UK Retail: Independently minded

01 August 2006 By db staff writer

“standfirst”>In the face of flat first-quarter figures for off-trade sales, is it time for brand owners and generic bodies to give more focus to the independent sector? And is such a move likely to be welcomed? asks Hugo Rose MW

Big talks to big, so they say; consolidation in the industry has seen the emergence of both brand power and retailer power. But the index of concentration suggests that retailers are presently ahead of the game. The top five supermarkets in the UK account for around 70% of take-home wine sales, whereas the top 20 brands account for less than 38% of wines sold.

Perhaps this disparity explains a latent desire among brand owners to shift their focus. There is a growing view that brands may have developed their relationships with the major multiples as far as they realistically can. The last five years have seen the cementing of commercial relationships between supplier and retailer, and each side understands what the other needs. This has led to a highly developed approach to in-store promotions – price-led campaigns, BOGOFs and deals – all of which have driven absolute sales as well as market share. But increasingly producers are noticing that not all the boxes have been ticked, that intrinsic values may be smothered in the shelf wars, and the independent retailer could be the next sector to receive their attention.

But it’s not just brand owners who have promotional budgets. John McLaren, director of the UK office of the Wine Institute of California, can see good reasons for generic bodies to look beyond the multiples. “Most buying decisions are made within multiples, and it is up to us to help them help their customers handle the decision between buying, say, Californian, Australian or Chilean. A lot of promotional effort has been directed to encouraging the multiples to feel good about promoting Californian wine.”

He thinks supermarkets are corporate and so prefer to support brand activity. “They are not amenable to poster campaigns, for example, as they have little in the way of display space. The biggest retailers are inflexible when it comes to point-of-sale material and can be expensive to deal with.” The California generic is, therefore, shifting perceptibly towards alternative channels to meet its objectives – and one of those is the independent sector.

Opportunity knocks
“We are extremely interested in working in the independent sector,” says Michael Cox, head of Wines of Chile. “It is a small part of sales, but offers a wonderful opportunity to promote our diverse wares.” Wines of Chile represents upwards of 100 wineries of which only 12 to 15 have significant presence in the multiples, so a focus on the independents is essential for Cox. “We want them to promote all Chilean wines, but especially the more specialised labels where there is greater ability to get across USPs.”

According to Cox there are also “greater opportunities for margin, and less competition [for shelf space] from peers” in this sector. “And many independents offer a potential reach into the on-trade,” he adds.

Generic solution?
But not every generic body is as determined to shift attention to the independent sector. Michael Walker, Sopexa’s promotions director, says that just about all of the French regional committees are currently focused on regaining visibility, volume and shelf-space, and that leads inevitably to a strategy aimed at the multiples.

One of its clients, the French Government backed Vinifhlor, representing all French wines except Champagne, is spending significant sums on in-store promotions. Its “France” logo, featuring a cartoon Eiffel tower, can be seen on offerings from a number of multiple retailers including Majestic, Oddbins and the big five supermarkets. A recent link-up with Waitrose, on-line and mail order as well as in-store, led to a programme with 48 wines on offer including a number of incremental listings. Discounts formed part of the proposition, though Sopexa also contributed to POS material designed in the retailer’s house style.

According to Sopexa, the French government has woken up to the value of in-store promotions and has released significant budget this year. Even so, Walker recognises the limitations of gondola-end promotions, particularly for a country that is relatively weak in brands. A recent campaign in association with a major supermarket involved promotions on producer and own-label wines. It was, apparently, “reasonably successful in uplift terms, but brands would have delivered a better result”.

Perhaps inevitably the beneficiaries of Old World marketing funds are the multiples, where market share has been draining away over a number of years, rather than the independents where French wines usually remain top-dog.
But Sopexa recognises the value that independents can bring to the table. “We will target them as much as possible,” says head of wine PR, Chris Skyrme. “They offer range, depth, quality and the prospect of building relationships with wine consumers.”

California’s McLaren also believes the importance of independents goes beyond the commercial size of the sector. “Influencers shop at independents,” he claims.

Stumbling blocks
There is, however, a degree of frustration over the difficulty of developing programmes with independents. Cox finds them “difficult beasts to get hold of, and hard to reach because of their fragmented nature”. He sees the Wines of Chile annual tasting as a key communications tool and an important means of reaching the sector, and stresses the critical role of the agent/ distributor. “Promotions work best where the importer is close to the retailer. Some are more active than others.”

Cox notes, however, that Wines of Chile does not support promotions that are at the individual producer level; activity must be wider in scope before individual producers can come into the promotional pool. A recent example of co-operation was a Chilean wine campaign run by Selfridges throughout its branches. Free Riedel glasses were offered as purchase drivers to customers and a manager incentive programme was put in place.

In terms of Wines of Chile’s goal of raising the quality perception bar, the independents have already proved to be very fertile ground. The Wine Society has adopted the Chilean offering with eagerness and other retailers are being lined up. Cox describes a “slow but steady” strategy, trade-led and leading to growing awareness and sales. This is a strategy that will go hand in hand with press activity in order to get the message across. “It’s a constant battle to make the press aware that there is life beyond Tesco,” says Cox.

