It’s said of the Germans that they have the world’s best kitchens and the world’s worst food, which, while not necessarily true, does illustrate something important: Germans don’t like spending money on non-perishable goods. Which means that turning a profit in the German wine market can be difficult, especially for outsiders who struggle with the fragmented nature of national distribution. But with the right approach, profit is possible.
Dr Hermann Pilz, editor-in-chief of Germany’s largest trade magazine, Weinwirtschaft, gave a market overview. “Bottled wine imports are falling,” he said. “We’re now seeing a decline in the consumption of red wines. White wines are stagnating in terms of imports.” Imported cask wines are growing in number, mainly for re-export. “What I should also mention is that German wineries are working hand-in-hand with food retailers. Whatever they sell determines what is produced and vice versa. We’ve seen a lot of consolidation in Germany.”
The big news is that products Dr Pilz called “wine-based drinks”, including flavoured wines, are gaining in value and volume – up 84% in the food retailers. “There is a new generation of buyers emerging who have grown up with flavoured products, such as differently flavoured salts,” and who therefore expect to be offered a variety of flavours. Prosecco wine cocktails were the vanguard of the trend, but now “we’re seeing flavoured wine-based drinks of all kinds.”
The rosé market has also developed strongly, Dr Pilz went on, but this isn’t necessarily good news. “It’s difficult to sell these wines at higher prices, because the differentiation isn’t there,” because the brand message on the label is typically too weak to command a price premium. “In this category, you are under a lot of pressure to sell low. When you want to project a brand, you want higher growth and higher prices. This is the premium market.” In other words, the premium segment is dominated by branded wines, while the rest is category wines, with retailers in control of the pricing. “The retailers are aware of their power – if you want to get away from this, you have to project a strong brand.”
Building a brand
FW Langguth Erben is one of the most successful producers of branded wines in Germany, with a portfolio that includes the blockbuster Blue Nun. But, said marketing manager Alois Dietzen, the company’s focus is very much on Germany, which accounts for around 75% of sales. “Wines acquire brand status if they succeed in raising brand awareness,” he said. “They are also successful if they are widely available. Distribution is a key performance indicator when it comes to the success of a brand.”
The discounters who dominate Germany, however, will only work with a very small range of wines, making distribution through them difficult. “The top ten German food retailers in 2013 had a share of 85% of wine sales in Germany. The top 30 took a market share of over 97%,” said Dietzen. He added that the shelf space given to wine is declining, because supermarkets don’t expect category growth. “We’re seeing a lot more concentration in the market and the anti-trust authorities are keeping an eye on this.”
But he’s optimistic. “Wine is hugely popular. You only need to watch a random television program. Whenever there are murder mysteries on German TV, you see wine appearing,” he said. “Twenty years ago if the police chief came through the door, he was offered spirits. Today he’s offered wine.”
Dietzen went on to say that contemporary Germany is a very quality-oriented market. “We have seen a clear tendency towards higher prices,” he said. “The market share of wines costing more than €4.00 ($5.50) is going up.”
While it’s hard to influence what goes on the shelf, because the business is still dominated by arrangements made with key accounts people, it’s not difficult to influence consumer behaviour. “Communication, PR and print advertising are extremely important,” said Dietzen, saying online communication is quickly catching up. “When it comes to marketing for wine, most of the spend goes on print – €7.2m. Spirits and sparkling wines spend on TV.”
The role of the supermarkets in putting wine in front of consumers will remain critical in the foreseeable future. Although they may not expect much growth, wine’s still an important category. Guido Empen, from Edeka Südwest, said the German consumer is changing. “Impulse buying is less frequent – and wine is an impulse product,” he said, and outlined a store project to stimulate wine buying.
Despite offering wine advice and tastings, Edeka saw sales decline at the end of last decade. In response, they trailed 250 customers through a supermarket – and discovered that less than 10% of all customers entered the wine department, “so it’s not surprising that fewer than 10% buy wine.”
