UK sales decline, limits wine price increase

Super slide

Like Woolworths, UK supermarkets are showing a decline in their rate of growth. The latest UK grocery share figures from Kantar Worldpanel, for the 12 weeks to April 24, show sales increased just 0.1 per cent on the same period last year.

Like-for-like prices have fallen each month since September 2014. There is a simplicity creeping into retailing. Straight price cutting offers better deals to consumers so is preferred to multi-buy promotions:

“Promotional levels fell in the last year – in the past 12 weeks 38.5 per cent of spend was on promoted goods, a decline from the 39.8 per cent last April. Retailers are aiming for simplicity in their pricing and only a quarter of promotional spend is now through multi-buy deals – a 24 per cent drop on last year.”

Sales results:

  • The Co-operative: sales up 3.3 per cent year-on-year
  • Waitrose: sales up 1.5 per cent
  • Sainsbury’s: sales down 0.4 per cent
  • Asda: sales down 5.1 per cent
  • Morrisons: sales down 2.6 per cent
  • Tesco: sales down 1.3 per cent
  • Lidl: sales up 15.4 per cent
  • Aldi: sales up 12.5 per cent

Combined, the media-named “discounters”, Aldi and Lidl, have a 10.4 per cent share of the UK grocery market.

The relevance of this to the Australian wine industry is that the figures include all FMCG, food, soft drinks/water, health, beauty and alcoholic drinks. The chance of wine prices increasing in the near future, and perhaps longer term, in the UK looks unlikely.

What they want

What they want is what they get. A report by Dr Liz Thach MW and Dr Kathryn Chang, professors of management and wine business at Sonoma State University, titled Wine Generations and published in Vineyard & Winery Management (US), has focused on the 30-to-38-year-old cohort.

This large group of Americans (older millennials) is where US producers are aiming their brands and marketing. They have left college and have jobs and disposable income to spend on wine.

According to the report, older millennials consume the most wine, either daily, or several times per week.

They have taken the number one spot from the baby boomer generation (61 to 82). The boomers still drink a lot of wine, but illness and death are reducing consumption.

It seems the older millennials are confident in their wine knowledge and adventurous. What excites producers is their willingness to spend US$20 ($27.23) or more on a bottle of wine.

If that is what they like, it’s up to Australian producers to provide it, not hang about for a wine Australia report. As a guide, the Crimson Wine Group has released a new brand called Malene Wines. To quote:This is a beautiful, distinctive wine made with intent, in the classic Provençal style, but with a California spin.

“True to the Provençal blend of grenache, mourvedre and vermentino, Malene is a crisp, dry, complex wine. Inspired by the rosés of southern France, Malene is made with carefully selected fruit from specific sites in the California Central Coast regions of Santa Barbara and Paso Robles by winemaker Fintan du Fresne, a veteran of the region.”

The retail price is set at US$22 and more wines will be introduced to the range. What does Australia have in the way of respected upmarket brands in the US that sell more than 100,000 cases a year? 

Good move

Treasury Wine Estates’ (TWE) tie-in with Chinese online retailer JD.com (JD) for its Penfolds brand appears to have been a good move. Launched in 2011, JD’s wine business has grown dramatically. It sources wine from 12 countries, has 213 warehouses in 50 cities, and in total 5367 delivery stations and pickup stations in 2356 districts across China, staffed by its own employees.

Georgia seeks freedom

“Will Georgia Be Able to Benefit from Bilateral Free Trade Agreements?” is the title of an article by Simon Appleby and Eric Livny in the ISET Economist, a blog published by the International School of Economics at Tbilisi State University.

The article starts with Georgia’s FTA with the European Union (EU), which came into effect in 2014. Georgia’s wine exports to the EU are small, with its main market being Russia. The trouble is the average price the Russians pay for wine is lower than that paid for the small amount of wine that finds its way into the EU.

Balancing this is the familiarity that Russia has with Georgian wine producers, which are unsure about dealing with EU importers.

As is standard nowadays, the article turns from the difficulties of the EU to the riches promised by the Chinese market and others.

“Having gone through the process of DCFTA [Deep and Comprehensive Free Trade Area] negotiations, increasing safety standards and dealing with non-compliance to satisfy the EU, Georgia is now institutionally equipped to push through deals not only with the EU, but with China, ASEAN [Association of Southeast Asian Nations], South Korea, Japan, Australia, New Zealand, India and NAFTA [North American Free Trade Agreement].”

The authors make a point of “New World exporters, such as Australia, taking advantage of the fact that many Chinese consumers have yet to establish fixed habits regarding country of origin of their wines”.

Interesting observation. It seems to TKR that the authors are saying Australian sales to China are not due to the quality of Australian wine, but Chinese lack of wine knowledge.

The authors follow the same logic as Australians did when Australia was negotiating its FTA with China: the reduction of the 14 per cent import tariff on wine would boost Georgian exports. They also point out:

“Raising the efficiency of rail transport from Georgia across the Caspian to China is another important way to promote Georgia exports to East Asia. Faster and cheaper rail transport could put Georgian wine exports at a competitive advantage to those from South America, Africa, Australasia and Western Europe, which have to rely on sea freight.”

The authors recommend Georgia learns from Australia’s experience exporting wine to China:

“Brand ‘Australia’ is now well known, and consumers understand the diversity of product available under that umbrella, from supermarket ‘critter wines’ like Yellow Tail at $5 to $3000/bottle Penfolds Grange. Regional/appellation identities like Barossa Valley, Margaret River and Rutherglen are understood by consumers within the larger national wine identity.

“The significance of Australia’s experience for Georgia goes well beyond wine or alcohol. Provided Georgia uses a smart export promotion strategy, one led by industry with government co-operation, we can capture market share in nuts and many niche products like kiwifruit, blueberries, honeyberries and blackberries. Essential components of a successful marketing strategy for Georgia would be national branding, effort invested in negotiating free trade agreements (not subsidies!), and transport.”

Australia is doing well in China, but we will have to work very hard to keep what has been established, and even harder to grow the market.

Canada strop

Christy Clark, Premier of Canadian province British Columbia (BC), is upsetting the, US, EU, Australia, New Zealand, Mexico, Argentina and Chile. Their seven ambassadors to Canada have signed a letter asking for changes in BC rules on wine sales in grocery stores.

The current situation is that only BC wines are allowed to be sold in grocery stores. Imported wines have to be sold in a store and requires a separate cash register and controlled access.

The seven ambassadors say the laws may mean Canada is failing in its requirements as a member of the World Trade Organisation (WTO).

A win would give greater freedom of sales for imported wines but the BC Government, backed by its wine producers, appears to be firmly set against such a move.

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