The race to the bottom

An observation. Not backed by firm data, admittedly, but an observation of a trend in the UK’s wine market. There seems to be a race to the bottom, and it’s not good for wine, or wine producers.

First, let’s clarify: in our discussion we need to segment the marketplace appropriately. Fine wine is doing well. Interesting wine is succeeding. But by far the largest segment in volume is the more commercial end of the market, with the bulk of this wine going through supermarkets.

What do we see? The impact of the discounters has killed the promotional mechanics of the large supermarkets. They have drawn back from trade-driving deep discounts (often illusory) towards ‘every day low pricing’. The discounters, working on low margins and small ranges, have shown it is possible to have a successful wine offering with no promotional activity at all. The supermarkets have been reducing their ranges and their prices.

In part this is driven by changing consumer demand. Despite the tentative recovery from the financial crisis of 2008, normal people don’t feel well off. Wage stagnation and rising housing costs have left people cautious with their money, so they have embraced the discounters (Aldi and Lidl), and along with them their wine offerings.

There’s also been an increase in private label/own brand wine across the board. The space left on shelf for brand owners is decreasing.

The net result has been a downward pressure on wine prices, despite the rise in taxation on wine. There has been a race to the bottom of the market, and everyone is seeing how cheaply they can source wine without it tasting bad. Wine technology has meant there is less bad wine out there. And because there is still an over-supply situation, there are producers entering negotiations with supermarket buyers from a very weak position.

Good-enough cheap wine (even though it may be desperately boring) is cannibalizing sales of more expensive wine. You can still but a perfectly adequate bottle of red, white or pink (or even sparkling) wine for £5 in the UK. That sacred price point has changed little in 15 years. Why would you spend more? When you taste through most supermarket ranges, there’s often little incentive to trade up.

So this race to the bottom has meant that supermarket buyers are paying producers very little for their wines. Wine is reduced to a commodity and the whole sector stagnates. Of course, this is not new, but the trend has accelerated of late. When will we reach the bottom? The only so-called innovation is fruit-flavoured 5.5% alcohol wines, and the key motivating factor here for the development of these products is cost – at this abv tax is lower.

It’s all very well pointing out the problem: what is the solution?

I think it’s to offer better wines in the £8-12 bracket. Supermarkets have a lot of wines in this price range, but most of them are desperately dull. What I’d love to see is a retailer giving consumers a reason for trading up, helping at least some of the bottom feeders have confidence to spend a few quid extra, and then actually see some return on that investment.

I’d like to see a move away from private label, towards putting producer’s names on the front of the bottle, so there’s an integrity about the wine: you know where it came from and who made it. There are interesting middle-ground wines being made, particularly in lesser known European regions, but by the time they get to the UK greedy margin requirements have pushed the price up so they are out of reach of normal people.

Internet retailers, with a lower cost base, could do this, but alas the big ones are almost all high-margin, private label operations using clever marketing to pimp ordinary wines at high prices.

There’s no simple solution, of course. People far smarter than me and with far more experience have been thinking about this problem for ages. It’s just that the current race to the bottom is particularly damaging for wine. I just wish there was an influential, powerful retailer who would have the guts to create a compelling, interesting wine range that fought successfully against this trend.

13 comments to The race to the bottom

  • Damien

    Maybe the only silver lining is that once you’ve hit bottom, the only way is up?
    You have to wonder why on earth so many chains still employ MWs to pick their lacklustre ranges though.
    Must be one of dullest jobs in the industry.

  • Mike Harper

    I’ve been impressed with the range of “fine wines” recently offered by Lidl. The pricing looked much like you’d pay on the continent. As well as familiar regions (red côtes du rhone, white burgundy) there were some less conventional offerings: I tried the Arbois and red Veneto bottles and found them to be good value.

    Offering mid-range wines with a separate in-store location is not a new supermarket practice. However, publicising the name of the person responsible (Richard Bampfield, MW) does seem novel. A fledgling brand has been created that offers customers the reassurance that some thought has gone into the range and that may create loyalty and repeat purchases. I have already traded up to some some of their more expensive bottles (not yet tasted, so can’t report on) which must surely be another goal of this initiative.

    If this initiative by Lidl does survive, then maybe we will see at least one supermarket steer away from the race to the bottom that you rightly fear

  • No there’s is not an easy solution. Probably there’s not a solution at all.

    Apart from Fine wine segment, the rest of wine is just a drink like another. This is a cultural stuff. We are in UK not in Italy or France. We can’t blame the people for this. £5 for a bottle is considered a huge price for 90% of my friends. 50% of them would never spend more than £8, going to £12 just for Christmas. This is regardless their income! They do not see value or reason spending more. They do not perceive the differential justifying the higher price.

    Consider also another aspect.

    Ordering wine online is very easy for many people.

    Shipping costs from EU are reasonably low.

    Pound is very strong vs. Euro.

    You can order a bottle of good spanish wine online from Spain costing you £5 (this inc. VAT and Shipping). The same bottle purchased here in UK would be £13.

    In an open market, UK is going to compete not just with UK but with rest of Europe…

  • Totally agree and it is a bit depressing. I was back in the UK over Christmas and I found that the big supermarkets I visited offered a much less-inspiring range than a few years ago. I would like to think that somebody’s “finest” / “taste the difference” / etc wine, e.g. a Crozes-Hermitage would be a good drop at a fair price, that their well-qualified teams have discovered – and perhaps that is the case. But wouldn’t it be way cooler still if the actual real brands from real producers were put up there? E.g. Tesco stock Tim Adams…..why not more like that?

