United Kingdom: “The Holy Grail for wine producers and wine marketers is premiumisation”

Monday April 11 2016 by Sharon Nagel

Research published recently by Vinexpo in conjunction with The IWSR forecast a 1.8% growth rate for British wine consumption by 2019 which, if confirmed, would be higher than the global average. Whilst not all industry observers predict that the United Kingdom will witness this kind of volume growth, they do agree that the value of the market will increase. Simon Bradbury, managing director of Codorniu UK, shares his thoughts with Vitisphere about the factors currently influencing dynamics in the British wine market.

How would you describe the current UK wine market?

We often talk of the impact of the economic downturn, but the reality of the market is that it wasn’t as badly affected as some of the others. In the UK, there are other, more pertinent factors affecting the market. One is that there are more and more people not drinking alcohol. The number may not be huge but it’s growing, for a variety of reasons, be they lifestyle or religious for example. Average consumption in the UK is not growing so gaining market shares is about stealing between on and off-trade and between players within those sectors. This explains the rise of the discount chains because people are questioning the amount they need to spend on alcohol. For the last fifteen or so years, the market has been either in small growth or flat, but the dynamics have changed in terms of popularity of certain types of drinks and people’s consumption behaviours. Many years ago, drinking was done out of the home, then people began drinking at home and wines rose, particularly in the supermarkets, and now people are spending more on their leisure time and buying less ‘things’, so retailers are struggling. As a result of this trend, I think there could be a mini resurgence in the on-trade.

 

Sales of French, Italian and Spanish wines in the off-trade dropped by volume and value over the 12 months ending January 30. Why is this?

Every year there are winners and losers. There have been long-term winners like New Zealand on the back of Sauvignon blanc, which has been hugely successful. On a more general level, currency is always very important. At entry-level for instance, South Africa is doing well at the moment because, unfortunately, entry-level wines are a commodity and the Rand is very weak. Then there are annual variations due to environmental factors. In the specific case of Italy, we saw the Pinot Grigio boom, then a rise in prices due to a combination of poor harvests and supply versus demand, and sales were consequently impacted. There is also the longer term, underlying trend in the UK whereby people understand New World varieties and labelling because it’s simple. Even after all these years, there is still that element of confusion in European wine labelling that acts as a barrier because the level of knowledge amongst UK consumers is relatively low. We don’t understand the nuances of Châteauneuf-du-Pape for example and that has an impact on sales. I don’t think there is anything intrinsically wrong with French, Spanish or Italian wines, rather a series of environmental and economic issues. I don’t think people are put off the style of these wines but rather given more reason to head towards the alternative.

 

In terms of marketing, would you say the French are using their funding effectively?

80% of the wine trade is in the off-trade and 80% of that 80% is concentrated in a small number of retailers. None of the European bodies are doing any significant activity in those retailers. Any activity is driven by brand owners or the retailers selling their own brands. The average consumer certainly wouldn’t be aware of any specific marketing activity by France – they might see the ‘Drink Red, Drink Côtes du Rhône’ adverts on the side of taxis, but does that make them go out and buy more Côtes du Rhône, I’m not sure. If you look at the Italians, they don’t even have a coordinated national ‘Wines of Italy’ office and probably never will. You could argue that at least the French are doing something, through the CIVB or Côtes du Rhone for example. But by the nature of their budgets and the way they are funded, they have to invest in communication and tend to target the trade more than the consumer. I don’t think that’s a bad thing, it’s just that you’re never going to make a big impact. If you want a gondola in a supermarket, you pay for it.

 

The lack of a coordinated ‘Wines of Italy’ body has not prevented Italian wines from being extremely successful...

Absolutely and that success is linked to having the right product at the right time, building on the right culture. For Codorniu, Spanish cuisine is now growing strongly in the UK market and that’s a big plus factor for us. But if you compare Spanish eateries with their Italian equivalent, everyday or top-end, there is no comparison – the culture of Italian food has long been ingrained in this market, way before Spanish cuisine. In the case of Pinot Grigio, it’s very easy to drink, inoffensive, if you chill it down it’s not challenging, it encourages people to enter the wine category – even people who didn’t necessarily like wine and that is part of the reason why it was so successful. Prosecco is the logical next step to Pinot Grigio – it’s not as challenging as other sparkling wines because of the way it’s made. If you enter the category drinking Pinot Grigio and are attracted to bubbles because they are more sophisticated and allow you to celebrate more often because there are affordable versions, the chances are you will be tempted to drink Prosecco. I think other sparkling wines have missed a trick – five years ago was the time to fight against the rise of Prosecco.

 

A lot of media attention has been given to range cuts by the major UK retailers. Do you think there will be a reversal of this trend?

Retailers such as Tesco are reducing their range by 200 product lines. If you have a category that is working pretty well – Champagne, Cava and Prosecco – in the current climate, securing a new listing is, I would think, challenging. I don’t see a reversal of this trend happening in the near future. In some retailer, at some point, there will be an increase in the range. My gut feel is that it won’t go back as far as it was before. If Tesco has cut 200 lines, it won’t be putting them back on again anytime soon. They may put 50 back, and even that’s a supposition.

 

How do you see the market evolving this year and into the future?

The Holy Grail for wine producers and wine marketers is premiumisation. People are going to drink less and better. In this country, we always have the issue of high taxation, which masks to a degree the value or cost and quality of the product. So we have to communicate on those cost and quality issues. As people develop their taste for wine, history has shown that they generally go on to become more adventurous and try different products. I can therefore see a slow premiumisation of the market. Probably in terms of volume, the market will stop growing or be very stable but with a slight premiumisation. In think we will see the on-trade start to come back a little in the balance. I think the 80/20 ratio may stabilise between off and on-trade so that as much of the growth can come in the on-trade as the off-trade as people go back to spending more of their money out of the home. For Codorniu, the future is about getting people to move up the quality ladder and so, if they’re buying a Rioja Joven at the moment, we want to convince them that it’s worth paying £2 extra for a Rioja Crianza or £5 extra for a bottle of Reserva. I think long-term consumer communication and education should and will premiumise the market. But progress will be slow: if the average price at the moment in the off-trade is just over £5 for a bottle of still wine, it won’t rise to £7 next year.

 

 

To find out more about the global sparkling wine market, visit Bulles Expo at the Parc Floral in Paris on June 20 & 21, 2016: www.bulles-expo.com

 

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