Seduced by basic instincts

25 July, 2008

Tesco's decision to extend its Value range of budget lines into wine for the first time is sure to have a

far-reaching impact on the category. Nigel Huddleston report

s

It's Britain's most successful grocery retailer by some stretch, so other stores have always got their eyes on what Tesco does in price, range and promotions.

But in some ways, Tesco is merely playing catch-up with the market.

Asda already sells wines under £3 in its Smart Price range, and Sainsbury's has a red and a white wine under its Basics label.

One industry observer, who didn't want to be named, said Tesco's launch of

value wines was part of a wider retrenchment by Tesco around value

for

money in the wine aisle. "A year ago, Tesco was going big on premium and it didn't work," he said. "It began to look

expensive and it can't afford to do that. This year they've gone back to making a big noise about brands and value

for

money, which they're brilliant at doing."

Whatever the backdrop, Tesco BWS category director Dan Jago has told suppliers through the pages of OLN, and probably in private in some cases, that "wine remains a discretionary purchase and suppliers need to be alert to what is going on and to customers' changing needs".

Jago said suppliers shouldn't bury their heads in the sand on pricing, and

Tesco's rival retailers

certainly won't be. If Tesco gets better, cheaper wines, they're going to put the same sort of pressure on their supply base.

Sainsbury's expands range

Sainsbury's has already said it will extend its Basics offer in BWS, though it is unclear whether this will be in wine or other products. The retailer already sells Basics beer, cider, whisky, brandy, gin and vodka as well as wines.

Warren Anderson, category manager for beers, wines and spirits at Sainsbury's, said sales of the existing Basics drinks products had risen by around 20% over the past quarter.

"We're looking to extend the range just as we would examine any other area of opportunity. They've been growing over the past couple of years, but it's been clearly more so over the past 12 to 16 weeks," he said.

Major retailers are clearly concerned about the impact of the so-called credit crunch on consumer spending habits and want to turn it into an opportunity wherever possible.

But not everyone is as convinced as Jago that wine will feel the full impact of consumer belt-tightening.

A matter of duty

Stewart Blunt, Nielsen's wine analyst argues that an upward trend in average retail prices of wine has been unabated in the first half of 2008, and expects further positive shifts for the foreseeable future.

"Part of that is that the latest duty increases haven't fully filtered through, and when they do we should see prices continue to rise," says Blunt. He said the average price per 75cl of wine (taking into account other packaging formats such as bag-in-box) had risen from £4.04 to £4.24 between January and June, with the average price of an actual 75cl bottle increasing from £4.20 to £4.40.

"The bottom end of the market below £3 is eroding

and simple mathematics means that the average price will go up as a result," he add s.

Wine below that price point accounts for 17% of the market already, so it's still a substantial chunk of consumer spending on wine, even without an economic dip - though Blunt says it is "a bit of the market that's falling down quite rapidly".

The fear for some in the wine trade is that Tesco's power will lead the rest of the market back down towards lower price points.

"It's like the film Field of Dreams - if we build it they will come," sa ys one supplier. "Consumers didn't used to crave deals on beer before the retailers started doing it and now it's become expected in the category. If you start giving them cheap wine at reasonable quality then they'll expect that too, but the smaller suppliers will be squeezed even more than they are now."

Steve Barton, director of First Cape supplier Brand Phoenix, feels that established suppliers should be able to adapt to Jago's desire for better quality at keener prices. He

says: "We're definitely seeing a tightening of belts. Nielsen figures show the market is down in the last eight weeks compared to last year.

"Some people will pay slightly more for wine in the off-trade because they're not going out, but for the majority wine is not a necessity. It's part of a relatively transient basket of goods which they don't live or die because of.

"If suppliers don't provide value at lower prices, people will just go into other alcoholic beverage categories that can, and those that are already less expensive."

In any downturn, there's a danger that everyone becomes fixated on price at the expense of the product. Jago was very clear in his comments that quality was part of the equation for Tesco's

Value wines.

A striking red, white and blue poster and a £2.99 price point might sell the wines once, but what they taste like will dictate repeat sales as much as for any other product. "It all depends what it's like,"

adds one supplier. "But there's always a place in every market for something that's cheap."

Another put it more succinctly. "If we start pissing about with wine quality, that's what's really going to kill the wine trade."




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