Frey Vineyards is one of California’s best-known organic producers, whose brand is firmly established among U.S. retailers for its green and sulfite-free wines. Nevertheless, the winery had a booth at the 45th annual Private Label Manufacturer’s Association trade show in suburban Chicago over the weekend.
“We had a successful private label launch this year, and we decided it was time to explore private labels in more detail,” said Ann Weigt, the winery’s vice president of sales. “We see possibilities in private label.”
She was not alone in this. More than three dozen — a record number of producers, importers, and the like — exhibited at the show. Even Bronco Wine Co., whose credits include the legendary Charles Shaw Two-Buck Chuck private label for Trader Joe’s, had a booth, a first for the notoriously private, family-held company. In addition, a seminar outlining the benefits of private label was held in front of an inquisitive, full room.
Private label supermarket wine in the US — which has always lagged behind Europe in market share, quality, and retailer enthusiasm — may be ready to come of age.
Lots of inventory that needs to shift
“Yes, I think it will finally do it,” said Bruce Clugston, the owner of Australian in a Glass, which imports private label Aussie wine to the US and has clients around the country. “The way the business is going, private is one of the best ways for retailers to distinguish themselves from everyone else.”
The difference in that frame of mind these days? The worldwide grape glut, the biggest in almost 30 years, combined with an almost unprecedented drop in demand, especially in the United States, the world’s largest wine market.
“The way the business is going, private is one of the best ways for retailers to distinguish themselves from everyone else.”
Those two developments have dropped bulk grape and juice prices to some of their lowest levels in years, so it was no surprise that retailers from around the world were on the prowl for ways to add private label SKUs to their inventory. The retail attendees included buyers from Target, Albertson’s, and Trader Joe’s.
This enthusiasm for private label has not always been the case. Many retailers, save for an occasional Two-Buck Chuck knockoff, have been reluctant to clutter their shelves with store labels that required more effort to sell than national brands and which didn’t promise better returns. In addition, US alcohol regulation worked against private label, making it almost impossible to buy directly from the producer in most of the country. Third, supermarkets in key markets, like New York and Pennsylvania, mostly aren’t allowed to sell wine.
US private label volumes still pale in comparison to Europe, but successes at Costco, Trader Joe’s, and Total Wine (one estimate says half of its brands sold belong to the chain) showed the possibilities for sophisticated, value-oriented brands. In addition, some states have relaxed their most stringent regulations, making it easier to sell private label.
Plus, the appeal of higher margins at a time of declining sales makes private label look better than ever. Darryl Brooker, the CEO of LWX, a California company that makes private label wine who spoke at the seminar, says margins are 40-50% on a $15 private label wine compared to 25-30% for an equivalent national brand.
Throw in the grape glut, and the time does seem right.
Obstacles to overcome
Jon Bogema, the national accounts manager for Michigan’s Leelanau Cellars, which makes four private labels for a handful of large US retailers, was at the show looking for even more business. Would a Michigan winery be hampered by its location? Hardly. “I don’t have any trouble finding grapes, and at almost any price I need,” he said.
This does not mean there aren’t still difficulties. Taylor Rausch, the wine and spirits category manager for Albertson’s, who oversees private label for some 2,000 stores, told the seminar audience that his company, despite its aggressive approach to own brands, understands the roadblocks.
“Not every product is going to work and you have to learn to live with some duds.”
“Not every product is going to work and you have to learn to live with some duds,” he said. “So the biggest challenge is winning in the margins between the categories that you know are ubiquitous, like Cabernet Sauvignon, and that can sell, versus those that are trending and growth is there, but uncertain, like non-alcoholic. Let the data guide you and then let your inner consumer find the footholds for you to push your portfolio forward.”
Also, the top-down structure of many large retailers often makes it difficult to convince local managers that they need another product, especially a private label. He said locals don’t want to be told what wine to carry, even if corporate thinks it’s a good idea. Rather, he said, ask them what sort of private label they could sell, “and help them buy into the idea.”
Throughout all of this, Rausch said, focus on the numbers. Look deeply at sales figures to find out if a private label brand, despite selling fewer items, is actually more profitable, especially if it is given less shelf space. Too many retailers define success by volume, and don’t understand that the keys to more profit may be in those higher margins.
Time for new category innovation
Simon Cutts, the senior director of retail partnership for the SPINS consultancy, said that non-alcoholic is ripe for private label, and not just because of its rapid growth, albeit from a small base. In response to a question from the audience, he said that there are few legacy brands in the category, making it easier to establish a niche. Over the next three to five years, he said, non-alc could turn into a very successful part of the wine market.
The biggest obstacle to private label growth in the US? Marketing it against the deep pockets of the national brands. But here, too, there seemed to be a way forward.
Marketing it against the deep pockets of the national brands. But here, too, there seemed to be a way forward.
“This can be tough,” said Rausch. “It takes a different level of creativity outside of product creation. For me, the merchandising process is a collaborative step with the stores themselves. Find tent pole events in the local area — holidays, the Super Bowl — and marry yourself to these social occasions.”
In other words, if the local team is in the Super Bowl, use a private label in the store's Super Bowl promotion instead of the national brand. If the retailer is known for a specific holiday event — a Christmas light show, for example — use a store brand. The events themselves promote the product, solving many of private label’s marketing issues.
Finally, there’s the problem of paying for marketing store brands since they don’t have those deep pockets behind them. Brooker, while not downplaying the problem, said one solution lies in pruning waste in the supply chain. Private labels, even though they have to go through the three-tier system, are generally less expensive to ship and store, if only because they’re going directly to the retailer in one specific location. Look for those savings, and just don’t assume all supply chain costs are the same. He urged the audience to help their wholesaler to understand this, and to use that savings to help pay for marketing.
All in all, said the panelists, a bright future for private label wine in the U.S. And it couldn’t come at a better time.
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