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| June 17th 2008 |
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| The Italian approach to distribution |
by Michèle Shah
Trying to understand Italy’s distribution system is as difficult as coming to grips with its politics, finds Michéle Shah. If you’re interested in doing business, it’s best to have a single, national agent or create your own network of distributors. And don’t get upset when your wines go into a random ‘international’ pile.
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The distribution of wine in Italy, like its politics, is highly individualistic. There are many ways of operating, yet there is no single system. In fact, it’s a nightmare to understand which system is used and by who. In general, the small to medium size estates tend to use regional agents who represent a number of wineries. Some employ single agents for all Italy, while the larger key players tend to have their own network of distributors.
Recent statistics from a 2006 Nielsen report show that Italy’s national sales equate to 13m hectolitres of bottled wine, sold through wholesalers, of which there are 2,000 in the wine sector, specialist wine shops, cash & carry, the hotel, restaurant and catering (horeca) channel, and supermarkets.
“Out of the 2,000 wholesalers, about 40% is controlled by the beer industry distribution network [Partesa, T&C Italia and Doreca], which is the main organ of distribution with the most muscle,” explains Ettore Nicoletto, CEO of Gruppo Santa Margherita. “Most wholesalers, with the exception of a few specialists, are divided into smaller groups, some covering one single region, while others cover several regions.”
Many of the small- to medium-size estates work with agent networks on a national or regional scale and these often also distribute other products in addition to wine, taking a commission of between 4% and 25%. According to Nicoletto, these agencies are often just a single person, though the tendency, especially in the larger and more important areas, is veering towards structured agencies with several partners, or collaborators, including a public relation specialist in charge of events and merchandising.
Unlike other key players, Santa Margherita is considered a fairly traditional winery, selling 50% of its production to the horeca though a network of 100 agencies, some run single-handedly, yet all coordinated by the head office and area managers.
“When it comes to distribution, Italy is still far behind other countries,” says Emilio Pedron, president of Gruppo Italiano Vini, GIV, “There are very few wineries that can deal effectively with supermarkets, and most fall victim to their pricing policy and lack of promotion.”
According to Pedron, the on-trade horeca distribution is usually carried out individually by single estates, with excessively high costs; transport, distribution and commissions can be up to 30%-40% of the product’s cost.
GIV’s 14 estates are located throughout the country and the wines are dispatched to three logistic areas in Italy; north, centre and south, distributed through a network which includes five key accounts and eight promoters who are employed by GIV. The horeca line is sold through agents, who receive a commission which can vary between 7% and 12%.
Flagship winery Marchesi di Antonori, one of the Italy’s key players, believes strongly in having its own network |
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of distribution. This is made up of 100 agents, managed by eight regional supervisors, delivering orders directly to its 1,700 clients. This network also distributes Antinori’s imports, which represent a mere 1% of its sales, and include the distribution of Maison Krug Champagne and their own wines, produced under the Antinori umbrella in Hungary, Chile and the United States.
“Having one’s own network means one has more control,” explains Renzo Cotarella CEO of Antinori. “The entire procedure is carried out by a team of six people who follow the order from the time it leaves the cellar to the time it reaches the client.” Antinori’s agents get a commission which varies by distribution channel, whether horeca or supermarkets.
Supermarket muscle
Italy’s main supermarkets—Esselunga, GS Carfour, Auchan and Coop Italia— are starting to show their muscle and marketing power. In a 2007 study carried out by IRI Infoscan, supermarket sales accounted for 7m hectoliters of bottled wine, equivalent to €1,500m in value. This equates to 60% of all bottled wine sold and distributed within the Italian domestic market, 90% of which are DOC, DOCG and IGT wines.
The report states that sales figures between 2006 and 2007 increased by more than 6% in volume and nearly 7% in value. A further breakdown shows that wines below €2 increased 9%, while those selling for €7 increased 15%. Overall, 60% of Italy’s supermarket volume is bought for less than €3 a bottle.
“Supermarkets count for 90% of the off-trade in Italy,” says Lamberto Frescobaldi, CEO of Tuscan flagship winery Marchesi de Frescobaldi, one of the first wineries to use their own network of agents. He explains that wines are dispatched directly from the cellar to the client, while niche products are sold by specialist enotecas. “Internet sales are still far behind.”
