UK wine trade must ‘wake up’ to change12th December, 2013 by Gabriel Savage
“The wine trade is at a crossroads”, warns John Osborne of PLB Group, as he outlined the need to adapt to a major shift in promotional mechanics and stop consumers abandoning the wine category.
Speaking to the drinks business as he prepares to step into the role of PLB managing director next month, Osborne warned: “The agency model needs to adapt and the whole trade has to wake up to the fact that the industry is changing.”
In particular, he highlighted the impact of government regulation imposed by the Office of Fair Trading, together with the code of practice signed by most of the UK’s major multiple retailers in November 2012, which has resulted in a shift away from half price promotions.
“Retailers are having to change their whole promotional mechanic,” Osborne remarked. “Half price deals drove sales for years but the government guidelines are that you don’t do that any more.” Despite the short-term challenge this shift involves for the industry as a whole, he maintained: “In the long term it’s healthier.”
Osborne also offered a forecast on the knock-on effect of this promotional change, predicting: “Exclusive labels will start to decline because you can’t halve the price so brands will come in again.” In particular he highlighted the rise of “pillar” brands, including supermarket own label offerings. “That’s when you give consumers the chance to try things they wouldn’t have before – things like Falanghina”, said Osborne.
As a result of these changes, he described a scene where “there are more SKUs now across a wider range of categories” which means that suppliers in turn “need to be fleet of foot”.
Osborne also stressed the importance of the trade’s ability to stop customers drifting away from the wine category. Noting a current downward trend in wine consumption – WSTA figures published in June showed a 1% overall decline in volume sales – he echoed the trade body’s concerns about the impact of the ongoing duty escalator.
“Wine is moving further and further away from a value proposition so people will move towards beer or cider, which have lower duty and bigger budgets for marketing and to invest in new products,” remarked Osborne. “Either wine becomes niche category, completely vacating the value sector, or it adapts with innovation and shopper insight adding value.”
A particular issue he picked out was that “we’re not giving consumers a reason to trade up because they’re confused.” As a result, Osborne noted that PLB was “encouraging consumers to trade up by thinking outside the box.”
In addition to noting the introduction of several new producers to PLB’s agency portfolio such as Babich Wines from New Zealand and Finca Las Moras from Argentina, he explained: “We’re looking at consumer trends locally, data and trying to bring products to market that offer something other than price.”
Much of this work is being overseen by James Burston, business development director at PLB, who remarked: “New product development ideas can come from anywhere.”
PLB is currently working with wine label design and marketing agency Barlow Doherty to “put some ideas together based on some of the trends we see.” The company also works with retailers and suppliers to develop their own ideas, as well as inviting suggestions from PLB employees.
A key theme to emerge in recent months has been products for gifting, while Burston told db: “A charity-themed product will be coming out with a major UK charity next year.”
In addition he noted: “The licensing of products is something fairly new to wine”, pointing to examples such as an Italian range introduced this year in tandem with TV chef Jamie Oliver. “It’s bringing interest back into the category so we’re looking at ideas there,” confirmed Burston.
For all this work on the wine side of its business, Osborne noted that PLB’s biggest growth areas are currently the beer and cider category. Highlighting the recent addition of high-end lager Estrella Galicia to the company’s on-trade offering, he explained: “We’ve focused on having eggs in other baskets.”
In conclusion, Osborne summed up the changing shape of the UK drinks industry by saying: “Consumer shopping habits are changing and there’s more choice than ever before. People will continue to adapt and evolve their models because they need to.”