Italy Brands – Own Goal

06 February 2006 By db staff writer

“standfirst”>Italian producers have been overly reliant on own-label wines, but a radical rethink is necessary if they are to raise their worryingly low prices, says Tom Bruce-Gardyne

“The buyers are very happy with their own-label Sicilians, Frascatis, Pinot Grigios; all that stuff is doing really well,” says Alex Canneti, business development manager for Italy and Spain at PLB. “But they are desperate for a brand and this is very much what they are asking us for. Please can we have a brand!” Canetti believes he has just the answer with Sicilano, a new, smartly packaged range of Sicilians at £3.99-4.99 produced by Firriato. The initial feedback from buyers has been encouraging, though at the time of writing there had been no confirmed listings.

The same is true of Italian Icons, conceived in 2004 by PLB as an umbrella brand covering the country’s principle DOCs like Chianti and the odd classic varietal such as Pinot Grigio. The aim was to provide an easy way into Italian wines for those who find the country’s generic styles and native grapes scary. The range will be priced at £4.49-5.79 with a pound off on promotion, if and when the supermarkets are brave enough to try it.
PLB’s sales director Peter Bisley says the experience with Italian Icons shows just how hard it is to break into such an unbranded sector in the UK off-trade as Italy. According to ACNielsen own-label accounts for 45% of the Italian category compared to 23% for all still wine in the off-trade. Then come the “retailer exclusives” that can sell in huge numbers like Tesco’s La Giososa. However, those that remain wedded to a single supermarket are essentially own-label by another name.

Sainsbury’s is the biggest player, accounting for a quarter of all Italian wine sold in supermarkets. Own-label accounts for two thirds. “Italian wine regions are the de facto brands from Italy, which is one reason why own-label is so dominant,” says buyer Julian Dyer. “Because of the strength of own-label, the Sainsbury’s brand is at the vanguard of innovation in Italian wine, so I see no reason why own-label should not continue to perform strongly. It tends to be us, rather than our suppliers, that analyse customer trends and set the innovation agenda.”

Moving upwards
Italy’s diversity also plays well at Waitrose which can buy in smaller parcels and exploit a more wine-savvy and affluent customer base. Yet as its Italian buyer, Justin Howard-Sneyd MW concedes, “So much of the category is still dragged down by the dead weight of sub-£3 Soave and Lambrusco.” As a result the average Italian pings through the till at £3.46 in the UK, some 40p less than the average for all wine, according to ACNielsen, in the year to October 2005. This bottle price is creeping upwards, but there’s clearly a long way to go.

Bolla is a big Italian brand, though UK sales are mainly in the off-trade where it does the best part of 100,000 cases through Matthew Clark. The biggest account is JD Wetherspoon whose pubs stock Bolla Chianti along with the top-selling Pinot Grigio. In the off-trade Simon Legge, European marketing director of brand owners Brown Forman, is still trying to gain listings for a pair of £4.99 Sicilians under the Bolla label. He feels Italian buyers have less scope to increase or change their wines than their New World colleagues. “Retailers are not giving the chance for brands to come forward.
So far the proposition has not been compelling enough.”

At Waverley TBS, commercial manager Pierpaolo Petrassi believes the reason there’s only one true Italian among the top 50 wine brands is because the country’s wine industry is so fragmented with a mass of medium-sized, family-run producers. Waverley owns Trulli which was created in 1995 in partnership with the Puglian producer Cantele, and has now become a pan-Italian brand. According to the brand manager Jeremy Dunn, sales doubled last year and are split equally between the off-trade with  Sainsbury’s as a key account, and the on-trade led by Pizza Express. Despite Trulli’s success particularly with Pinot Grigio, Petrassi concedes it is unlikely to ever challenge the Jacob’s Creeks of this world.

Meanwhile, Mark Kermode, a former buyer at Sainsbury’s and now off-trade sales director at Enotria, believes the unbranded nature of Italian wine stems from the regulations which set the volumes within the DOC(G) areas. “Production cannot exceed these limits which naturally impedes the building of brands,” he argues. No such limits apply to IGT Sicilia under which Enotria has its Inycon brand produced by Settesoli, the largest cooperative in Europe with over 6,500 hectares of vineyards. With newly spruced up packaging and a move to screwcaps, Kermode says Inycon enjoyed “good growth across all varietals” in the last 12 months. 