From all accounts, small estates will in the near future be forced, due to transport costs, to group together and find distribution synergy. Supermarkets will remain the battle ground of the larger key players, able to sustain an active and incisive role in promotion and pricing.
Distribution of imported wines
Imported wines have similar distribution patterns. A recent study carried out by Pernod Ricard (Vini Ricard Italia) states that each year Italy imports an average of €50m worth of bottled wine, equivalent to 11% in volume and 9% in value. The study goes on to state that between 2001 and 2005, imports made a major breakthrough, increasing by almost 150% in volume and 50% in value. This is a trend, according to the report, which should accelerate in the coming years.
Emerging importer Philarmonica, established in 2002 and headed by Guido Folonari, reflects Vini Ricard Italia’s optimism. Only five years old, their turnover reached €13m in 2007. Folonari, who |
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was trained at Deloitte&Touche, says his philosophy and outlook is forward thinking; however, this does not always coincide with how distribution operates in Italy.
“We distribute 100% of our imports to the on-trade, horeca channel and though business is on the increase for us, there are some deeply rooted problems which are impossible to eradicate,” he says. “We chose this channel because we do not have the market muscle, nor the well-known brands that attract supermarket buyers, who with teams of buyers are far more professional in their outlook compared to the horeca channel.”
According to Folonari, the horeca channel is one of the most difficult and outdated distribution channels, yet it is still the best channel for brand building. “Italy’s horeca channel is 50 years behind the rest of the world,” he says. “Our network of agents spend hours visiting restaurateurs, even to deliver a case of six bottles, when it would be so simple to get them to fill in an automatic re-order sheet. But in Italy it doesn’t work like that.”
Alberto Avignonesi, CEO of Classica, Avignonesi’s distribution company agrees that Italy’s distribution has problems. “Many of the agent distributors represent a number of companies and products, some often competing with each other,” he explains. “Competition is tough and when using agents, one doesn’t always have complete control over sales targets.”
Not everyone believes imports will rise. According to Cotarella, imports at present are stable and unlikely to increase in the future, with the exception of Champagne and French wines, after which come Californian and Spanish wines. Wines from the New World, which count for 2% of Italy’s total imports, are stable, but low compared to other European countries.
“The reason for this is that Italy has its own national production and this culture is deeply rooted in the country and its people,” explains Cotarella. “In fact, consumption in Italy is very often limited to regional production.”
Imported wines remain a mere curiosity and are often sold on the shelves of supermarkets without country identification, stacked next to Italy’s regional selection. It is often difficult to actually identify that the wine in question comes from another country.
The exception to the rule is Champagne. Italy is one of Champagne’s main import markets and retains its fourth position for Champagne consumption worldwide. In 2007, Italy’s Champagne imports were up by 11% on 2006, to some 10 million bottles.
There are few specialist wine importers in Italy who dedicate their portfolio entirely to imported wines. Interestingly, foreign wines are often imported through domestic producers such as Antinori, Fazi Battaglia and Gaja, or specialist distributors, such as Meregalli Trade Marketing – which has a strong presence |
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within the supermarket network - Boldrini Roma and Dieci Bologna, who distribute a mix of products.
Meregalli distributes its wines from their depot direct to the client through its own network of agents, without using regional middlemen. In 2007 they delivered to 12,500 clients, though a network of 130 agents.
Fazi Battaglia, a winery established in the Marches and well-known for its famous green ‘amphora’ bottle of Verdicchio, has sold over 50,000 bottles of Champagne Deutz since their distribution agreement of 1 October 2007. According to CEO Luca Giannotti, the distribution of their imports, which mainly include spirits and Champagne, is equivalent to 6% of their total sales in volume and 25% in turnover. Fazi Battaglia uses the same network to distribute both national production and imported products. This is a capillary network of 150 agents, who are supervised by four company area agents.
“The system is well-consolidated and works very satisfactorily,” says Gianotti. “We deliver to supermarkets and enotecas, as well as the horeca line.”
Gaja Distribuzione, which sits under Gaja’s umbrella yet retains a separate identity to the winery, imports wines at the higher niche end of the market. These wines are mainly French and are distributed to independent enoteca wine shops and horeca, through agents who get a 17% commission on sales.
Looking to the future, the Pernod Ricard study concludes that although there are successful joint ventures between Italian partners and foreign brands, such partnerships are still limited and the desire for a more global trend in the wine sector still has a long way to go.
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