Demise of Orbital Wines leaves industry searching for answers

11 January, 2008

Graham Holter bids farewell to an innovative uk wine supplier

The collapse of Orbital Wines leaves the trade a sadder, perhaps wiser, place. The Stormhoek and Camden Park business enlivened the industry with its quirky marketing and enthusiastic people determined to break the wine trade mould. Unfortunately, it's Orbital itself which lies in pieces. So what, if anything, can be learned from its demise?

With the economy in "red alert" mode, and even retailers like Tesco and ­Majestic struggling to set the world alight with their wine sales over the Christmas ­period, medium and small-sized suppliers are approaching 2008 with understandable anxiety.

As one drinks trade analyst puts it: "There are quite a few companies at the moment who are looking at their ­December results

and expecting the next three to six months to be very difficult. The implications for these companies of the economic slowdown, probably exacerbated by a duty increase, could be very serious indeed."

The first of many?

Those closest to the collapse of Orbital suggest that not all the factors involved in the company's closure were down to market conditions, though probing these at a time when 10 people have just lost their jobs feels like an intrusion into private grief. The company, which always punched above its weight in terms of publicity, had the feel of a supergroup about it: some talented, experienced professionals with big personalities and bigger ambitions. Critics have accused it of having "too many chiefs and not enough Indians", despite running brands that had yet to fully deliver on their promise.

Those criticisms aside, rivals have been watching the Orbital saga unfold with a mixture of pity and fear, because there is a general feeling that this won't be the only well-known UK supplier to bite the dust this year. The pressure on wine importers has been escalating for some time, and businesses who warned that they were running out of slack a few years ago are now stretched almost to breaking point.

"It's a very volatile time and this year I imagine there is going to be a fallout," says Bill Rolfe, whose 10 International wine business has been operating for two years. "This [Orbital's demise] is the first sign of it and I wouldn't be surprised if other wine agencies are also in a very difficult position."

Making ends meet

Rolfe's determination to keep ­outgoings at an absolute minimum have, he hopes, given the business some protection from the economic storm.

"You can't let overheads run away. Building a team and spending money on marketing is obviously where the costs are - but when do you do it? Do you try to establish your position and get your momentum going, and then spend

Or spend upfront and hope that it comes? That's the big question. You've got to do an awful lot of business to pay for high quality people.

"Because of the pressure on us all from all quarters - duty increases that aren't fed through, retailers wanting higher margins, more competition, more wines than are necessary on the shelves - this leads to lower margins and lower profitability, and it becomes all about hitting the volume. And if you don't hit it, that's it: the company collapses.

"A lot of wine agencies are just ticking over and not making a lot of money."

Uncertain times ahead

There is apparently widespread interest in the Stormhoek brand, which achieved growth of 36 per cent last year, yet remains a relatively small player in the South African market. Steve Barton, director of FirstCape supplier Brand Phoenix, will not be among the


"If your company and your philosophy is not consumer

driven, you are going to have an increasingly turbulent time in the commercial cauldron that is the UK off-trade," he says.

"It is aggressive and


but it's also fantastically rewarding if you work with retailers.

The only way to do that, however, is with a proposition that the consumer is actually buying. That takes investment. If your brand hasn't got some momentum you are going to find it increasingly hard in the UK off-trade.

"We are all going to have to face the uncertainty of duty. It's going to be a massive fixed cost for companies the size of Orbital because they haven't got products of momentum that can carry you through that added cost.

"The economy is going to have a tough year. The next 24 months will be a great test for the companies that are communicating with the consumer. With the economy tightening up, people are definitely not going to spend money on products they're not aware of or that don't give them a reason to buy. You're only going to be as successful as your ability to read and interact with the consumer."

Consultant Allan Cheesman believes that 2008 is going to be "challenging" for all businesses "regardless of size" and urges suppliers to keep a tight rein on ­finances and costs - and keep a hawk-like eye on currency fluctuations.

He warns that bad debts in the on-trade and delayed payments from off-trade retail groups are causing problems too. "If retailers pay late then they should be surcharged," he says. "Wine trade margins are not bankers'


But he also sounds a hopeful note. "I am, of course, optimistic about well-run and controlled businesses, and know that those with quality wines, quality agencies, less exposure to the off-trade, and good people and systems will prosper - or at least survive."

Ladies and gentleman, please fasten your seatbelts. We are about to hit some turbulence.

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