Thinking aloud about wine marketing

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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!

9 comments to Thinking aloud about wine marketing

  • Paul

    I think the world of beer is fast becoming more like the wine world. There are parallels between both industries when talking about size vs quality,
    the producers range in size from massive down to tiny, private labels are emerging. It’s true that beer isn’t beholden to a harvest (unless they are wet hopped or use other seasonal ingredients) but quality of ingredients is important. Beer (for the most part) is more perishable. I’m in Aus rather than the UK so I don’t have as good a feel for the beer market there, but the whole private label trend that I see locally was lifted directly from the UK supermarkets. I see Aldi taking a similar strategy with beer too, as what you have described with wine.

  • Although wine isn’t manufactured in the same sense as spirit, it’s the large scale producers (California’s Central Valley, Riverland in Australia) which are closest to being wine factories, lower end quality and big brands go hand in hand (why else would it sell?)

  • Ah, the complex and unique world of wine marketing. Thought-provoking stuff, Jamie, and something that many of us battle with on a day-to-day basis. Of course, the other issue is ‘overly keen’ prices where some retailers operate an unsustainable wine model across the category as a form of loss-leader to attract shoppers into their store. This does no-one any favours, sets unrealistic expectations amongst consumers and has a deflationary impact on margins across the retail landscape.

    Happy travels

    Chris

  • As Chris M has said, this is good, thoughtful stuff. But very UK-centric and table-wine-centric if I may say so. In the New World there are far more examples of highly successful wine marketing at various levels, from Barefoot to Harlan Estate via d’Arenberg and Cloudy Bay. Champagne does it well too. And Pol Roger is subject to the same quality constraints as a table wine producer. These marketed brands are far less substituable than most wines. It’s no accident that the bigger companies and producers are growing their market share in the US – through clever marketing. (Just look at joshcellars.com).

    I’d like to separate the quality issue from the marketing question. BMW make damn fine cars, Patek Philippe make great watches and Cannon make terrific cameras and no one minds these companies spending lots of money on building consumer desire for their products. I see no reason why a producer of high quality wine should not do likewise. Indeed, if more wine producers were more skilful in their marketing, they’d command higher prices which would enable them to pay (even) greater attention to the quality of what they sell.

    Even keen Aldi and Lidl customers balk at buying their own-label spirits…

  • Hi Jaime

    Few channels are as fragmented as wine. But the reality of your post is not what I experience here in NYC.

    With an increasing group of small and brilliant importers feeding a huge amount of artisanal shops (one per neighborhood almost), a natural order serving both the small winemaker and the artisanal drinker are working actually very well.

  • Arnold – we agree, but on the basis that NYC is a bubble. In Denver, I suspect that Yellow Tail, Barefoot et al hold greater sway.

  • Gordon Richens

    “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.”

    Distillers are in a better position to expand capacity in order to meet increased demand through advertising. As for wine, not so much unless you are talking about tanker loads of blended dishwater.

  • Damien

    Laithwaites the most profitable wine business in the UK? You sure that’s not Tesco?

  • Very UK, in North America we have mandated multi tier (3 in most cases, to protect the consumer, you know ;) ) and government monopoly situations that only allow the big company brands traction…… Ohh and that oh so Canadian Cellared in Canada… well thats the big companies playing games….. much different than an open competitive system such as the UK has…….

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