Pile 'em high and sell 'em cheap
Published:  19 September, 2008

W hy don't estate agents look out of the window in the morning? The answer, according to one of my favourite credit crunch jokes, is that if they did, they wouldn't have anything to do in the afternoon. In these straightened economic times, the inactivity of one of the country's most disliked professions is one of the few things that still makes most people smile. Couldn't happen to a nicer bunch ...

We need something to laugh about at the moment

because, as far as our wallets and purses are concerned, the bad news seems to be getting worse. Property and share prices are still falling, inflation is currently running at 4.4% and rising mortgage, transport, food and utility costs are starting to bite. Gordon Brown's economic fight-back plan isn't landing many punches at the moment.

No wonder consumers are changing their shopping habits. We still need to eat, but most of us are buying cheaper and less ethically-produced food.

Morrisons, which recently announced a 7.6% increase in half-year sales, attributed part of its success to the popularity of its summer £4 barbecues and picnics for four . Read that sentence again. Yes, that's right. Four people for four quid. In such a climate, organic food has become an unaffordable luxury for many.

Morrisons isn't the only retailer

doing well out of the recession. Asda and Tesco are pulling in cash-strapped punters, as are

no-frills discounters

Aldi, Netto and Lidl. At the other end of the scale, upmarket Waitrose has seen first half profits fall by 27%, despite (or possibly because of) increased promotions.

What does all this mean for wine? Well, if I tell you that Aldi's sales were up 45% in June, 50% in July and 61% in August, you can form your own conclusions.

Other retailers have noticed the so-called "Aldi effect" too. The centrepiece of Sainsbury's distinctly underwhelming autumn tasting was a table of 27 "great value" wines, all of which sell at under £4, and three of which are on the shelf at £2.99. Not to be outdone, Tesco's autumn tasting in October will feature 20 wines under £4.

I don't have a problem with retailers stocking cheap wines. Filling your shelves with wines at £8.99 is a sure-fire way to drive most of your wine customers elsewhere. As I've said before in this column, there is evidence that some punters are trading up, but they are in a minority. To paraphrase HL Mencken, it remains as true as ever that no retailer ever lost money underestimating public taste.

Or does it? I asked Danny Gibson, Aldi's excellent buyer, how his company manages to put so many cheap, genuinely good value wines on the shelf. "We work on low margins and high volumes," was his answer. "And we are very good at squeezing the costs out." Does that explain how he can list a 2003 Rioja Reserva at £4.99, a 2004 Barolo at £6.99 and an NV Champagne at £9.99? Yes and no is the answer.

Gibson was refreshingly frank about Aldi's margins. Eighty five per cent of the company's wine sales are below £4.99 (no surprises there), so Aldi believes in encouraging its customers to "have an adventure" above that price. If this sounds a tad euphemistic, Gibson gave me an honest answer when I pressed him further. "Some wines we make nothing on; in fact, we are subsidising them." Is he losing money on his very good Barolo? He is indeed. "The wine should cost £9.99," he admitted. "And even then we wouldn't be making a huge margin."

What about Sainsbury's? Is it taking a hit on some of its sub-£4 wines? You might wonder how

it can list a Frascati at £3.19, or a drinkable £2.99 South African

dry red, given the duty, VAT, shipping, packaging and warehousing costs involved, but Warren Anderson, category manager for beers, wines and spirits, says that Sainsbury's "wouldn't list a wine if it didn't make money".

I don't want to pick on Sainsbury's here - although any company that can list a wine as dire as the Don Simon Selección Tempranillo at £2.99 deserves a brickbat or two - because it is not alone in taking what I suspect are single-figure margins at best on its cheaper lines. In credit crunch Britain, all of the major supermarkets are at it.

Belt-tightening consumers probably won't complain about this, but cheap bottles (subsidised by other products) give a false picture of the true cost of wine. Supermarkets are effectively devaluing the product, making wines stocked by high street specialists and independents look more expensive than they really are.

As Doug Wregg of Les Caves de Pyrene comments: "It would be more honest if they charged the full price and gave the customer back the cash equivalent of the promotion at the till. That way, they would know how much cross-subsidy of pricing is going on."

Fat chance, I say. Artificially cheap wine is here to stay.

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