Moving on up
Published:  11 July, 2008

Even in these difficult times, suppliers remain certain of the importance of getting consumers to trade up - and that quality can triumph over quantity

The credit crunch, economic gloom and a general tightening of belts when it comes to household spending are starting to

impact on wine sales - although they are holding up better than we might have hoped - but suppliers remain convinced

there is still scope to persuade customers to trade up.

Eighty-three per cent of suppliers questioned in an OLN poll said encouraging consumers to trade up is essential, with many

saying it is more important than ever in the current economic climate. Just 7% said this year is the time to give up on the project - but even some of those said there could still be scope to get consumers to spend more on better wines.

The 14p per bottle duty hike, rising production costs and the strength of the euro against the pound - combined with a continued insistence by retailers

on keeping price points stable - ha ve forced producers to find every way they can to keep costs down, including putting their own margins under pressure.

"We are all keen to sell wine for higher retails, but this will prove very tough during the economic phase we have entered ," says Steve Barton, of Brand Phoenix. "Wine is not a necessity, hence price will be as important as ever. The one issue we

all have to unite to stop

is the

increasing tax burden . Consumers are

paying the highest level of tax on BWS at a time when their disposable income is the most tested for 20 years - it seems quite incredible."

"I am certain that when some producers talk about trade-up, they are basically saying 'we need to make more money'," says Thierry's commercial director Matthew Dickinson. "If the producer is offering the consumer a compelling reason to pay more - examples are numerous, but Burgundy and Champagne are the most obvious - then the consumer will pay more. So an aspiration to get the consumer to trade up is both correct and relevant in today's market.

"But a word of warning - consumers aren't stupid and they rumble quickly to being ripped off. So trade-up, if it is just a price hike with no rationale behind it - no thanks. And given the economic climate, we do need to be particularly rigorous when it comes to providing the reason for a trade-up, so no lazy marketing. The consumer needs education but doesn't need it shoved down their throats to justify some multinational shareholder's dividend needs."

An anonymous supplier says: "We are forever hearing comments (from people who do not work in this business) along the lines of: 'Great business, the wine business - demand is never short . When times are good people drink to celebrate, when times are bad people drink to drown their sorrows.'

"If only life were like this - 2008 will be a very testing time due to price pressures. Customers may have to trade up to higher price points to enjoy the wines they are used to drinking. However, many consumers will not be thinking about the state of the world's finances when it comes to such relatively small purchases as a bottle of wine. But as long as retailers continue to stock our products there should be no reason why consumers should stop purchasing them."

Many believe economic pressures could help the trading-up cause - as consumers find it harder to go out to restaurants they might buy better wines to make nights in seem more special, or they might favour take-home's much better quality-to-price ratio more.

"Trading up is always important and it should be a target for the whole of the trade. With taxation, transportation and all other overheads growing so fast the added value in a £6.99 wine over a £4.99 one is significant," says Nick Leonard, general sales manager at Chalié Richards.

"It should be up to all of us to get this message over to the consumer. We rarely baulk at paying, say, £12.95 in an on-trade environment for what is probably a £4.99 wine, so why should we hesitate to pay £6.99 or £8.99 in retail for a wine that would cost us £16.95 or £19.95 or more in a restaurant?" he adds.

Concha y Toro commercial director Simon Doyle says: "It is now more important than ever to convince customers that by spending a bit more money, they can get better quality wines. It is incumbent on the supplier to ensure

it is doing everything it can to make its listings work as hard as possible, be that through education - effective back labels, on-pack POS, shelf endorsements and medals - or cross-category promotions, PR etc."

"I don't believe

a squeeze on disposable income necessarily automatically equates to trading down, or not trading up - things are more complex than that," says Mentzendorff managing director Andrew Hawes. "There is the well documented flight to quality argument where some people will consume less but trade up in challenging times, and overall the consumer still wants to know more about wine . If convinced by this knowledge and perceiving value at a higher price point, then they will be prepared to trade up."