Edeka rearranged the store to put wine directly in front of where consumers were most likely to congregate, hoping to stimulate impulse purchases. They also placed wine near related products. “During asparagus season we put it next to asparagus,” he said. The result? The number of consumers buying wine rose from 8.3% to 13%; between 2009 and 2010, one store alone had an increase in sales of €60,000.
Jan Wolff of Wein Wolff, a traditional wine store near the Dutch border, presented another supermarket innovation that was a response to declining store sales. “We are in the pedestrian zone in Leer, which makes it difficult, because people have to carry boxes of wine to their cars,” he said. There were also high labour costs, and the simple fact that stepping inside a historic specialist wine store is simply too intimidating for most people.
Their solution? They pitched the idea of a ‘store in store’ to supermarkets they supplied with spirits (Wein Wolff also produce spirits). “They said, ‘couldn’t you supply us with a few nice bottles of wine to round off our assortment?’, but we didn’t want to see our wines in a classical supermarket,” said Wolff.
So they created a store concept inside the supermarket. “We are located directly within the supermarket. For the customer, it’s a big advantage.” Someone who is coming to buy the ingredients for dinner can get wine advice and buy a nice bottle of wine, and then pay for everything at one cash register.
“The selling space is provided by the partner, and the stock is the property of the partner.” This means that wines from Wein Wolff can pass through the cash register scanning system of the supermarket. “The staff are paid by the supermarket, but are trained by us. They feel they are employed by us.”
What’s important, says Wolff, is that customers perceive the store-in-store to be a separate store, rather than a department of the supermarket, so employees are dressed differently and the flooring is different. “So they don’t buy from a supermarket, but from Wein Wolff. We’ve got an assortment that’s like a specialist shop; 700 wines from €4.00 to €400.00.”
The store-within-a-store leverages the strength of a specialist wine store. “We can offer tastings, as everything below a certain price range can be opened,” he said. “The prices are set by us. We guarantee the profit margins for us and our partner, and this is important, because we don’t want customers paying different prices in different sales channels. We don’t want supermarkets selling on the basis of price.”
So the supermarkets get a specialist assortment they would struggle to create on their own, and one that lets them focus on quality instead of price. “We also get customers into the supermarket who are willing to pay more – someone who buys a €20.00 bottle of wine isn’t looking for cheaper meat.”
Initially Wein Wolff had to overcome supplier resistance. “The renowned vineyards said they would only sell to specialist shops,” he said. Another problem was dealing with the supermarket mentality. “We had to explain, over and over, that wine is an active selling process. Wines do not sell themselves and you have to open and give a taste. They have to provide staff. This is a big fight, every year.”
But it’s clearly working – two more store-in-stores are in the pipeline.
“We are seeing lower drinking frequency, but strongly growing quality expectations,” said Stephan Linden, managing director of a new site called Wine in Black, which targets affluent consumers. “There’s new competition for share of wallet.”
Linden identifies two big digital trends. The first is that the Millennial generation are ‘digital natives’ who have grown up buying everything online. This group is now reaching the age where they’re interested in wine, so they will naturally turn to online sellers. But as Linden points out, people are not just intimidated by wine, but they often don’t trust their own taste. In other words, even if they personally like a wine, they need to be reassured that it’s acceptable to like that wine. So digital sellers have to focus on building trust, by using lots of high quality photographs and detailed information, and algorithms that make recommendations based on the customer’s taste.
The second is that competition is not other wine sellers, but Amazon. “You have to compare yourself to Amazon regarding delivery times and processing, as Amazon is setting the standards,” said Wine in Black’s wine expert, Paul Truszkowski.
Indeed, if there were two strong themes that emerged at the conference, they were that branding is becoming more critical in the German market, as elsewhere, and so is customer service, which has not been so important in this market. Standing out in the crowded German market now means being acutely aware of consumer needs, and offering more than a wine that tastes nice at a good price. It’s a lesson that the worldwide wine trade probably needs to hear.