The UK economy went into reverse in the summer of 2008 and the recession was officially confirmed in January 2009. Comparing Nielsen data from October 2008 with similar data from October 2010 ought to provide a meaningful snapshot of how buying patterns have changed during this turbulent economic period.
The first point to note is that wine sales have increased over that time. In the off-trade, 2.9 million more cases were sold in the year to October 2010 than in the year to October 2008. That 3% volume increase has been partly driven by the well-documented switch to home consumption by those who would, in happier times, be eating out. It may also bear out anecdotal evidence that people tend to drown their sorrows during a recession.
Consumers are spending an extra £509 million a year on wine – an 11% increase on the 2008 figure. That is not as encouraging as it may first seem: duty has rocketed in that time, exchange rates have moved, costs have soared and margins have been squeezed. The average price paid for a 75cl bottle of wine was £4.14 in the 2008 figures. That now stands at £4.45 – and precious little of that 31p increase has made anyone in the wine trade richer.
Looking at the top 10 selling brands in 2008 and comparing them with the most recent Nielsen top 10, it is striking how prices have moved. Two years ago, six of the top sellers were priced above the market average. Now only three of the top 10 have a mean price of £4.45 or higher.
And two of the brands in the current top 10 are cheaper, in absolute terms, than they were in 2008. First Cape, a new entry that has more than doubled its sales in two years, sold for an average of £3.96 in 2008; it’s £3.87 now. A bottle of Lindemans would have set you back £4.48 in 2008; today its average retail price is £4.38.
The brands that have done the best during the past two years haven’t all reduced their average retail prices, but cash-strapped consumers have rewarded those that have demonstrated restraint with price increases. Take Blossom Hill, which has retained its market leadership throughout the past 24 months. Its average price has risen just 8p, well behind the market average of 31p. What does it have to show for this? An extra 544,000 cases and £35 million in sales value.
Hardys and Gallo were pretty much neck and neck in 2008, with Hardys just edging ahead in terms of volume and Gallo worth just £1 million more in sales value. A lot has changed since then as the brands have approached the economic downturn in different ways.
The price of Hardys has risen by 21p, taking its average to £4.45, bang on the market average. Two years ago it was 10p above the average market price. Like Blossom Hill, its sales have increased by £35 million, and volumes are up by 427,000 cases.
As for Gallo, which has withdrawn from deep discounting, the average price has risen 38p to £4.71. The brand has paid a heavy price for its boldness, with sales down by £87 million, to £158 million, and volumes collapsing by 1.9 million cases to 2.8 million. Not that Gallo is complaining: the decline is the result of a concerted effort to protect margins, and it’s one of several brands, including Wolf Blass and Jacob’s Creek, that has been prepared to sacrifice market share in that pursuit.
Over the past two years, grocery retailers have increased their share of the wine market from 80% to just over 83%, according to Nielsen analyst Stewart Blunt. (If that figure seems surprisingly high it may be because Nielsen has just started including Co-ops in the multiple grocery figures, and has revised its figures retrospectively.)?Part of that growth has been driven by the collapse of First Quench: as KPMG reported recently, only a third of the company’s former shops are still trading as off-licences.
“Certainly that gives the grocery figures a bit of a boost,” says Blunt at Nielsen, “but it was gently progressing in that direction in any case.”?But he insists the increase in supermarket sales does not mean specialists are doomed. “Some people have benefited in the recession because of the interest rates on their mortgages coming down. They’ve got a bit more cash in their pockets. You’ve also got people who are discerning and looking for something different to the supermarket offering.
“First Quench was struggling a bit over the past couple of years so I’m not surprised by how things have shifted. But there is still quite a strong core of specialists.” Blunt predicts more growth in supermarket share over the next two years, probably a percentage point a year. “I’m inclined to say that it will still continue to drift in favour of multiple grocers,” he says, “for the simple reason that they’re big, dominant and very competitive between themselves.”?The recession hasn’t ravaged the wine trade in the way many had feared – indeed, its resilience has been pleasantly surprising. But consumer caution has had an impact and the question now is whether the wine trade will get back into pre-2008 habits, or keep its belt firmly tightened.
As that famous economist Groucho Marx once said: “It isn’t so much that hard times are coming; the change observed is mostly soft times going.”