Time to trade up?

28 May, 2010

Adapting to the pressures of the economic downturn has forced retailers to redefine their wine offer. But are consumers now becoming more willing to trade up and, if so, how can the market ensure it capitalises on this growing confidence??This was the hot topic up for debate at OLN’s first seminar of the LIWF, entitled Beyond Three-for-£10: is Premiumisation Back on Retailers’ Agenda? Justin James, BWS category manager at Sainsbury’s, Rowan Gormley, founder of online business Naked Wines, and Ruth Yates, owner of Cheshire-based independent Corks Out, joined OLN editor Rosie Davenport to share their perspectives.

James kicked off the discussion by refuting allegations that Sainsbury’s relies on price promotions. “Sainsbury’s sells wine as a category that is in long-term growth and development, and has the potential to go much further than it currently has.

“Three-for-£10 is talked up quite a lot [but] in respect of Sainsbury’s it’s less than 10% of our business proposition at any one time. You have to be careful not to get it out of perspective,” he said.

For James, luring customers into the wine aisle with an exciting and differentiated offering is more important than securing a sale based purely on price. “We’ve embarked on a significant price and consumer insight [analysis] to try to get a proposition which appeals to different and divergent types of customers,” he said.

From this month, the supermarket will be implementing a major in-store revamp across its entire estate, which will see the wine range split into distinct sections. These will include Everyday Favourites, which will be divided by style, not country, a Case Deals bay dedicated to six-bottle purchases, and a New Arrivals section.

The bulk of the Sainsbury’s range will be in a section called Our Cellar, divided by country. “It’s about giving theatre to the wine aisle,” James said.

Putting the customer first?“People go for price in the absence of not knowing what else to buy,” according to Gormley, who set up Naked Wines to put producers in direct contact with consumers, who then have a say in which wines the site sells. By cutting out the costs of running a retail outlet, margins are better and Naked Wines says it is able to pay small producers a “fairer” price.

“Seventy per cent of the cost of a bottle of wine is typically dead money. If we eliminate that, we can achieve significant price reductions for our customer. The winemaker can make money and we can make money,” he said.

“We have 85 winemakers signed up but of those there are 22 who we are financing. We have a fund of £5 million to invest in independent winemakers.”?The website’s success is due to customers being able to rate the wine they buy, Gormley believes. “People can write whatever they like about our wines, we have not yet removed any comments. [Customers are] much more likely to trust each other than to trust us,” he said.

For Yates, whose average bottle price is £18.38, the key is offering a personal service and steering clear of price-led promotions. “Our customers are loyal. They visit our stores for the experience, knowledge and provenance of the wine, not just to buy three for a tenner.

“We don’t discount. We’re trying to offer quality and value for money. If you do discounts it does mean customers feel as if the wine is inferior,” she said.

“We offer tutored tastings and a quality wine club. Customers have to understand how to appreciate the wine.”?Moving away from promotions?The panel moved on to discuss what’s appealing to consumers now and whether they are more confident about paying more.

“People are looking for value, bling is out,” Gormley said. “People buying flash bottles of wine to demonstrate wealth is not a factor. For example Prosecco and cava [sales] have exploded.”?James, who was staggered by Yates’ average bottle price, said: “Sainsbury’s average bottle price is £4.70, there’s still a long way to go. We have a larger problem with demystifying wine. We have to provide customers with the right conditions and tools, and make the wine aisle simple to navigate.

“More than a third of our sales come from promotions, 70% of what we sell is not on a promotional deal. We have to get customers confident about buying wine off a promotional price. We are trying to encourage shoppers back to the aisle where they can trade up, and be encouraged to move away from promotional deals.”?Despite the pricing pressures, the panel urged suppliers to persevere with the UK.

Yates believes there’s still money to be made for suppliers who forge strong relationships with retailers. “The UK market isn’t saturated,” she said.

Providing samples and POS materials are just two ways that suppliers can help retailers, Yates added.

For Gormley, visiting the UK and bringing samples is a “fantastically powerful” tactic for suppliers. “When a supplier turns up with branded fleeces and piles of literature it’s dead money,” he said.

“Invest in your product, not in selling,” Gormley advised. “If your product is good enough you will get loyalty.”

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