Private label emerges in the US

US retailers have yet to adopt private label in the high-quality way of their European peers. But, as Jeff Siegel reports, that may be about to change.

Dave Falchek
Dave Falchek

The words gripped the seminar audience, especially considering who was saying them. “Consumers don’t want to buy cheap wine; they want to buy value and quality wines,” Maryrose Rinella, Albertsons-Safeway’s director of own brands product management, told the group. “The current trend in the entire US wine industry is, of course, premiumisation, and what we think of as private-label wine. Lower-priced tiers, two-buck Chuck – that’s over. We see an opportunity here, and we need to do a better job than we’ve been doing to take advantage of that opportunity.”

The seminar, at the 2018 Private Label Manufacturers Association show in Chicago, may have marked a turning point in the US supermarket approach to private-label wine. Cheap, indifferently made wines like Trader Joe’s Charles Shaw – the infamous two-buck Chuck – have dominated the market for years. 

But as Rinella noted, the market seems to be changing, and consumers want more than crummy $3 wine. US grocery store private-label wine may be moving in the direction of its European counterpart – resulting in better quality, higher prices, more assortment, and less dependence on the traditional varietals that have been the market mainstays. Consumers, especially younger ones, seem to be looking for more than another bottle of bulk California Merlot with a French-sounding label.

“They’re experimental. They are looking for a brand identity that they can support,” said Rinella. “And they are willing to pay more for wine.”

Discovering the market

US private-label wine has been mostly an afterthought for decades, save for a handful of retailers like Trader Joe’s and Costco. The numbers are hazy, but private label certainly accounts for no more than 15% of the market and maybe as little as 5%. This compares to more than 50% in some parts of Europe, where private-label wine is as important to retailers as private-label laundry detergent, canned goods, and the like.

That’s because the US grocery store wine market is dominated by national brands like E&J Gallo’s Barefoot, which sells 20m a cases a year, and Casella’s Australian import Yellow Tail, with about 4.5m cases. Even the newcomers are national in scope: sales of Deutsch Family’s Josh Cellars grew by almost 50% from 2017 to 2018 to some 1m cases.

Given all that, why bother with European-style private label?

“The private-label market in the US is just not as sophisticated as it is in Europe,” says Rob Wilson, a managing director of L.E.K Consulting in Boston who has studied private label extensively and who issued a report around the time of the seminar. “It’s not one of the businesses that matter, so there aren’t extensive resources devoted to it.”

US retailers depend on brokers and bulk producers to provide private-label products, where the focus is on price and quantity, said panelist Paul Tincknell, a partner with Tincknell & Tincknell, a Napa wine marketing consultancy. It’s about finding a Chardonnay that can be sold for $6, can be made in sufficient volume, and can deliver specific margins. Where it comes from or its quality doesn’t necessarily drive the decision.

This is the opposite of the European approach, where a dedicated staff looks for private-label wine from established producers to fill specific niches in the same way that US wine and liquor retailers do. Not coincidentally, Rinella also oversees several private-label beverages besides wine.

Further complicating private-label wine is the unique US regulatory environment, which varies from state to state (and sometimes even within the same state). Individual state laws mean that a national chain like Kroger or Albertsons-Safeway may not be able to sell the same product in every store. Hence, it’s easier to work with the least common denominator. 

But all this, said the panelists, may be about to change.

First, there has been an influx of European retailers – not just discounters Aldi and Lidl, but more traditional retailers like Ahold Delhaize, which has stores in 23 states. They see an opportunity to approach wine in a more European style. Second, wine offers retailers a chance to give customers something that their arch-enemy, Amazon, can’t. The internet retailer, thanks to the US regulatory environment, can’t sell wine direct to consumers. Said Rinella: “We can choose and curate unique wines that fit our customer profile. And we can achieve better margins. Typically, branded wines get a 30-35% margin. Private-label margins are at 50-55%. And premium private-label wines offer even higher margins than that.”

It’s also important to note the success of Total Wine, a traditional liquor retailer whose concept revolves around its European-style Winery Direct private-label program. Total has used Winery Direct to expand to almost 200 stores in 23 states.

“For supermarkets in the US, wine has become an important way to attract the attention of shoppers and to build store traffic,” says Brian Sharoff, the president of the US branch of PLMA, whose group sponsored the seminar and is spearheading a program to educate US retailers about improving their private-label programs. PLMA sponsors an annual wine competition as part of its annual Salute to Excellence effort. “This is particularly true of large national retailers such as Costco, Whole Foods, Trader Joe’s and Aldi,” he said. “Wine consumers tend to be all-around good customers with interests in many other categories once they are in the stores. As more national retailers, such as Walmart and Costco, have emerged, it has become possible to use their size and distribution to offer excellent mid-priced wines as private label at extremely attractive prices.”

A changing consumer 

These changes dovetail with changes in the supermarket wine consumer, said the panelists. The Baby Boomers, those born between the end of World War II and 1960, drove the US wine boom that started 40 years ago. But as they age, drink less, and eventually die, they’re being replaced by younger and more adventurous wine drinkers. For them, Kendall Jackson Chardonnay – a Baby Boomer staple – is not necessarily enough.

“Today, consumers really don’t care about brands anymore. They’re seeking alternatives,” said Dave Falchek, the executive director of the American Wine Society. “And people increasingly are less motivated to purchase certain varietals. So people may not go to the market and think, ‘Well I’m going to get a Chardonnay or a Merlot.’ They’re more open-minded to the types of grapes that are being used to make wines. And they’ve also become much more adventurous and open-minded to different varietals.”

Hence the opportunity to replace all those tired $3 brands. That’s something that one bulk wine supplier acknowledged in the aftermath of the seminar. Yes, his industry does know it’s time to change, says Dante Colombatti of Los Angeles-based San Antonio Winery. Private label needs to improve quality and many bulk wine producers want to work with retailers to do that.

At the seminar, Tincknell said: “These days, it’s all about experience for the wine consumer. They’re curious, and they make their own decisions about wine. They want to know the story, and not necessarily the score. And that’s where grocery store private label can fit in.”

The catch revolves around retailers’ commitment to better quality – both on the shelf and in the supply chain, said the panelists. Are chains willing to spend money and resources to upgrade their wine inventory and to make the necessary changes in their procurement system to find the quality mid-price private-brand wine that sells so well in Europe? It’s again worth noting that Aldi has always counted on Winking Owl, its two-buck Chuck knockoff, to drive sales, while Lidl has adjusted the focus of its wine programme as it has expanded, with less emphasis on its original European approach.

Retailers must not just improve wine quality, but find ways to communicate that quality to their customers. US supermarkets, save for an occasional shelf-talker (in-store signs), are notorious for their inability to offer service – as anyone can attest who has seen a wine drinker staring in confusion at the Great Wall of Wine. 

It’s about the trust that grocers have in Europe that they don’t necessarily have in the US. European consumers trust Sainsbury, Aldi, and Lidl to deliver quality, but that sort of relationship doesn’t exist in the US save for with Trader Joe’s and Costco. It’s one thing to issue news releases touting the quality of private label; it’s another to convince the consumer.

Rinella said there is much more retailers and suppliers need to do in the US to showcase private-label quality, be it tastings, entering competitions, or spending money on promotions (private-label wine and meal kits, perhaps?). Otherwise, how else will consumers know to buy the $12 private-brand wine instead of the $15 national brand?

Because that may well be the future of US grocery store private label.

Jeff Siegel moderated the panel, “What Does America Like to Drink?” at the 2018 Private Label Manufacturers Association show in November 2018 in Chicago.

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