The current turmoil in the UK supermarket arena is forcing many producers to look for alternative routes to market for their wines, at least until the likes of Tesco adjust their strategies in the face of stiff competition from new rivals Lidl and Aldi. The situation highlights the importance of a multi-strategy approach for those with significant volumes.
Take a producer such as Argentina’s Familia Zuccardi, which is better positioned than many to weather the storm, having over two decades of experience exporting to the UK. Initially its business was largely focused on the supermarket trade, but its approach is now far more varied, allowing the producer to meet the requirements of its more sophisticated range. Zuccardi deals directly with some clients, including online specialist Laithwaites, while its Santa Julia label is listed by Waitrose. Alliance Wine focuses on Zuccardi’s on-trade business and sales to independents.
José Alberto Zuccardi says that it’s all about strategic management: “Some channels offer lower margins, but help to drive some volume and good distribution. Others offer the possibility to build high-end wines and the right positioning for them.” There is also a demand for ‘exclusive parcels’ in the UK which Zuccardi is keen to exploit, and good service is a prerequisite here. “We have some key partners in the UK market to reach that important piece of cake as well. All segments are important,” he concludes.
Another example would be the Yealands Wine Group, the sixth-largest New Zealand producer. While it has a number of supermarket listings – the Peter Yealands range is positioned at around £8.00 ($12.50) – its distribution is multi-channel, also taking in the national on-trade, the independents and, increasingly, travel retail. “If all the eggs are in one basket, exposing yourself to a small movement in price can affect you badly,” says Simon Kelly, European sales director. He also points to the importance of having “the right partner with a good understanding and reach over the UK,” especially when a producer is based on the other side of the world. Yealands also has a business development manager on the ground in the UK to keep the brand top of mind in a competitive and challenging environment. The role involves wine tastings, dinners and developing relationships with sommeliers.
Yealands is also exploiting travel retail and has recently teamed up with Carnival UK Cruises. Indeed cruise ships are increasingly accommodating thousands rather than hundreds of passengers ready to enjoy a decent drop of wine. So this is an area of growing potential for the wine trade.
Nevertheless, the supermarkets remain extremely important. Take the example of New Zealand’s Sauvignon Blanc, which is doing well in the UK on-trade. Despite this, larger New Zealand wineries have been keen to do business with the multiples.
Chris Stroud at New Zealand Winegrowers Europe says: “Once a winery has the volume to supply a supermarket, I would imagine that they will continue to do so if at all possible. And there has been an increase in retailer exclusives.”
On-trade success
As the market becomes more competitive, high levels of investment are becoming increasingly important. In 2012 Negociants introduced its ‘Indies Programme’ in a bid to take its wines directly to the independent off-trade and make further gains in the on-trade. The latest initiative, the ‘Butcher, Baker, Winemaker tour’ involved a pop-up restaurant concept in London, Bristol and Chester, giving consumers the chance to win tickets to winemaker dinners hosted by noted Australian winemaker, Louisa Rose of Yalumba. Food suppliers to the participating restaurant also took part to reinforce Yalumba’s sustainability message. The brand message was conveyed to over 200 consumers, customers and the consumer press.
Managing director Simon Thorpe MW believes that Negociants’ distribution is “about as broad as it possibly could be” extending from the largest and smallest retailers though to large pub chains and premium restaurants both traditional and modern.
How would he describe the challenges of the on-trade? “The main challenges lie around the sheer amount of resource and time it takes to make an impact and the amount of competition there is for the best customers. It can take longer than you’d hope to get positive results from your investment.”
The bright spot
Described by one supplier as “a fickle and ever-changing beast”, the UK on-trade, taken a whole, is shrinking, with consumers wanting to pay less not more, just as they do in the off-trade. There is one bright spot, however: the premium on-trade. According to a February 2015 report from leading on-trade specialist Liberty Wines, in conjunction with CGA Strategy, the premium on-trade sector – comprising restaurants, wine bars, quality-led chains and gastropubs – is showing growth, partly driven by new openings, particularly in London, and partly by adventurous consumers.
