped the mantle of being the Pinot Noir challenger and shows no signs of abating and California which is at last being taken more seriously in this country- perhaps because people in California are taking us more seriously and actively looking at export. In South America, Argentine Malbec is a very strong volume category but already at a more premium level to most mass products and if they can migrate people further up the quality scale over time and do it with thought and care then I think there is a growth story in premium for Argentina too.
Paul: Hopefully that serves as a recruitment for Millennials and younger consumers into finer wine in years to come?
Mike: That would be the expected path, but you know it’s interesting, I still meet people who’ll both back up and then contradict the accepted norms. There are 50 year old customers who have been drinking fine wine for about 10 – 20 years or more who are still experimenting and still really excited to see what’s coming up from multiple regions. Equally there are people I know who are 35 or 40 who are completely set in their ways who really know what they like and are not interested in trying something new. That’s the charm of the challenge and I think going back to the personal interface you can really only deal with that by talking to people and encouraging them to share their thoughts on wine rather than expecting that everybody conforms to a norm.
Paul: And to feed into one of the points that you made on authenticity, branded stories and provenance – how do you go about selecting agency partners and the brands you want to work with?
Mike: Well, obviously we are a business so we want to ensure we take on something which is commercially viable so I’m not going to pretend it’s all just about lovely relationships. But without there being authenticity and without there being characters behind the wine story to tell, it’s very difficult for me and for this business to get extremely excited. Typically products which have been dreamt up via a product development brainstorm lack that deep rootedness in an authentic back story and at some point that will unravel because fashions change very very quickly and if you look at what has endured over time (though time isn’t the only factor here) it’s those products that have a sense of place, are great quality, made by passionate winemakers who care about the connection with their customers. These are the ones that will succeed and clearly they are the ones we are looking for because we also want to succeed.
Paul: Makes a huge amount of sense. What changes do you predict for the future of the category in years to come?
Mike: I think the term fine wine needs redefining – I think it has to convey a sense of value and not just price, so there is a danger where people are trying to invent premium, ultra-premium, super premium -you can attached whatever tag you want to it – but if it’s done just to justify the desire to put a £80 or a £100 price on a bottle, then it’ll fail. Whatever level the wine is sold out at, people need to receive a sense of a reward for their purchase. So I would hope that a trend that we see in the future is people getting a little bit more authentic about the way in which they communicate and the way in which they propose their products to the market. Will that happen or not, who knows? There are clearly some large commercial forces at play and business unfortunately is often quite short-termist, so I suspect there will continue to be a divide between mass market and what I would call authentic fine wine brands. However, the most exciting thing is that you can now find top quality wine in a greater variety of areas than ever before and so the consumer has a choice and that should keep people on their toes. I think the world of wine will continue to be a very exiting one for consumers.
Paul: Finally, what does the future for Armit look like?
Mike: Well bright and beautiful of course! The future for Armit I think is extremely exiting. We have a strong market proposition, I know of very few other businesses that have the ability to hit all the different channels in a market that we do and truly invest in building the brands of our producers. We have a top of market position which we’re very keen to hang on to but at the same time we do have a huge range of products; and they are not just at the £100 bottle level, which I think people would be very excited to see, so we have to ensure that people know about us as more than just a super premium supplier. We will be more relevant to more businesses and more consumers but without losing track of who we are and what we do best. I think as people migrate further into the higher categories of wine, they want to know more about these authentic brands, so our relationships with those brand owners is one that we continually nurture. Overall I’m very excited about the future.