I’m in an airport. It’s a place where you are bombarded by marketing messages. It’s made me think about wine marketing.
Spirit producers tend to do a lot more marketing than wine producers. It’s not the fault of wine producers: it’s just that the world of spirits is a much more branded space than that of wine.
Wine is different. Most people coming into the wine world from that of spirits or beer must shake their head in amazement. Then they set about fixing the mess that is wine marketing. Then they give up, because sooner or later they realize just how different wine is.
First of all, it’s not manufactured. It’s utterly dependent for its quality on the quality of starting product, grapes. Of course, the ingredients have to be good quality for spirits, but they don’t have anything like the impact that grape quality does. And we have the fact that wine can only be made once a year, and the quality changes every year. It’s not manufactured and it’s not scaleable.
The scale of wine production is important. Putting it simply, the bigger the producer, the harder it is to make top quality wine. [We can discuss this further.] And most wine is production driven: people make it, then they try to sell it. In a world of over-supply, they often sell it at very little profit.
What we have ended up with is a massively fragmented wine market with many thousands of players. This leads to infinite substitution in the market place: if you lose your place on a supermarket shelf, there are plenty more wines in the queue. And wine is a low margin product, despite the attempts of many retailers (for example, Laithwaites, Naked Wines, and increasingly Majestic) to operate on a high margin model.
There’s also the almost deliberate confusion of soft brands in the retail space. These are wines bottled to look like branded product but with labels and names made up by the retailer or wholesaler. These began for restaurants: the on-trade (with the exception of high-end restaurants) want to hide their mark-ups, so they insist on exclusivity, hence restaurant-only labels. Now retailers are moving more in the direction of soft brands for their trade drivers: wines with a made-up label that are bought for the same price as a £5 retail wine but which are listed at £8 or £10 with a view to promotional deep discounting.
The most profitable wine business in the UK, Laithwaites, has built their business on soft brands and high-margins. This has allowed them to spend lots of money on customer acquisition and marketing. Naked Wines have a similar business model: soft brands, high margin, and discount-driven sales that are not eating into this margin too much. And Majestic seem to be moving in the high margin direction, where a large portion of their range is on promotion at any one point in time: buy at the regular price and they look a bit expensive, but buy on promotion and their pricing is attractive. The thing is, when you buy on promotion, the supplier is forced to take a hit, which works very well for the retailer. Tesco’s model also seems to be going in a high margin direction. Their range is increasingly dominated by private label wines, which takes one margin out of the equation and prevents any price comparison. The Tesco Finest range all seem to be a pound or two more expensive than they should be: as with other high-margin retailers, they hope their smart buying and winemaking/blending input means that they can get away with the mark-ups. As with some other supermarkets, they run periodic 25% off deals across their range, so margins need to be decent to accommodate this (and for branded products, the brand owners will take a hit during these promotions).
All these retailers work on the basis of revolving promotions and infinite substitution. They are getting customers hooked on the deal, and not the specific brands. There are relatively few wine brands with much traction, because brand owners don’t have the money to promote and market their brands to normal people in the way that spirit brand owners do.
The interesting development is the rise of the discounters, Aldi and Lidl. Rather than go down the high margin/soft brand route, they are low margin, and don’t do price promotion. Aldi’s range is compact but well sourced, and if you taste their wines alongside similarly priced products from major supermarkets, then there’s little contest. They are paying quite a bit more for similarly priced wines. And this September, Lidl is set to roll out a major wine offering, at very keen prices.
When it comes to marketing, wine really is different, and I can’t see this changing soon. It will continue to be a confusing, bewildering, complex, annoying and utterly wonderful category!