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Independently Minded

d=”standfirst”>As the major multiples consolidate their supplier base, and dealing with them becomes less financially attractive, Australian wine producers are re-engaging the independent sector to maintain value for their premium wines, says  Chris Orr

When the French watched England beat Australia at the last Rugby World Cup they must have winced at the thought of an old rival getting the upper hand. But any Frenchman in the wine industry might have been cheering the side on, purely on the basis that it might be a long time before they could participate in giving the Aussies a hiding too. 

MAT figures to the end of March 2005 from ACNielsen show that, compared to 2004, Australian wine sales in the UK rose by 7% in volume terms and 6% in value, nudging up from a 20.3% share of the volume market to 20.6%, though slipping ever so marginally in value terms from 23.3% to a 23.2% slice of the action. France, conversely, saw its volume sales fall by 4% and its value fall by 3%. More importantly, it lost significant market share in both volume and value. It dropped from 19% in volume share to 17.4% and from 19.7% to 18% value. The days when France seemed to be unconcerned by the fall in total market share as long as volume and value were rising appear to be somewhat over.

But concern for Australia’s price performance continues, despite the healthy growth in volumes. Value may have risen by 6% overall but it is still lagging behind total volume sales and, importantly, a big chunk of the value rise appears to be coming from the independent sector. Figures for the overall price paid per 75cl for Australian wine in the UK fell from £4.31 to £4.29 during the period to March-end 2005. Dissecting Australia’s channel distribution figures, it appears that the multiple grocers are continuing to drag the overall prices paid down. Australia’s share of the multiple grocery market stayed the same over the period, hovering at 21.2%, while nearest rival France saw its share slip from 19.5% to 18%. 

However, Australia’s share of the value market for multiple grocers fell from 24.6% to 24.1%, while France fell from 20.2% to 18.5%. Considering the volume of sales channelled through the multiple grocers over the course of this period rose from 72.5% for Australia to 73.3%, this would suggest that the big Aussie producers’ attempts to persuade the major retailers to increase value in this sector and step back from deep discount promotions is not yet having the desired effect.

Paul Henry, head of the Australian Wine Bureau in the UK, admits: “The popular end of the market will continue to dominate retail channels for Australia – and for many other countrie – and that’s as much a reflection of the structure of the market as it is over the direction of Australian retailers. And, of course, heavy discounting continues to be a major promotional tool within that sector. But,” he stresses, “if you look at the statistics I think you can see that we’re growing in other sectors in the UK, like the independent sector. 

“Growth is obviously very different from the heydays of the 1990s, but we’re a mature market now. I think the majority of volume growth will always come from the major brands, who deal with the major retailers, but there are plenty of opportunities for new product development and brand launches. I think that’s certainly true with several of the major multiples, but more importantly, I think that’s very true of independent and High Street sectors – and, in particular, there are real opportunities here for growth in premium and super-premium sales.”

Certainly the figures for the impulse sector over the course of 2004/2005 give strength to Henry’s views. Australia grew market share in this sector from 18.1% to 19%, and grew value share from 20.9% to 21.4%. But can value in these markets develop enough to counterbalance the lower value, heavily promoted multiple sector? And in such a crowded market, with the likes of the US (up 24% in volume and 23% in value over the same period) and South Africa (up 7% in volume and 10% in value) forging ahead, how easy is it for Australia to develop and push new brands?

“I think the possibilities are definitely there,” Henry says, “but yes, it is a difficult market, especially at premium level and above. And a lot will depend very much on what happens with the likes of  the High Street chains, where certain key players still seem to be in a state of flux, and the continuing good health of the independent sector. But I think if you look at someone like Majestic and the work we and many Australian companies do with them, you can see that it’s worth supporting investment both in developing new brands for the UK and finding niches for existing, but perhaps less high-profile Australian brands. 

“Certainly the AWB is promoting an aggressive reengagement with the independent sector. The reason why is pretty simple.

Without doing so, it is impossible to help create an environment for selling wine in the UK that is anything other than price predicated.”

Dan Jago, joint managing director of Bibendum Wine, says: “I think it is possible to launch new Aussie brands in the UK, or alternatively revitalise existing brands, at least from the premium point of view. But I mean proper premium. We’ve had good success so far with the Lion Nathan portfolio, which encompasses some pretty heavy-hitting brands. The likes of St Hallett and Petaluma cover pretty much most of the premium spectrum and we’ve been seeing strong growth in both. 

“But it’s a tough market out there. And if it’s premium – or let’s be honest, super-premium – then the multiples are generally not the right distribution channel and forget all this rubbish about them making it difficult for smaller brands or retailers. They cater for a specific sector of the market, which happens to be the largest part of the sector, but relatively low in value. I’m amazed that people can’t just accept that, for the major part, this sector will always be dominated by a handful of big brands, with everyone else squeezed into the cracks. If you target your wine or producer properly there are still opportunities. Madfish from Howard Park, for example, has done very well in the on-trade for us, as well as in selected off-trade retailers.”

