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| June 12th 2007 |
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| Routes to Market in the United Kingdom |
by Andrew Catchpole
The United Kingdom has long been a wine-drinking nation. Consolidation and streamlining, however, have put smaller importers, distributors and retailers under extreme pressure. Andrew Catchpole looks are the current state of British distribution.
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 Leaving aside the domestic wine industry, which accounts for scarcely 0.1% of consumption, the UK’s 61 million inhabitants are thirsty importers, drinking around 1.4 billion litres of wine a year. But this thirsty market is also a tough one. The double-digit volume growth experienced in the 1980s became single-figure growth during the 1990s, before tailing off in this century.
For the past 18 months, the market has remained stable but flat. The growing dominance of heavily branded, aggressively marketed big-volume wines has primarily favoured the New World. Powerful names, such as Gallo and Blossom Hill or Jacob’s Creek and Yellow Tail, have been the driving forces behind, respectively, California’s and Australia’s usurping of Italy’s and France’s market position.
Consolidation among major retailers and distributors and by national on-trade chains has led to a squeeze on both distribution and retail channels. Within the past few years, Morrisons supermarket has swallowed Safeway; Oddbins has, like Nicolas, become part of the Castel group; and wholesaler Matthew Clark is now owned 50/50 by Constellation and leading pub group Punch Taverns. This pattern is echoed elsewhere as smaller companies consolidate and merge to achieve better distribution and economies of scale. Add some of the most punitive taxes on alcohol in the EU and a bloodthirsty culture of discounting – one high street chain, Threshers, sells all its wines in three-for-two deals, while supermarkets including Tesco, which last year took £1 in every £8 of UK consumer spend, admit that upward of 70% of wines are sold on promotion – and it is surprising that producers wish to sell into the UK at all. But sell in they do, often taking hard hits on margins to showcase products in what is frequently described as the world’s most dynamic shop window for wine.
The multiple retailers wield great power over both of what the British public are drinking and the price points at which wines are admitted to their shelves. The combined 6,347 grocery-multiple outlets and 3,101 co-ops sold the lion’s share of the 91.8 million nine-litre cases that passed through the off-trade last year. Tesco dominated with 29% of the off-trade market, its closest rivals being – according to AC Nielsen in October 2006 – Sainsbury (18.6%), Asda (14.1%), Morrisons (10.5%), Somerfield (5.4%), Waitrose (3.7%), Co-op (3.3%) and Marks & Spencer (0.6%). This accounted for an 85.2% share of the total Great Britain off-trade, which comprises 44,089 off-licenced premises.
The way in which these multiples buy has also been changing. “There has been a general trend among multiples to reduce their number of suppliers” says Matthew Dickinson of Thierry’s. “With a company like ours, representing 50-odd producers, a multiple can buy many wines from one source and then consolidate its invoicing.” Asda has recently announced a progressive programme |
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of single-point billing, and this practice is increasingly common- place with retailers as one-stopshop convenience parallels the growth of the dominant suppliers.
Also gaining strength is the move towards cutting out the agent all together, especially with Buyers Own Brand (BOB) or staple bestseller wines. Multiples and high street chains increasingly work directly with producers to create wines to “fit” their portfolio, or indirectly through brand creation specialists such as Bottle Green. This in turn has influenced the way suppliers do business. “A company like ours was originally focussed very much on agencies,” says Richard Cochrane, off-trade director at Bibendum. “But we have had great success from an increasing number of joint ventures and brand creations.”
Growth in big-volume brands and brand creation does not necessarily translate into multiples buying only volume wines. Because of advances in technology and the broad portfolios of many suppliers, it is now efficient for larger retailers to buy in smaller batches as well. Bibendum’s portfolio is a typical case in point, offering volume brands, fine and smaller-production wines and tailor-made labels all at once.
A multiple such as Tesco, which works with over 100 suppliers to service its 800-strong range, will buy from 300 to 100,000 cases at a time. It needs access to a broad range to satisfy the requirements of the 400–800 wines in a typical store, but also needs small batches and staple lines for its 550,000-member wine club and the a 50-strong fine wine section in its prime stores. However, as Jason Godley, category manager for wine at Tesco, reveals, “We buy from many suppliers, but like most other large multiples, around 40% of our wine comes through just four or five companies.” These companies sit atop the broad but diminishing range of agents, distributors and wholesalers who serve the market. At the top of the food chain are the internationally owned and national giants such as wholesaler Matthew Clark, Percy Fox (Diageo’s wine division), Foster’s and Gallo, as well as the purely on-trade giant WaverleyTBS. On the tier below sit companies such as Thierry’s, PLB (Private Liquor Brands), Bibendum and Bottle Green, which exploit and service the market in a variety of ways.
