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.