Regional brands
The biggest producer in Italy is Grupo Italiano Vini (GIV). Theoretically it could produce a heavyweight pan-Italian brand to take on the New World. So far the focus has been entirely on regional brands like Soave Lamberti and Chianti Melini, both among the top 10 Italian brands in the UK off-trade. In 2002 Chianti Melini was almost crippled by rising grape prices which pushed it over a fiver, a particularly sacred price point on the supermarket shelves. This is where the DOC(G) system undermines efforts to build brands which by their very nature need price stability. Luckily for GIV, Melini managed to cling on and now sells through Tesco and Sainsbury’s at £5.99 with £1.50 off on promotion. PLB is planning a similar strategy for its new Chianti brand, Pucini, which like Melini will need to maintain sufficient on-going sales at the full price to succeed.

Beyond GIV those with sufficient scale tend to be the cooperatives which, to quote Brown Forman’s Legge, “are there to serve their growers who just want cash. There is really no long-term investment in brand building because they are just selling on price to the supermarkets with stuff-all to promote.” Legge sees this generic trap as self-fulfilling “until Constellation or Gallo get more into Italy. These are the guys that will build brands.”

That said, Constellation, or rather BRL Hardy as it was, did try to do just this with D’Istinto, a joint venture with Cantele in Sicily. The brand was launched to the sound of trumpets in the late 1990s, but suffered when Hardys pulled out. How much it was conceived with the UK in mind no-one is quite sure. One of the aims of D’Istinto was to be a Trojan Horse in Germany that would open up the market for the Australian giant. After an initial burst of D’Istinto, the pipelines would be filled with Nottage Hill and the Hardy’s Stamp Collection. For various reasons this never quite happened. More recently Gallo gave us Ecco Domani which was trialled in supermarkets without success.

Margin of error
Speaking off the record, one big supplier claimed, “Buyers are still reluctant to buy into a proper brand from Italy even though the growth is coming from branded sales. There still seems a lack of confidence to put a brand on the shelf with money behind it and above-the-line support to grow the category.” On the face of it this seems strange given the profit motive inherent in brands. Sainsbury’s is estimated to make no more than 10% on its own-label Soave, probably the biggest-selling individual Italian wine in the UK. At £2.99, the cash margin on each bottle is tight to say the least, and there is little chance of the chain upping the price by even one penny for fear of haemorrhaging sales to Asda or Tesco on such a key volume line. With a brand whose shelf-price hovered between £4 and £5, depending on when it was on promotion, the percentage margin would be about three times as much.

Part of the trouble is deciding what exactly brands mean when it comes to Italy. “I think a lot of people still see the own-label as a brand,” says Claire Whitehead, brand manager for Da Luca at Western Wines. “To a lot of people Valpolicella is still a brand and it doesn’t make a difference who the producer behind it is when people are buying the cheapest on display. Whereas, with something like Da Luca, Da Luca is the brand.” Launched at the back end of 2002, it has gained listings for its Grillo/ Chardonnay from Sicily and its Primitivo/ Merlot from Puglia in Tesco and Waitrose among others. These sell for £4.99 when not on offer and according to Whitehead, sales doubled last year and are now “well into six figures”. Complete the Da Luca range are a Barbera d’Asti and a Pinot Grigio from Friuli at £6.99. The real volume is lower down of course at around £3.99 where Western Wines is considering adding a red, white and rosé to the range. What margin that will leave for promotion is unclear.

Branded back-up
At £3.99 Da Luca will come face to face with the UK’s most successful wholly Italian brand, Canti, which, perhaps not accidentally, sounds rather like Chianti. Launched in 2002, it spent two years exclusive to Tesco before going into full distribution. Tesco was given the sort of below-the-line support a New World brand might give, and in return Canti was offered some good promotional slots. The producer is Fratelli Martini, one of the big independent bottlers which has been supplying own-label wines like Tesco Frascati for years. Sales manager, Dermott McGhee, believes this knowledge of the UK plus a commitment to invest ahead of sales for the long-term has been the key to Canti’s success. Having an entry-level price of £3.49 must have also played a part. With sales still growing in Tesco and new listings in Asda, Canti now claims to sell over half a million cases in the UK, giving it a 4.5% share of Italians in the off-trade, or four times its nearest rival. (That’s if you disregard Stowell’s whose Italian wines account for a fifth of the brand’s sales and 6% of the Italian category according to owners, Constellation Brands.) The issue now facing Canti, is how to increase value and persuade consumers to trade up.

Perhaps the last word should go to Sainsbury’s, as the biggest Italian retailer. Julian Dyer accepts brands could be the way to raise the category in value but says, “They cannot do it in isolation. They need to be backed by a coordinated campaign to raise the profile of Italian wine in the UK, but I fear this will never happen. If customers want to trade up they usually go to France or Australia. Spain has done well with Rioja recently, so perhaps Italy could learn something here. Some of the glamour and interest in Italian food and style needs to rub off onto the wines.”  db February 2006