The report, which contains the findings of a survey of 500 on-trade managers across the UK, suggests that France is not just retaining the number one position in the premium on-trade but is also performing well in both volume and value growth, due in part to a strong trend in favour of (classic) French rosé and Champagne’s unchallenged position at the top end. Italy, with a wealth of interesting indigenous varieties and ongoing success with Pinot Grigio, is also a firm favourite, making up 42% of sales by volume. In fact, there is a trend for consumers to trade up to higher quality Pinot Grigio wines. Chardonnay is experiencing a revival, growing 11% in volume and 7% in value, accounting for 20% of the premium white wine market.
The popularity of Sauvignon Blanc gives New Zealand a strong share of the premium on-trade. According to the report, New Zealand wine sales saw a value growth close to 40% in 2014, indicating the consumers are prepared to pay more for Sauvignon Blanc from New Zealand than from any other country.
The red wine trends are not as easy to tease out, as reds are as likely to be blends as single varietals. Overall, however, red wine sales are soaring, increasing by 20% to July 2014, as compared to the previous year; it accounts for one in ten bottles of premium wine sold in gastropubs and restaurants. Merlot also remains a firm favourite, being ranked third grape variety by volume, while Tempranillo, led by Rioja, grew strongly in 2014. Malbec is fast gaining a following in the London quality-led on-trade, while Pinot Noir has a growing niche in the gastropub sector.
Perhaps surprisingly, Chile accounted for 11.6% of sales in the premium on-trade, placing the country third after France and Italy in 2014, and ahead of Australia. It seems that many areas of the quality-led on-trade have yet to fully appreciate Australia’s more food-friendly styles. David Gleave MW, managing director of Liberty Wines, says: “Australia is out of fashion in the on-trade, which means consumers are missing out on some of the best value wines currently on offer.” He believes that the recent emergence of new varieties such as Touriga, Tempranillo and Nero d’Avola that now sit alongside traditional Australian varieties, such as cool climate Shiraz, means the the country offers tremendous diversity, while the quality of the wines has never been better. Gleave adds: “It is vital that producers and importers focus on pouring their wines for sommeliers and front-of-house staff, bringing their stories and personalities to life, and building a confidence in and connection with the wines that would be transferred to the consumer in turn.”
Gleave is confident that there is a role for more wines like Shaw + Smith’s Adelaide Hills Shiraz and Pinot Noir which are thriving in the on-trade and are a good example of a new breed of Australian wines with varietal definition, natural acid balance and finesse, making them great partners for food.
Online growth
Another increasingly important route to the UK consumer is through online retailing. The general trend here is very positive – online sales rose by around 35% over the 2013 to 2014 period – with a surge in demand from consumers in the run-up to Christmas. Online wine retailers such as Laithwaites, Naked Wines/Majestic, Tesco Wine by the Case and The Wine Society command a share of around 11% of the UK market, and this is expected to grow to 18% by 2018, according to market research specialists IMRG. The online specialists (and merchants with website operations) with well-presented ranges offering a good choice of wines by price, style and region stand to gain from this trend, as are sites that are responsive to every device that a consumer may use. So despite the challenges of both the off- and on-trade sectors. It seems that nothing can be ruled out and the UK still offers plenty of opportunities.
The UK on-trade trends
- The UK on-trade is in a state of flux: in 2012 pub closures hit record levels with 18 closing each week; more consumers want to drink wine with food rather than just going out for a drink. In contrast, premium outlets are on the rise. In 2014 there was a record 148 openings in London and just 47 closures, the lowest figure since 2000 (Harden’s Restaurant Guide 2015).
- France is the leading country in the premium on-trade and is turning in good growth by both value and volume.
- The top five fastest growing countries in the premium on-trade are New Zealand, Portugal, USA, Spain and France.
- London sets the trends: the London wine market is split 50.5% for white, 38% for red and 11.5% for rosé by value, with Chardonnay and Sauvignon Blanc driving white wine sales and together accounting for 46.2%. France and Italy jostle for dominance in the premium London on-trade with New Zealand Sauvignon Blanc going from strength to strength on wine lists. The USA and Argentina are on the rise, especially for higher-priced wines.
- Better consumer knowledge is needed to encourage experimentation and trading up.
Source: Premium On-Trade Wine Report 2015 by Liberty Wines and CGA Strategy
