Supermarket wine ranges will continue to shrink, predict suppliers

12 May, 2016

The multiple retailers are going through the greatest upheaval in years in terms of range, pricing and promotional strategy. EDLP and range rationalisation are the current buzz phrases giving some suppliers sleepless nights as the grocers seek to fight back against the rise of Aldi and Lidl.

High-profile suppliers, including Troy Christensen at Enotria & Coe, have spoken of the need for multiples to bring some diversity into their ranges to drive growth.

But the majority of suppliers that took part in OLN’s annual Wine Report poll – 62% – feel the supermarkets’ wine ranges will continue to shrink over the next five years.

That compares to 14% who feel their ranges will broaden and 24% who feel they will be roughly the same in 2021 as they are now.

One supplier said: “There are still massive duplications on the shelves. Consumers are getting
wiser and buying patterns will continue to change.”

But Enotria’s John Hearn said: “They have to adapt and provide a more diverse offering. They are trapped in a cycle of heavy discounting at a time when consumers are spending more money than ever on food and wine in the on-trade. The range needs to reflect the demographic of the community where the store is located and provide more depth.”

Biggest growth in the wine market among the multiples is coming from Aldi and Lidl, which have stolen a great deal of market share from the big four grocers over the past few years after gaining plenty of column inches in the national press on the back of big wins at international tasting competitions and investing heavily in advertising.

When asked what the role of these retailers will be in future, 14% of suppliers said they will take over from supermarkets as the biggest retailers of wine in the country.

None felt they have already peaked, but 21% said they will grow up to a point and then decline.

Two-thirds of suppliers, however, said they will grow up to a certain point and then plateau.

Nicholas Tatham MW at CWF said: “They are doing a very good job from a small base and will continue to grow for some time yet. However, their business model at present has a number of inbuilt limitations, which will restrict the full potential across all product sectors unless they break out of the existing formats.”

Ben Smith, head of communications at Concha y Toro UK, said: “They have given us some scale potential, but we see limited brand opportunities with them.”

Robin Copestick, managing director at Copestick Murray, said: “I see their role as being very good for the UK. They are shaping how the supermarkets view wine and I believe this is healthy for all concerned.”

Another supplier said: “They have shown you can succeed in wine with an edited range. Lidl in particular has worked hard to communicate quality through its wine panel and point-scoring system.”

Lidl’s wines are blind tasted by a panel of MWs and only those that score well make it on to shelves, which is part of the reason for the retailer’s continued success.

David Gleave MW at Liberty said: “Any changes in the market as seismic as that of the growth of the discounters have consequences. The smaller ranges will drive a few people to the independents, who should have a very good time.”

In response to Aldi and Lidl’s emphasis on everyday low prices over deep discounting, mainstream supermarkets are switching their focus to EDLP and many suppliers feel this is a positive development.

Fifty-eight per cent said it will lead to value growth, while 32% said it will cause value sales to decline and the rest said it is too early to say.

Mark Roberts at Lanchester Wines said: “EDLP as a trend will strengthen the wine market as it allows brands to understand their true equity in retail. This strategy will ultimately define the strength of brands in the UK wine market.”

Tatham added: “This is great news and long overdue as [discounting] has been very damaging to the sector and to profitability and has led to the UK being seen by producers as the dumping ground for poor wines at the lowest prices.”

Chris Shead, channel director for grocery at Pernod Ricard, said: “EDLP works at entry level and just above, say £5. Beyond that consumers are seeking value and offers are an integral way to drive trade up. The new grocery landscape has more integrity than the deep discounts which misrepresented wine quality in the past, but if offers are used in the right way they can be an effective tool in driving trial, attracting new customers and driving loyalty to the store and brands.”

Another supplier said: “Consumers have grown wise to the fact that [discounting] was not value but rather an inflated wine being sold at a real price.”

When asked how they maintain listings at this time of upheaval, the vast majority – 79% – pointed to innovation.

Thirty-six per cent said they promote more to stave off the threat of being delisted, 22% said they ramp up advertising, and some said they cut margins, reduce supply costs or reduce their own overheads.

Two-thirds of suppliers feel there is too much churn in supermarket buying teams to establish a long-term, effective relationship with them.

Roberts at Lanchester said: “This is a very important point. We used to be in a position where we’d spend months or years understanding our buyers’ requirements. What we’re finding now is a project will start with one buyer contact with an agreed intention but when it finally comes to fruition, there’ll be a different buying team with a different brief.”

But Tatham at CWF said there is not too much churn, adding: “In fact it has improved recently. The churn is less dramatic, thank goodness.”

Hearn at Enotria added: “There are some great people doing a great job in the supermarket wine teams at a very difficult time. I think James Davies MW is doing a great job transforming the Tesco wine offer and we need people like him who understand wine and the need for that to work commercially and engage consumers. Also Tracy Ford at Asda and Simon Cairns at the Co-operative understand wine and consumers and have instilled that understanding in their teams.”

When asked if buyers are skilled and experienced enough in wine, 74% said yes, which is a dramatic shift from our 2013 Wine Report, when the majority said buyers were not at all skilled enough.

Tatham said: “The situation today is better than it was a few years ago when appointing young and inexperienced buyers seemed to be a deliberate ploy by supermarkets to prove that wine was seen by them as no different from nappies or pet food. This is now not the case.”

Shead at Pernod Ricard added: “Most teams we deal with are very high quality.”

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