THE BACKGROUND
The wine market poses an odd combination of challenges to marketers. Volume sales are growing and the market is highly fragmented, with the world's five-biggest wine producers accounting for less than 8% of international sales. Meanwhile, supermarket pricing pressures are making it more difficult than ever for brands to increase their profitability.
There should be scope for building wine brands, but those that have done it successfully took a battering earlier this month when a panel of Which? experts said they believed branded wines offered poor value for money.
The UK drinking public has certainly developed a taste for wine.
If current consumption rates continue it will become the country's favourite tipple - ahead of beer - within the next 10 years. Sales grew by 31% between 1999 and 2004, making the sector worth £7.6bn, last year according to Mintel.
Off-trade sales account for about 80% of volumes, although prices are being forced down by discounting in the multiples. Discounting is so widespread that the real market value is not matching volume growth. Mintel says the price of the cheapest bottle of wine has risen by just 50p over the past 25 years and the average price of a bottle off-trade was £3.89 in 2003-2004.
UK consumers have a broad repertoire when it comes to the variety of wine they will drink. However, in recent years, the Old World (produced in Europe) wines have been losing out to the rapid growth of wines imported from the New World, especially Australia and North America.
In 2003 New World wines overtook European vintages for the first time.
Wine from Australia, South Africa, the US, Argentina and Chile accounted for 468m bottles, compared with 410m from France, Italy, Spain and Germany.
France's share of the UK market has fallen from 30% of UK imports of still, light wine (with an alcohol content of less than 15%) in 1999 to 22.6% in 2004. This has been blamed on the French producers' complacency and a lack of marketing to combat the New World competition. Australian wines outsold French ones by value in 2004.
Dominant brands
Women consume more than half of all the wine drunk in the UK, with the over-60s age group being a key consumer base. And, although the supermarkets are driving down prices, Mintel's research shows that consumers are willing to pay more for quality.
Although there has been a rise in the number of brands appearing as companies build their portfolios, the global wine market is highly fragmented with the five leading producers accounting for just 8% of volume sales. Branded wines dominate both on- and off-trade sales because they provide consumers with a reliable product within the low- to mid-price band. These wines tend to appeal to drinkers who lack knowledge or experience of grapes and regions.
Despite their popularity, branded wines were dealt a blow earlier this month when consumer watchdog Which? published a report concluding that branded wines are poor value. Its panel of professional wine-tasters and critics tasted 41 wines, including the best-sellers from the top 11 brands, and none scored more than 13 out of 20.
Increased accessibility
Emma Chamberlain, marketing and innovation manager at wine wholesaler and distributor Percy Fox, was disappointed by the Which? report. 'For the past 15 to 20 years, all wine brands have been trying to demystify the category,' she says. 'You give people a choice and make it accessible - something for the masses rather than a snobby activity. The Which? panel gave everyone a pasting: all those wines are successful and have lots of consumers. It is about experts versus consumers. Of our brands in the Which? list, Blossom Hill and Piat d'Or, we sell 65m bottles a year to 17m consumers. It is so subjective.'
Constellation Europe's Stowells of Chelsea is the strongest wine brand in the UK when off- and on-trade sales are combined, taking 5% of the market by value. The range includes more than 20 wines from nine countries, and in 2003 it had a packaging revamp to move it more upmarket. The producer and distributor's other brands include Hardys, Banrock Station and Black Tower.
Own-label growth
Rose wine has been increasing in popularity in recent years, and First Drinks Brands' Mateus Rose has been investing heavily in marketing. Paul Evans, senior product manager at First Drinks, says: 'Rose has been enjoying double-digit growth, but it still accounts for just 4%-5% of the overall wine market. With the "Think pink" campaign we were using the category as leverage. We were the second-biggest wine advertiser last year, so we are really putting investment behind building brand awareness. We have a loyal, stable user base of over-45-year-olds, but we are trying to reach younger consumers. Last year our advertising was aimed at 20- to 35-year-old women.'