Multiple turn-off

That is something that Andrew Blythe, general manager of Palandri Wines UK, would agree with. He says: “It’s almost impossible to compete either financially or volumewise with the established big brands, and even if you can, the question arises as to whether you really want to. It takes a long time getting into the big retailers and the costs versus margin don’t always make it worthwhile. Our approach to the UK with Palandri has been quite different. We decided to target regional wholesalers, regional breweries and the London ontrade, rather than tilting at the major multiples straight off. We worked these sectors very hard, and the results were very positive. It gave us a really solid base from which to start targeting and talking to some of the bigger retailers. Importantly, it also gave what was an unknown brand in the UK some established brand equity, which in turn gave us more relevance to the bigger retailers.

“We also played very hard on what we see as our USP.  We market ourselves as an affordable Western Australian wine. WA has a great quality reputation though traditionally you have always had to pay a  very high price for that. But  our production and setup has enabled us to produce a  wine that is quality-driven  from Western Australia, and  is delivered at a more approachable price point.“

Brett Fleming, European manager for Yering Station, Parker and Mount Langi Ghiran, all part of the Rathbone wine group, says: “I think when you look at the concept of brand Australia, the market is beginning to polarise distinctly. At the one end there are the big brands such as Hardys and Southcorp, who are trading with the big retailers, and work on the ‘big is better’ principle. When you look at the major retailers it’s clear that they are streamlining their supplier base, and getting more aggressive with those suppliers that are on their books. So it’s inevitable that there’s going to be consolidation and the number of suppliers will reduce.  “In turn, I think the other end of the market will grow increasingly specialist, and if the experiences that Yering and Langi Ghrian are having are anything to go by, I really believe that this end of the market, while not huge in volume terms, will become increasingly attractive in value terms. But I stress that it requires retailers to step up to the mark.”

If Fleming’s vision of a polarised market is true, then despite the potential high value of the premium end of the market, will it remain a risky path to launch a new Aussie brand in the middle ground? “I don’t think it will prove more risky,” says Nick Dymoke-Marr of Orbital Wines, who plans to launch Camden Park at the LIWSF this month. “The whole reasoning for Camden Park has come about because a colleague and I tasted a whole load of wines from Oz and thought to ourselves, what happened to those great individual, powerful wines that Australia used to make and that used to stand out a mile, both in terms of value as well as quality. I think there used to be a perception that if you spent a fiver on a bottle of Australian wine you’d get good value, but I am not sure that is the case any more. There’s a lot of homogeneity out there at a certain price level and it’s not good for the consumer.”

Points of difference

Dymoke-Marr believes there is opportunity not just for smallvolume, high-value wines at the super-premium end, but also mid-size production brands that can offer something special and different. “We will have 50,000 cases of Camden Park, and we’ll be selling it for £6.99 with promotional support available to reduce it to between £5.49 and £5.99 for periods of time. But for that money it’s a cracking wine. I don’t think you have to be into the millions of cases in order to have a successful brand, and I don’t think you have to be ultra-niche and tiny production either. And we’ve had a lot of positive response from big retailers, who were fed up doing the same promotion time after time with the big brands. They’re getting bored, and frankly so are the consumers. One thing we have to remember – and make the most of before we squander it away – is that the franchise for Australia is very strong. Consumers are still in love with it. That’s a fact. We just have to make the most of it and make sure we don’t disillusion them.”

Indeed, it is a fact. Latest figures from TWS for the 52 weeks to the end of February  2005 show that household penetration for Australia, in figures relating to the multiple grocer sector, is at 41.6% – that’s up from 39.8% last year, overtaking France, which went from 40.2% to 40.7%. While the market might be polarising, especially at the premium end of the market, that increased penetration is undoubtedly a result of the big players spending heavily on promoting their brands and, in turn, the category as a whole. More importantly though, they are increasing above-the-line spend across the board. 

James Lousada, marketing director for Southcorp in the UK, says: “We see it as an essential part of breaking the pattern and stalemate of deepcut promotions. Lindemans has been our biggest success over the past year. We’ve been, and still are committed to major above-the-line spend. We’ve just signed for another 12-month television campaign. Our aim was to revitalise the brand and that’s been translated directly into sales. But we’ve combined this with launching sectorspecific wines, like the Cawarra range, targeted at the cashand-carry trade, to give more variety and interest. When you talk of the opportunity to launch new Australian brands in the UK, I also think there’s a lot of potential for working within current established brands to offer more variety, and something new, too. I think the major brands, such as Lindemans and Penfolds, have done a lot to help build confidence, and I also think we have to be careful to nurture it.”

Lousada’s counterpart at Constellation is just as positive. “We’re constantly reviewing the level of investment in above-theline activity,” says Claire Griffiths, vice-president of brands marketing at Constellation Europe. “We have a range of activities planned this year for Hardys and Banrock. But it’s essential to innovate within your brands. We launched Voyage last year under the Hardys brand and that has done tremendously well. I think people expect to see a range within a brand these days, with the brand acting as an umbrella and the product range beneath it offering variety and, importantly, something new. But alongside this, I think you have to market direct to your consumer. You have to work above and beyond the retailer in order to build any brand.”

Whether increased spending above-the-line will diminish dependency on discounts is a matter of debate. Certainly Jacob’s Creek, one of the biggest spenders above the line in the market, discounts less than most of its competitors. But as the big players increasingly move towards adopting a wider range of products under an umbrella brand, and the major retailers move towards a reduced supplier list, the predictions of a polarised market sound increasingly likely. If it turns out to be true, then deciding which side of the line your brand sits on will be the major decision for Australian exporters looking to develop the UK market.

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