UK wine buying requires “major mindset shift”

The UK needs to adopt a longer term buying approach if it is to retain a reliable supply of wine in the face of rising global consumption.

That is the strategic rethink being called for by Brand Phoenix, which together with its shareholder Distell owns the First Cape wine brand.

Speaking to the drinks business, Brand Phoenix director Greg Wilkins suggested that the oversupply issues of recent years could soon be reversed as markets such as China and the US see a rapid uplift in their wine consumption. “There’s always been more wine than people to consume it. Our contention is that this is changing,” he remarked.

Pointing to Europe’s current consumption of 61.8% of the world’s still wines, Wilkins noted an IWSR forecast that by 2015 China and the US combined will consume 25.2% of the world’s red wine production. China has already knocked the UK into sixth place for wine consumption.

Citing predictions of a five million case decline from the world’s major wine producing countries between 2010 and 2015, Wilkins compared this with a predicted consumption increase of 95m cases within the same time frame. Asia as a whole is expected to see annual wine consumption increase from 125m cases to 235m cases by 2015.

For South African producers, Distell’s business director for wine, Carina Gous, highlighted the additional opportunities offered by African markets. “Angola is seeing double digit growth in its economy at the moment,” she observed.

Wilkins set this global situation alongside the UK’s steep alcohol duty increases and a weak sterling, remarking: “The way we buy and sell wine in the UK hasn’t really evolved from the 1970s; suppliers and retailers still tend to approach the market on an annual basis. As wine becomes a more global commodity, we need a more long term approach.”

Gous supported this call for change from a producers’ perspective, observing: “The UK is still a window on the world so brands have tolerated substandard margins to get exposure, but some of the companies you see that have suffered most in recent years are those that were most reliant on the UK market.”

Looking to future business relations between UK retailers and brand owners, Gous stressed: “It has to be done in a way that’s sustainable for producers.”

Wilkins echoed this warning, saying: “We want to make sure the big brands don’t move away from the UK. We can’t control duty or exchange rates, but we can control how we mitigate that effect.”

As a result, Wilkins suggested a change to the status quo, insisting: “There’s a major win for the retailer who works in three year planning cycles.” However, he admitted that this approach of buying large amounts of currency in advance would only be viable for larger businesses.

Identifying such a strategy as particularly relevant for larger retailers seeking to secure a reliable supply of core brands, Wilkins continued: “If you pick the big suppliers out of each country, you could put together a rock solid position for, say, 60% of your strategy. That leaves 40% free to respond to other market opportunities and trends.”

Although accepting that “this longer term cycle is new for wine”, Wilkins pointed out that many retailers already employ a similar strategy for products such as fruit.

Having begun pitching this strategy to its retail partners last summer, Wilkins reported: “Out of the major retailers we have approached, half have engaged very strongly.” However, he acknowledged: “It is a major mindset shift.”

For Brand Phoenix, it was this concern about securing a reliable supply in an ever more competitive global marketplace which provided an important motivation for bringing in Distell as a shareholder last year.

“Distell and Brand Phoenix joined together because we could see the impact on supply down the line,” explained Wilkins, pointing to the security of supply offered by working with a producer which buys around 50% of all wine grapes produced in South Africa each year.

Looking to the future position of the UK on the world’s wine stage, Wilkins concluded with the warning: “If supply gets short, whoever engages longer term now is definitely going to win.”