Thierry’s, for example, is a French specialist accounting for 25% of the French wines imported into the UK, while Bibendum, which has diversified to incorporate a fine wine division and a strong agency business, is active in brand development and supplies both off- and on-trade. Bottle Green is a leading creator of brands for multiples and others, while PLB concentrates on brands and agencies within its portfolio. Regional wholesalers have felt the squeeze as the big become bigger, and even the smallest merchant typically offers UK-wide 24–48 hour delivery. Many regional wholesalers, such as Pagendam Pratt and TM Robertson (now incorporated into |
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Berkmann), Lane & Tatham (swallowed up by PLB) and Morris & Verdin (sold to Berry Bros), have simply ceased to survive as independents.
Despite the march of the big companies, there has re cently been a notable rise in the number of highly focussed smaller operators thriving in the UK, including agency-based businesses, specialist importers and wholesalers, and independent and on-line retailers. These typically niche companies include high-end independent merchants and specialists such as California experts Vineyard cellars; Gascony and southern France terroir-driven specialists Les Caves de Pyrene; niche German importer The WineBarn; and Rhône-, Alsace- and Burgundy-focused company Stone, Vine and Sun. All told, the Wine & Spirit Trade Association estimates there are around 760 UK-based companies primarily involved in the distribution and selling of wine, up from 700 a decade ago.
The internet has helped reshape the retail market, with the fast growth in numbers of on-line merchants such as Virgin Wines and Wine Direct as well as the growth of internet sales by existing retailers. This has increased flexibility and helped bring prices down. A definitive figure for wines sold on-line is difficult to assess, but individual company figures are telling. Waitrose Wine Direct witnessed a 42% year-on-year increase in 2006, with similar figures predicted for 2007, and Tesco revealed that its wine club – which mixes on-line ordering and mailings – accounted for 4% of total wines sales last year. Majestic’s head buyer Matt Pym confirmed that online sales, currently accounting for 7.25% of company sales, rose by 38% 2006 on 2005, and predicted a similar rise through 2007.
The internet, though, represents more of a shift in the way consumers are purchasing than a lift in overall wine sales from their current volume plateau. Where gains can truly be made in trading up and hitting bigger margin is the on-trade, a sector that increasingly mirrors the off-trade in its consolidation of both retail and supply. Dominant national wholesalers such as WaverleyTBS and Matthew Clark, as well as the likes of Bibendum, Berkmann and Enotria Winecellars, fight it out with smaller specialists to service this market. Of the 129,000 licenced on-trade premises, multiple pub or bar chains – such as Mitchells & Butlers’ 22 separate bar chain brands, or Punch Taverns, which owns 9,200 pubs across the UK – account for 40,000. A further 89,000 outlets are independents, of which 33,000 are pubs, 26,000 clubs and 30,000 licenced restaurants. The on-trade is a mixed bag in terms of supply, because although gross profit is higher, the fragmented nature of the market, smaller minimum drop and increasing competition as suppliers bid to outdo each other in customer-service expectations all raise costs. These costs, though, are increasingly countered by economies of scale and a trend towards one-stop-shopping. Both Bibendum and Berkmann report that around 50% of their on-trade clients use just one or two suppliers for their wine lists. Furthermore, the large pub, bar and restaurant groups will typically create an “in-house” list from which their outlets order.
Category management itself has evolved way beyond simply juggling a balanced range of wines across various price points. Both major suppliers and multiple retailers have evolved this into a sophisticated discipline that can analyse how a product line performs within its category and against its competitive set, while also considering market trends and working out future demand and opportunities. Sales data, feedback from the sales team, forecasting and market analysis – drawn from both consumers and the retail environment – are all pulled together to assist in this task.
At the heart of all this lies the assertion that consumers are being given what they want, and the route to market for any producer is more and more reliant on having a strong USP. Whether this USP is based on quality-volume ratio, achieving status as part of a niche specialist portfolio, or simply standing alone as a superlative example of a given style of wine, there is increasingly little space on UK shelves or wine lists for shoddy, over-priced wine. And, as consumer confidence grows, there is every sign that the UK trade will continue to respond with a hugely varied and exciting offering of wines to exploit the growing knowledge that has, in part, been delivered by successful brands.
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