Comment - Wine - The UK Market: How to Avoid Dead Shark Syndrome
There’s a seminal moment in the film Manhattan when Woody Allen turns to his girlfriend and says: “Relationships are like sharks: they have to move forwards in order to survive. And what we have on our hands, my dear, is a dead shark.”
I’ve always thought that businesses and sharks are pretty similar too in that respect and this came to mind as I read Chris Losh’s recent piece 'The UK: Land of ... What’s the Opposite of Plenty?' on just-drinks. He concludes that a combination of government policy, “buyer parsimony” in the trade, and a consumer who has in effect been trained to buy wine on which there is no profit, means that the middlemen in the UK trade – our distributors and wholesalers – are under so much pressure that the sector could well be “about to enter a tailspin”.
As Chris admits, it’s a familiar refrain, and certainly the doom-merchants in our business have been saying that we have had dead shark syndrome since the turn of the century. He argues, however, that the unrelenting recession – and, more recently the shortage of wine, implying cost increases that many might not be able to pass on – could well represent the tipping point for many such companies. Linked with this, he believes that the trickle of producers reducing their focus on the UK will become a flood.
Let’s assume he is right, and I accept he may be. How do we turn things around? What are the options?
Don’t expect much help from politicians
I’m a self-confessed fan of big government, particularly in a crisis, but I think we can rule out support from Whitehall. The strength of the anti-alcohol lobby, combined with wine’s relative lack of importance as a sector, not to mention the recession, suggests that government is hardly the place to look for financial sympathy. In fact, even if we avoid the perils of minimum pricing, we can expect more constraints on our ability to promote wine, as well as ongoing duty increases.
At the other end of the spectrum, we have the grass roots of our business. This is, in many respects, vibrant and dynamic. The sector is overflowing with passion for the product and there is clear evidence of tactical innovation when it comes to the use of social media and other elements of the marketing mix. Yet, I would question whether the sum total of all this niche marketing, however effective in individual cases, can make a material difference to consumer attitudes, at least in the medium term.
This leaves the big companies. We need the likes of Accolade, Treasury, Diageo, Pernod Ricard, Concho y Toro, Bibendum, PLB and Enotria amongst others to step up to the mark; we need our market leaders to lead.
They are the only companies who can represent the wine category effectively to government, through the Wine & Spirits Trade Association, and who have the resources to invest in much-needed commercial training programmes, both in-house and through the Wine & Spirits Education Trust. They are the only companies who can talk to major retailers on anything close to an equal footing. And, they are the only companies with the resources to invest in step-changing innovation – in terms of product, packaging or route to market – and then in the effective brand-building to realise its potential.
I’m aware that this is all too easy to write. These companies don’t have some moral obligation to rescue the category; one can’t expect them to invest for altruistic reasons simply because they are market leaders. Some are already doing their bit, some do give the impression they are about to spring into action. However, all of them, I’m sure, are feeling the pressure and many are subsidiaries of international producers who could well decide to focus elsewhere.
For supermarkets, wine is just part of the mix
What about the major retailers, you might say? After all, they account for some two thirds of all wine sales in the UK. Ultimately, it's not their responsibility either to take the category forward or nurture their UK supplier base. On one level, they are simply a route to market, a conduit through which producers can choose to sell their wine. On another level, they have their own agenda.
For supermarkets, wine is just one element of the proposition. True, it so happens that the category has been of greater importance to the multiple grocers - for many years - than its direct return would suggest. But, we shouldn’t assume that this situation will last forever. In my view we already expect too much of the innovation in our category to come from retailers, and this is not healthy. As long as they are open to suggestions from suppliers and, where appropriate, are prepared to offer themselves as partners in joint initiatives, that is as much as we should expect. But, we can also expect them to go direct to producers should they see this as strategically advantageous.
Of course, the way major retailers choose to promote wine has a profound effect on consumer attitudes. Currently, there are plenty of low-price deals on show, but there is also a fair amount going on at the premium end. Indeed, it might be argued that, in some cases, they are doing more than their suppliers to encourage consumers to trade up. Either way, it’s not surprising that retailers are getting exasperated by continuing calls to trade up from a sector which is failing to provide enough consumers with reasons to do so.
Chris Losh has noted the pressures on suppliers which make this difficult, and I’m not in any way dismissing those pressures. Ultimately, however, we need vision and related action from those with the ability to make a significant difference, which implies that the onus has to be on the larger suppliers.
I’m not sure I can see any other option.
This comment piece originally appeared on Mike Paul's blog, which can be found here.
Over the last 10 years of rapid acquisitions, Pernod Ricard has built a strong portfolio of premium brands on a global scale. Most of its brands enjoy a leading position in international markets. The ...
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