UK market review: Wine Online

Wine leads the way in the UK’s maturing online alcohol market, says Antonia Branston of Euromonitor

The UK is already one of the world’s most developed markets for online sales of alcoholic drinks, benefiting sales of both mass-market and higher-end or niche brands. However, the channel still has room to grow, with both m-commerce (retailing via mobile phones) and social networking offering as yet untapped potential to the alcoholic drinks industry across the entire price spectrum.

Online – the story so far

Internet retailing may have generated less than 1% of global off-trade alcoholic drinks sales by volume in 2010, but the UK is one of a limited number of markets where this distribution channel has really taken hold, accounting for nearly 5% of off-trade alcoholic drinks sales by volume in 2010 and one fifth of all global online sales.

Although part of the UK’s strong online performance is down to mail-order companies and specialist chains such as Majestic Wine migrating some of their sales online, the key reason behind the UK’s importance within online alcoholic drinks retailing is the aggression with which the leading grocery chains have moved into e-commerce.

Top player Tesco first launched an online grocery shopping site in 1997 and had sales well in excess of £2 billion in 2010, and most of its major competitors are also now operating transactional grocery websites.

Supermarkets and hypermarkets are already an extremely important source of alcoholic drinks sales, accounting for 58% of off-trade sales by volume in 2010, so their shift to web-based retail has had a significant effect on the industry. New strategies from these retailers will obviously affect any mass-market FMCG brands, but alcoholic drinks – heavy, bulky, sometimes fragile goods – have been particularly obvious beneficiaries of the move online.

However, as the market matures, the focus is moving away from the mass market towards higher-end or niche brands. Now that an internet offer is a common, even expected, aspect of most retail business models, larger retailers have had to work harder to differentiate their offer by providing new or exclusive brands and background information.

In addition, smaller manufacturers are getting better at using the internet to access a wider customer base, either independently or through third-party aggregator sites.

The next stage is already on the horizon – using social networking and the emerging m-commerce channel to not only differentiate products, but also to fully engage consumers at all stages of the buying process, and blur the boundaries between the off-trade and the on-trade world.

Wide wine possibilities

When it comes to online sales of alcoholic drinks, wine has emerged as the strongest category. Initially, this could be attributed to the fact that wine is more dependent on supermarkets and hypermarkets for store-based sales than other alcohol products, so was more likely to benefit from these channels moving online, and also because many of the other early online adopters – mail-order companies and specialist retailers, as mentioned earlier – specialised in wine.

Following the wine club format also allowed the likes of Waitrose and Marks and Spencer to dip their toes into internet retailing waters without committing to offering a full range of grocery products online. Now, as the alcohol e-commerce market matures, the wine category is forging even further ahead.

Tesco, for example, has already begun focusing on wine as the next stage of internet retailing development. Not only has it built up its “wine by the case” business so that it now accounts for half of the company’s online wine sales, but it has also recently launched Wine Select, a wine subscription service costing from £24 per month, and, in a move which clearly signals a drive upmarket, has begun offering a range of fine wines.

Social networking sites offer an unrivalled opportunity for word-of-mouth recommendations, either through general networks such as Facebook or Twitter, or more specialist wine forums. However, it is m-commerce and, even more importantly, mobile phone apps that offer the greatest potential.

In stores they give consumers instant access to product information, reviews and special offers, while, away from stores, they can transform liking a product into buying it at the click of a button. Instead of on-trade sales competing with off-trade sales, they stand to complement each other, and product marketing campaigns should begin to take this into account.

Across the price spectrum

For mass-market wines, the online efforts of large store-based chains such as grocery retailers or warehouse clubs continue to offer the most obvious potential for growth. Using six- rather than 12-bottle cases is also making the “by the case” model accessible to a wider audience, and may benefit some lower-end brands, while the entry of lower-end alcohol specialists, notably leading UK chain Bargain Booze which has been slower to move online, should also boost growth.

The online market for mid- to higher-end wines and niche brands is likely to see the most movement over the next few years. Moves by supermarket retailers to stock more higher-priced wines and exclusives, the ongoing shift of mail-order wine clubs online and more specialist retailers launching their own websites will all improve the market, but the potential goes further than that.

As the market matures and customers begin to look at value as well as price, the ability of the internet to frame a product’s back story is really coming into its own.

This helps retailers such as wine clubs and specialists to sell products at higher prices, but also tapping into this, smaller brands are becoming increasingly aware of their ability to market their products for themselves, using websites, blogs and email newsletters as well as building a presence on social networking sites to differentiate themselves from competitors and proactively engage consumers. Marketplace-style sites can then give them a larger gateway to sell through.

Some of these sites, such as Amazon.co.uk, which launched a groceries offer, including alcohol, in the UK last year, are very “hands off”, but others are bidding to be an integral part of the winemaking process.

Naked Wines, for example, not only offers wines from small independent wineries, but also helps “angel” members invest in the vineyards before the wine has actually been produced, while its marketplace allows winemakers to sell directly to the public at a price of their choice. The company’s holistic approach to online wine retailing extends to consumers as well as winemakers, boosting peer-to-peer interaction with product reviews, chat forums and wine tasting events.

Non-wine opportunities

Non-wine products should also see a brighter future online. Artisanal breweries and distilleries have the same sort of potential to harness internet sales as independent wineries do, while even product categories that seem less well suited to growth online, such as alcopops, now have the potential to devise social networking and mobile phone apps to close in on their young, sociable, tech-savvy target market when they are out on the town as well as in the supermarket.

The wide range of positionings that alcoholic drinks can occupy – normal grocery purchase, affordable treat, conversation piece, aspirational statement, prestigious gift, financial investment even – has created a product flexible enough to tap into all of the huge range of possibilities offered by today’s online world.

Antonia Branston is senior retail analyst at Euromonitor International