    In the UK where you can “happily” pay 4 quid for a pint or 8 quid for a cocktail, doesn’t a whole bottle of wine deserve more than a fiver?

  • william beavington

    “£5 for a bottle is considered a huge price for 90% of my friends” ? – no sarcasm here on my part but what wines are they buying below £5 per bottle ?

  • Paul Dove

    “no sarcasm here on my part but what wines are they buying below £5 per bottle”?

    Tesco’s ‘Simply Garnacha’ (Campo de Borja), Aldi’s ‘Toro Loco’ Tempranillo and Lidl’s Cotes du Rhone all hover around £4 or less and are perfectly good: gutsy, characterful and satisfying especially with food. Tesco even have a decent if rustic Puglian red (Casa Roscoli, Negroamaro Sangiovese)on offer at the moment for £3.

    All are fresh and authentic tasting and mercifully free of the sickly, oak-chip vanilla flavours which you find in many of the supermarkets’ supposedly superior and more expensive offerings.

  • Margaret

    Current UK customs per bottle (+VAT on duty)is just shy of £2.50 a bottle. So when Tesco have an offer at £3.00 that leaves just 50p for Tesco’s margin, shipping, bottling, labelling and, tiny point, growing the grapes and making the wine. Who in that chain of supply makes enough to survive? The grape grower’s revenue of say 15p per bottle is going to kill him however efficient his operation.

    If people believe that a UK shelf price of £3.00 or even £4.00 is a viable price for the wine producers they are deluding themselves and condemning hardworking farmers to getting less than the cost of production. Cheers!

  • Paul Dove

    Margaret: The wines I mention are almost certainly ‘loss leaders’ for the big supermarkets. They can play with economies of scale that smaller independents simply can’t. As you must have noticed, the bigger players regularly inflate as well as discount prices on various wines. Their regular ‘half-price’ offers for example are a notorious trap for the unwary. But playing around with pricing does mean they can offer some sub-£5 which are drinkable.

    The loss leader model may be ethically questionable but there’s no indication they are ripping off “hardworking farmers” or indeed the independent retailers. The latter can’t compete at £5 but invariably offer much better value and quality in the £8-£12 range that Jamie talks of. That’s where their market lies.

    The main problem is the ridiculous amount of duty and tax we pay in this country relative to continental Europe and the USA.

  • Phil Handford

    Simple answer is to take alcohol out of supermarkets. Supermarkets have become the world’s largest drug dealers and are only interested in wine as much as they are interested in toilet paper. Alcohol should be sold in specialist stores. Would be more effective in reducing the negative effects of alcohol than quidelines about number if drinks consumed per day.

  • Hugh

    What does it cost to make interesting wine? Of course it varies per country, but surely at £8 it’s not easy. Most of my non wine friends have a ceiling around the £10 mark. Can truly interesting wine be made to retail in the UK for that? Can that work as a business model or does it require someone in the chain to be losing out?

  • Mark

    Would be great for the quality of wine people drink if The Wine Society were able to become that retailer… Sadly the £40 share purchase (net cost £20) is too much for most wine buyers, I fear.

  • chops

    Every lover of wine should seriously consider the wine society. £40 (20 is given back to you as credit) is not a lot for what you get – great wines, good prices, great member services. It’s all geared towards the member getting total satisfaction.

  • Mark

    All this rings true but none answers the underlying problem. Where to buy drinkable wine at a realistic price?
    The upper levels of supermarket wine , well over £7, are disappointing as indeed are many of the specialist wine retailers. I suspect many readers follow this site explicitly to find a drinkable bottle at a viable price.
    My perspective leads me to believe there is too much variety, which wearing my cynics hat, might lead me to believe the sellers intend a certain obfuscation to promote their less than palatable output. The buyer needs certainty and a taste they’re not alarmed by hence the success of branded ranges. Regrettably the same happens in every market.
    In defence of the supermarkets they need volume and reliability of both quality and supply. All, and I include Lidl and Aldi, have the same parameters but equally need a unique product to entice/promote customers. Selection is certainly carried out with a view to quality but these guys do have to make money.
    I applaud the independent makers but they too need to make a living. Just how many different Chardonnay or Sauvignon Blanc wines are available from around the world? I love to read about them but the reality is I’ll stay with those in the bracket I can afford. The Loire, New Zealand , Burgundy ( of the less exalted type) and perhaps South Africa.
    The chance of selling into the UK for these independent makers is very very small even promoted by this or similar sites.
    Yes, join the wine society. Frankly if you can’t afford £40 perhaps you ought not to be drinking wine.
    Find a source of wine guidance that is not too far up its own nose. I love to read about the 2014 Gevry Chambertin but in reality Blanche at the price. What I want is to be led, blindfolded, to good value- not necessarily cheap- wine. I guess a tenner might mark a ‘I’ll try it’ level but equally I want to buy it in an easily accesible place. I do not want to have to buy it online from an obscure outlet who require I buy 12 bottles.
    Burgundy was always regarded as a difficult wine; to find a good one required drinking 11 that weren’t so good. And having isolated ‘ the one’, a return trip to the shop almost certainly resulted in the sad words, sorry sir, sold out.
    Enough to put you off really-
    Certainty- of supply, quality and credibility. If Jamie hangs his hat on it, the price is right and the shop not in the outer Hebrides I’ll buy it.

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