Comment - Wine - UK Not OK. So, Where Now?

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The UK used to be able to boast that it was the most dynamic wine market in the world. But, with ruthless supermarkets and an economic downturn, the country has lost its shine. Where are the wine companies to look next? Chris Losh would like to suggest where not to look.

If you want to know what is really happening in your company, pay attention to the exit interviews. There's nothing like freedom from responsibility for encouraging people to speak their mind.

mentioned in last month's column that Paul Henry was set to leave Wine Australia pretty much any time now. And, last month, he took advantage of his soon-to-be-freedom to deliver a stinging criticism of the state of the UK off-trade. There may be a few out there who would agree - although wouldn't state it publically-  with such sentiments as these: "Allowing big retailers to be in charge of where the industry is going is like putting King Herod in charge of [children's store] Mothercare."

Likewise: "Retailers always say they give people what they want, but that assumes customers have an idea of what's available. Retailers are just giving consumers what they've got." Or: "It isn't in anyone's interest to put the value chain under so much pressure that people exit the business. I know it's not commercially viable - and it's definitely not ethical."

It's hard to argue too much with any of that. I suspect Mr Henry's sentiments will have members of the wine trade nodding in agreement anywhere where there is a free market.

Yet, it's more complicated than simply portraying wine as the innocent victim of a rapacious supermarket trade. For sure, the latter is ruthless and out to squeeze every last bit of profit out of suppliers - and, personally, I disagree with the size and ubiquity of the supermarket's price promotions.

But, 'twas ever thus. And they are, let's not forget, simply one of a variety of routes to market. If producers in countries like Australia, Chile et al have based 80% of their sales strategy in key markets on two or three retailers then that's their look-out, frankly.

In the good times, it allowed them to go from hardly any sales to tens of thousands of cases in next to no time. But it was always a dangerous policy - like building a 20-storey tower on narrow foundations. When the economic weather is stable, you can get away with it and make good money; once the storms come, however, it all looks a bit flimsy.

Part of the problem is that the wine trade has been rather poor at taking charge of its own destiny. It has, as Henry points out, "allowed the retailers" to drive the shape of the industry. Note the passive voice. This, he suggests, is almost a situation that has come about by accident.

In fact, I'd suggest the opposite: that the wine growers are at least as much to blame as the retailers. Fifteen years ago, the supermarket aisles were not awash with deep cut discounts because the world was not awash with wine. But, Australia - as Henry must know full well - produces a good 20% more wine than it needs because growers with dollar-signs in their eyes planted way too much 15 years ago.

We can expect half a million tonnes of surplus fruit from Down Under in 2011. If you were in charge of a supermarket, wouldn't you vacuum up this stuff and sell it cheaply to your recession-hit customers? Of course you would.

It doesn't, naturally, do the long-term image of wine much good, but this is a problem that has been created in the vineyard as much as the supermarket aisle. As one Australian producer said to me, "One row of vines in four in Australia needs to come out".

In fact, you could argue that the real mistakes were made in the 1990s, when, broadly speaking, supply and demand were in balance, and there was a buzz around the industry. The inability to move people up through the price points at this time was a real opportunity missed. And, having failed to do it when the economics were in their favour, it's somewhat optimistic to expect to be able to achieve it at a time of oversupply and economic stagnation.

The sad thing is that the difficult conditions (and inherent parsimony of consumers) in markets like the UK have led to a growing number of the good, smaller producers starting to abandon it. It's hard to blame them for that. But I'm surprised by how many of them see their potential saviour as the Far East.

Any time a wine producer starts to wax lyrical about the potential of the Chinese or Indian market, alarm bells start ringing for me, not least because I remember hearing the same wide-eyed optimism 15 years ago, only for an awful lot of producers to be significantly sadder and wiser five years later.

The fact that there are expected to be 75m 'middle class' Chinese by 2015 might be appealing, but there's no guarantee they will all be looking for wine, particularly $20 bottles of the sort that are proving so hard to sell in Europe, the Nordic countries and the US.

The wine industry needs to stop bellyaching, accept that it must shoulder much of the blame for the state it's in, and set about the kind of slow, painstaking hand-selling to restaurants, independents and internet retailers needed to broaden its sales base. The get-rich-quick days of shifting mountains into thirsty supermarkets are as over as the housing boom.

Sectors: Wine

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