State of independence
Unsurprisingly independents are keen to access the generic pot (see box above). But despite  this willingness, the controllers of the promotional purse strings are sometimes annoyed by merchants’ and retailers’ inability to focus on the task. McLaren cites missed opportunities and a lack of strategy at the independent level for Californian wines. “Independents can be very rewarding to work with as they offer an appealing mix. But there is a need for a disciplined approach. At the sales level they are easily distracted. I wish they were more pro-active; I wish they would call me.”
Sopexa’s Skyrme concurs, “It’s frustrating.  Working with this sector logistically requires enormous time and investment to achieve volume results. It’s no longer a matter of sending out POS material; our clients require results.”

Even when promotions are offered on a plate, independents do not always take them up. A Médoc campaign by Sopexa in 2005, with media coverage and both customer and retailer incentives – which required the listing of only three labels – was taken up by only 15% of retailers targeted.

Multiple threat
For their part, independents complain about excessive bureaucracy and a straight-jacket mentality. By definition they are highly individual enterprises and the trappings of a traditional generic promotion – banners, logos, posters and point of sale – rarely fit comfortably in an upmarket retail environment. Nevertheless there is a desire to co-operate, especially if the proposition is appropriate. But retailers wishing to access promotional funding should take note: it is not enough to put in a request for support for a campaign that has already been committed. What the generic bodies want is to be part of the planning process at the earliest possible stage, to help frame the promotion well in advance. It also helps if the subject is a speciality of the retailer, an area not already covered by the multiples.

With upmarket brands and the New World generics in particular training their weaponry on the independents in order to build awareness of regionality and character, a significant opportunity has opened up for the smaller retailer to build market share at the £6.99-plus level. But it seems it is very much up to them to grasp the nettle. While independents are, according to McLaren, more flexible than the supermarkets, they appear to be “marginally too busy to exploit interesting opportunities”. There is, he claims, a real danger of supermarkets taking this upper-middle ground for themselves. “Independents have no divine right to this niche.” 

© db August 2006

Case Study:

New Zealand Winegrowers

In view of the high end profile and limited production scale of the New Zealand wine offering, the fit with the independent sector is unarguable, and for the second year in a row New Zealand Winegrowers has funded a co-ordinated promotion with independent retailers with plans to repeat it next year.

The format is multi-level, involving both trade and retail channels, with a carefully thought-out structure of incentives “to ensure the independent has something to aim for”. This year the star prize is an expenses-paid trip to the 2007 Pinot Noir Conference in Wellington.

New Zealand Winegrowers’ manager, Warren Adamson, claims that objectives have been met. “Last year we exceeded expectations and we’re on target for the same this year. We have 63 independents taking part and there is a good feel about the promotion,” he comments.

Merchants are given a pretty free hand in devising promotion mechanics at the point of sale, thereby sidestepping the pitfalls of a one-size-fits-all approach. Hard results from 2006 are not yet available, but Adamson emphasises that this is not purely a numbers game. “We have various elements in judging the winner: independents submit their own results on how the promotion went and what they did to make their activity so special.”

Adamson welcomes pro-active requests from independents. “The whole concept is giving something back to them, showing how much we want to work with them and also how important they are to our sector. They are perfectly suited to our wine qualities, prices and, above all, our wineries’ unique stories.” He envisions the prospect of linking independents with other elements of the New Zealand marketing programme, such as the Regional Tastings Roadshow, where local retailers can be highlighted. “Independents have a great future and
we want to be part of it,” he says.

Right to reply: the independent retailers

Robert Boutflower, private sales director, Tanners Wines
Despite operating four shops and enjoying a thriving trade sales component, Tanners has struggled to take full advantage of promotional activity. Boutflower tried in vain to secure support for a recent Bordeaux promotion. “I made efforts to contact the relevant office, but it wasn’t simply that there was no support forthcoming; there was no reply!” He is concerned about the sting in the promotions tail, the requirement for prior- and post-promotion documentation. “Companies even at our size just do not have the resource to supply the level of detail sometimes required to access meaningful funding. It ceases to be a practical proposition,” he argues. He also cites a reluctance on the part of the generic bodies to discuss price promotion, an approach that would get his ear. “That’s what sells wine!” says Boutflower. He recognises that companies like his have a strong Old World bias, which may mitigate against much promotion activity, and he feels that the greatest potential for it is through Tanners’ on-trade activity. Nevertheless, he is happy to acknowledge the help he received from Wines of Chile in providing much-needed logistical support during a recent fact-finding trip to South America.

Daniel Young, sales manager, Noel Young Wines
In the last year Noel Young Wines has enjoyed two positive instances of working with generic bodies. A joint London trade tasting with Wines of Germany was deemed a success, even if bureaucracy reared its head higher than the company might have liked. And an initiative with the Washington State Wine Commission proved beneficial to both sides. An integrated programme involving in-store, mail order and internet offers of Washington State wines, which were not previously listed by the company, resulted in a good level of incremental sales. The key was not so much the financial support, however, rather the agreement of the agency to handle the logistics of shipping sub-pallet levels and, importantly, to accept the risk of unsold stock. For an aspiring but small player this can make all the difference. Young would be happy to participate in further promotions “provided we think it’s worthy. There has to be a decent balance of mutual effort, speed of outcome and simplicity. Hassle is the big issue.” But the promotion has to be custom-fitted to the retailer’s stance and style. “We are not interested in a ‘promotion in a box’ approach,” says Young.

© db August 2006