Rosé's flush is still not fading

More suppliers believe the rosé market is maturing, with 30% saying the boom is nearing its peak, compared with 14% last year - but more than double that number, an overwhelming 64%, believe the pink category will keep on growing.

Gallo says the rosé market grew 24% in the year to June 2008, with its Gallo Family Vineyards White Grenache selling more than a million 9-litre cases over that period - up 11% on the year before, and taking a massive 10% of the UK market.

Brand marketing controller for Europe Edward Ward says: "More consumers are being introduced to the wine category by the easy-drinking style of rosé wine, and existing consumers' continuing affinity with the wine ensures that there will be no sign of slowdown."

California still dominates the market, but other countries, such as Spain and Chile, are now seeing growth, according to suppliers.

"The variety of fresh, crisp and fruity rosés available to the consumer is better now than it has ever been, and so long as that remains the case they will continue to sell, regardless of fashion. The major slump in rosé sales that preceded this upturn was due more to a lack of choice than fickle consumers," says one supplier.

Another adds: "Recent growth trends are unlikely to continue at the current high double-digit rate. Thus, we expect to see the rosé category grow, but at a slower rate than in previous years. Rosé sales continue to drive growth in the market."

Low and light finding a new market with health-conscious drinkers

A substantial 80% of suppliers are seeing growing demand for lower-alcohol wines, and 39% of those said they had added more lines to their range.

"As consumers show a preference for healthier lifestyle alternatives, an increasing interest in reduced alcohol wine is part of this trend," says Australian Vintage's UK & Europe marketing manager Michelle Beck - adding that McGuigan's low-alcohol range is doing well in the market.

"As consumers become more educated and EU regulations change, this category is likely to grow into a healthy niche, or potentially bigger over time," adds Richard Hitchcock, marketing director at Bottle Green.

This year has seen a number of additions to the lower or no-alcohol wine market: Chalié Richards has extended its alcohol-free brand Eisberg; Ehrmanns and Blue Nun producer Langguth have launched Blue Nun Heavenly, which has 9% abv and 77 calories per 12.5cl glass; and ZGM has developed wine-based spritzer range Entwine.

German producers, in particular, are using the link between lower alcohol and reduced calories to market lighter wines such as Weight Watchers.

That said, the controversy over spinning cone technology has caused some problems in bringing these lighter wines

to market.

The technology can't be used to make wine in the EU, but wines made outside Europe using spinning cone technology can be sold in the UK.

Some suppliers believe that demand for lower-alcohol wines is coming from retailers, in a bid to demonstrate they are acting responsibly, rather than consumers - but others say they have witnessed a genuine and new demand for such products.

"For the first time at consumer wine fairs last year, we were asked very regularly what the abv was on wines and also whether we had any low-alcohol wines to taste - something we had never experienced in the past," says Matthew Dickinson, commercial director at Thierry's.

"It seems there are two types of consumer emerging: one who believes the higher the abv, the better the wine, and another who has a real fatigue for the big, high-alcohol wines, and is looking for lighter alternatives."

For the coming year, the challenge for suppliers remains to find balanced, good- quality wines at lower alcohol levels, and to avoid those that taste as if the alcohol has been stripped out of them.

Screwcaps still finding favour with producers

The steady trend towards more screwcap closures continues this year. Two-thirds of suppliers expect to see even more growth in screwcaps in the coming years, with 20% expecting that increase to come from a decline in plastic closures, compared with 3% who expected to see less natural cork.

But this year's figures show that most of the increase in screwcaps came from cork, which accounted for 5% fewer closures than it did last year, compared with a 1% drop in plastic closures.

Spanish producers, who have been more resistant to screwcaps than many

other countries, are

showing signs of movement - Grupo Faustino is introducing screwcap lines, and United Wineries plans to move 30% of its 100% natural cork range into screwcap before the end of this year.

"The move to screwcap continues, with huge volumes of wines now going under screwcap," says one supplier, while another notes that there is still some resistance in Europe.

There is still some hesitation about moving some reds and top-end wines into screwcap, and some suppliers say they are waiting for better screwcap technology before extending its use in their portfolios.

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