The own-label wine sector is thriving, particularly in the big supermarkets.
In 2003 Asda launched 130 new lines followed by a further 170 last year, taking its total to 690 wines. Tesco has been introducing new designs and simpler wording on its labels to encourage trading up.
Despite opposition to the rise of the wine brand by some traditionalists, it appears that consumers are more than convinced by their value, whether they are drinking in- or outside their homes.
Overall, the market is set to be worth more than £10bn by 2010, according to Mintel. This is a 31% increase on 2004 and constitutes a real value growth of 19%. Although red wine will continue to have the lion's share of the market, white wines are predicted to grow more over the period.
White wine is expected to increase from 44% of the market in 2004 to 46% by 2009.
UK STILL WINE RETAIL BRAND SHARES OFF-TRADE, BY VOLUME (m litres)
2004* 2002 2000 00-04
% change
1 E&J Gallo 42 40 17 147.1
2 Blossom Hill 38 28 7 442.9
3 Jacob's Creek 34 38 17 100.0
4 Stowells of Chelsea 28 29 13 115.4
5 Hardys Stamp 22 23 14 57.1
6 Kumala 19 n/a n/a n/a
7 Rosemount Estate 14 21 11 27.3
8 Lindemans n/a 21 7 n/a
9 Banrock Station 13 18 7 85.7
10 Nottage Hill n/a 17 7 n/a
11 Penfolds n/a 14 7 n/a
12 Le Piat d'Or 12 n/a 7 71.4
13 Hardys VR 10 n/a n/a n/a
14 Own-label 540 477 417 29.5
15 Other brands 112 75 214 -47.7
Total 884 801 745 18.7
Source: Mintel *Estimated
UK LEADING WINE BRANDS BY VALUE, 2004 (pounds m)
On- Off- Total %
trade trade
1 Stowells of Chelsea 270 90 360 5.0
2 E&J Gallo 85 139 224 3.1
3 Blossom Hill 74 177 251 3.5
4 Jacob's Creek 116 161 277 3.8
5 Hardys Stamp 79 96 175 2.4
6 Kumala 22 88 110 1.5
7 Rosemount Estate 60 56 116 1.6
8 Banrock Station 32 66 98 1.4
9 Le Piat d'Or 40 48 88 1.2
10 Hardys VR 23 51 74 1.0
11 Others 1360 760 2120 29.3
12 Own-label 980 2358 3338 46.2
Total 3141 4090 7231 100.0
Source: Mintel
ANALYST COMMENT
Richard Halstead, managing director, Wine Intelligence
It is the best of times and the worst of times for wine producers selling their products in the UK. The top line keeps growing healthily: last year, as a nation, we spent about £7bn on 1.3bn bottles of the stuff, up from 1.05bn bottles in 2000. During the same period, we drank a lot less beer and slightly less spirits.
However, most of the growth has come from the big multiple grocers, where incremental sales have come at a steep price: deep-discounts, supplier-funded promotions are now an operational necessity for all suppliers hoping to retain their slot. And many brand owners say their additional volumes have led to lower overall profitability.
The problem is price deflation and a lack of genuine brand equity in the category. There is no incentive for consumers to spend more than £5 on a bottle of wine since, on any trip to the supermarket, they can choose from an array of wines with a list price of £6 or £7, that have been discounted to less than the magic £5.
Brand loyalty is low by FMCG standards. Ask people which brand they are loyal to, and the most popular answers are 'Chardonnay' or 'Rioja'. The fact that there is a link between quality and price is often forgotten: many respondents in focus groups remark that they have been disappointed with the quality of wine they bought on promotion.
Our research shows that wine drinkers would be willing to spend more than £7 a bottle if they could be sure of getting a high-quality, good-value product, compared with their typical spend of £4 to £6.
The challenge for wine producers and brand owners today is to deliver this message of value and quality through a brand strategy that reaches beyond the standard twice-yearly BOGOF promotion.
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