Conversation about UK plonk and sparkling wine

Conversation with a UK Wine Merchant

“Last year I updated my website which is beginning to pay dividends. I started pulling out of the premium Australian market in 2009 following the crash and the pound going southwards. The strength of the Australian dollar killed the market for the better Australian wines over here.

“Frankly this also coincided with many people becoming bored with expensive Australian wine. European vineyards have really upped their game in the last decade. Everyone knows the growth from Australia had come from plonk, not decent wine. A shame really but I couldn’t sustain a business selling wines that were becoming more and more difficult to sell.

“Having said that, I am contemplating selling the wines of [withheld] online next year as I think they are good value. Do you know anything about them?”

There is still a lot of baggage attached to Australian wine in the UK. The latest export report from Wine Australia shows exports to the UK down 3 per cent in value at $361 million and volume down 4 per cent to 239 million litres. In the separate categories:

  • Under $2.50 per litre FOB: down 11 per cent to $189 million
  • $2.50-$4.99: up 0.2 per cent to $105 million
  • $5-$7.49: up 38 per cent to $27 million
  • $7.50-$9.99: up 7 per cent to $12 million,
  • $10-plus: up 20 per cent to $27 million.

It’s especially good to see the $5 to $7.49 ($45 to $67.41 a case) sector increase as we presume that is coming from the sectors below. Also pleasing are the increases in the higher sectors. Unfortunately the base price sectors still hold too much sway.

Good news, bad news

There’s good news and bad news for UK-listed retailer Majestic Wine in its half-year results. The company is divided into four trading sections. The good news:

  • Retail sales: up 7 per cent (like for like) to £117.9 million ($199.2 million)
  • Naked Wines: up 26.7 per cent to £59 million
  • Majestic Commercial: up 1.2 per cent to £45.6 million
  • Lay & Wheeler: up 27.8 per cent to £10 million

The bad news was reported profit before tax: a loss of £4.4 million after recognising £4.5 million of adjusted items, largely relating to the Naked Wines acquisition.

Reading between the lines, TKR thinks Majestic is considering reducing its bricks and mortar estate.

CEO Rowan Gormley said:

“We would deliver sustainable growth, not by opening more stores, but by investing in better customer service and better customer retention.”  He added: From a business that grows by investing capital opening stores, to a company that invests in acquiring and retaining customers. By doing a better job of looking after our customers we will grow our customer base and sustainably and profitably grow sales.”

Nothing was said about reducing stores but we get the sense that might be the case in coming years. Gormley admitted with candour that a push by Naked Wines to acquire new customers in the US failed and cost a lot of money. Also, the commercial division needed investment.

Despite the setback, Gormley is confident the company is on track to deliver £500 million in sales by 2019.

 Angel or the devil?

To the consumer, Aldi is an angel. To competitors it’s the equivalent of the supermarket devil incarnate. A recent article in the UK press said:

“Budget supermarket Aldi is cutting the cost of premium drinks this Christmas with the launch of a luxury range of fine wines and spirits. The range starts at £5.99 ($10) and includes products which are selling for up to 74 per cent less than market equivalents.”

On offer are vintage armagnac, cognac, malt whisky, vodka, gin and a host of wines. An angel in full glory for consumers. For competitors such as Tesco, the devil Aldi is forcing them to compete on pricing. Again in the UK media:

“The supermarket giant [Tesco] says it will match the quality and price of at least 60 per cent of Aldi and Lidl products.”

Rather than tackling Aldi head-on, as Tesco is doing, Waitrose is putting forward several specials for the Christmas period. From Australia, Accolade Wines leads the discounting:

  • Hardy’s Endeavour Chardonnay: £7.99 to £5.29
  • Hardy’s Endeavour Shiraz/Cabernet Sauvignon: £7.99 to £5.29
  • Grant Burge Chardonnay: £9.49 to £6.99
  • Grant Burge Shiraz: £9.49 to £6.99

Buying Grant Burge to access higher margins and then discounting it in the UK makes a lot of sense.

Treasury Wine Estates’ constant boasts about premium and ultra-premium and so on fall apart when the company is still, as it has done for years, discounting the bejesus out of Lindeman’s:

  • Lindeman’s Winemakers Release Chardonnay: £8.99 to £5.99
  • Lindeman’s Winemakers Shiraz Cabernet: £8.99 to £5.99

Other Australian brands on offer in Waitrose over the Christmas period:

  • Heirloom Adelaide Hills Chardonnay: £19.99 to £14.99
  • Yalumba Organic Viognier: £9.99 to £7.49
  • Barossa Valley Estate Shiraz: £12.99 to £9.49
  • Rolf Binder Cabernet Sauvignon/Merlot: £13.99 to £10.99
  • Tanunda Hill Cabernet Sauvignon/Merlot: £8.99 to £6.49

Christmas is the big occasion for sparkling wine. It’s a pity to note the only Australian sparkling wine that Waitrose is promoting this Christmas is, in fact, the only Australian sparkling wine that it stocks:

  • Jacob’s Creek Sparkling Shiraz: £9.99 to £7.99

There was a time when Australian sparkling wine was huge in the UK:

  • For the 12 months to the end of September 2012: 4.22 million litres valued at $15.82 million
  • For the 12 months to the end of September 2016: 1.17 million litres valued at $4.97 million

The devils are also warning suppliers, including Australian wine suppliers, not to artificially raise prices to compensate for the low value of sterling.

After Tesco’s success in forcing Unilever to back down over increasing some of its brands’ prices, Tesco CEO Dave Lewis has issued a warning to all suppliers.

Sainsbury’s CEO Mike Coupe has also warned suppliers about price increases, saying they should shoulder some of the burden.

Observing how Australian Vintage fares – after CEO Neil McGuigan said in an interview with Sky News that it would have to increase prices – will be fascinating.

 

 

 

 

 

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