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“standfirst”>In today’s consumerist society the line between need and desire gets ever more blurred – and the internet is there to cater to our every whim. Penny Boothman assesses how well the wine industry has tapped into this limitless marketplace

My Grandmother used to talk about a time when people didn’t have “wants”. There was what you needed, and then there was what you didn’t have. Simple. Okay, so Granny was a Northumbrian Methodist and there was a war on in her day, but you get the picture: having something you want, but don’t necessarily need, is a luxury.

Cultivated by increasingly intelligent marketing, and fostered by ever-higher levels of disposable income, the lines between “want” and “need” are now inevitably rather blurred, and consumerism has taken a good strong chokehold on modern society. And nowhere is it easier to get what you want, than online. You can buy – almost literally – anything on the internet: beef, diamonds, people, chemical weapons, you name it. Fortunately for us, the wine trade has also caught on, and lined itself up for a share of the spoils.

Direct mail was the original answer to cost-effective retail without the overheads of having a chain of stores, and the internet is the logical next step along that cost-effective road. “Our online orders have a significantly lower operating cost than stores and call centres,” explains Rachel Pearson, e-commerce manager, Direct Wines. “However the truth is that margins vary widely depending on the kind of wine, and the specific offer.”

Laithwaites and The Sunday Times Wine Club are the main customer-facing trading names of the Direct Wines empire, both of which offer an online or call centre service. Around 20% of Direct Wines’ orders are now placed over the web. “Our total sales in the UK have grown 78% over the last five years, and our online sales growth has been roughly 30-60% year on year. Online retail works because it’s easier for the consumer, it allows them to research, choose and shop when they want, at their leisure.”

Market size

  • Estimates suggest the UK online wine market is worth £120m, although add up claimed sales from the leading players and it appears the market is significantly larger.
  • Tesco claims to have 50% of this market, or around £60m.
  • Virgin Wines says it is worth £20m
  • Majestic suggests its online business is worth 7.2% of its UK retail sales, making it almost £14m (of total sales of £191.2m)
  • Direct Wines reports it is worth between £25 to £30m.
  • Then there are Sainsbury’s, Oddbins, Waitrose and other online retailers and wine clubs such as The Wine Society to consider.

Risk reduction

In some ways the online wine market is one of the more curious branches of the internet sales phenomenon. Wine is a complicated product and represents a difficult purchase decision for most consumers, so buying online without having tasted or been advised on the goods could seem a bit risky. But on the other hand, a website can give purchasers more information than a simple back-label can, and the choice available online beats anything a shop could offer. More importantly, with modern security measures in place to safeguard online credit card payments, and slogans such as Virgin Wines’ “If you don’t like the wine, you don’t pay” the risks involved in online shopping are not what they used to be.

Rowan Gormley, managing director of Virgin Wines, launched the internet-only wine specialist seven years ago, and expects to hit the £20 million mark this year, having seen consistent annual growth of 20-25%.

Gormley explains that their online set-up has an advantage over traditional wine merchants and supermarkets in that it can help consumers to find wines they would like, and warn them off others that they wouldn’t, through ratings they have given previous wines – something that can only be done in-store with considerable investment of time and manpower.

“We’ve got to deliver better wine and experience than the supermarkets,” he says. “We can’t beat them on money but we can beat them on wine and service, so we do that by sourcing directly from boutique producers, who are too small to deal with supermarkets. That way for the same price as a bottle of supermarket plonk, people are getting something individually handcrafted and really rather special.”

Of course most bottles of supermarket plonk are sold on some kind of offer, but Gormley believes that discounts are less important online. “People who are buying on discount are doing so in the absence of knowing what else to do.

We build up a track record so that consumers trust us, so it’s the recommendation that sells, not the deal.” And it seems to be working: 80% of Virgin Wines’ business now comes from existing customers. That’s somewhere in excess of £15m coming from, undoubtedly more profitable, repeat purchases.

“That said, we have, of course, just launched our Wine Auctions, which are like the ultimate deal really,” admits Gormley. The wine auctions invite consumers to name their own price for a case of specified wine, and bid against other consumers to secure it. It’s a good game, and Gormley is aware that some consumers are more interested in the gamble than the wine. “It’s been a great success, so we’ll be looking to increase that. Yes, the margins are lower, but it does bring in a totally new set of customers.”

Realising the potential

Majestic Wines launched their online sales site around the same time that Virgin Wines arrived onto the scene. End of year results from the high street by-the-case retailer are generally pretty impressive, but interestingly their most recent figures reveal that 7.2% of turnover is now generated online. This year the retailer posted an 11% profit increase to £191m, and attributed a large part of this growth to a boom in web sales, which were up 35% year on year.

“It’s on an upward curve, and has been for the last seven years or so,” explains Richard Weaver, e-commerce manager, Majestic Wine. “We’d certainly expect to see that continue to grow.

“Both us and all our major competitors have had transactionable websites now for a relatively long time, but I think what has developed more slowly has been a realisation of maximising that potential. I think we have been slowly learning what works online and what doesn’t, and the ways we can drive our businesses forward and develop services that suit our customers. I think there is certainly more we can do as a retail industry to realise the potential of online sales.”

But Majestic has already been busy introducing new channels to the site, and there is a complete website re-build scheduled for the end of the summer. En primeur sales are now entirely online, and a new premium gift service has been added to the web offering. A fine wine service reflecting their fine wine centre in St John’s Wood is now also available online, and with sales of wines over £20 up 25% in Majestic’s 2006/07 results, it’s easy to see why.

Weaver agrees that customers are often willing to spend more online than they will in store. And it has to be said, at the top end, consumers will be buying investment wines by name and vintage only, so the need to visit a shop to select the wines personally doesn’t apply.

“Actually the internet is a brilliant way of doing that sort of thing,” continues Weaver. “With the immediacy and the incredibly low costs of e-mail marketing we’re able to drive volumes that are much greater than we would be able to at a retail level, simply because we have the power to push the product under people’s noses and say: ‘Buy this now, it’ll be gone in a week.’ We’re able to reach a much broader community much more quickly.”

Supermarkets have, on occasion, been berated for selling wine too cheaply, so you may not realise that Tesco’s average bottle spend online is over £5 – more than £1 ahead of their in-store average – and the total online spend is over £100 on average.

Direct approach

Middle England. It’s a pretty vague term referring to the centre of the class spectrum, not the geography of Britain, writes Patrick Schmitt. It’s also a large and reasonably free-spending section of society. And a wine company claims to have tapped into it, successfully, using the internet. Called From Vineyards Direct, the business benefits from both a publisher’s contact list and a wine consultant’s expertise – it was created by David Campbell of Everyman’s Library, and Esme Johnstone, founder of Majestic Wine.

The website, launched in late ‘06, offers a maximum of 35 wines, from classic regions, imported direct from growers, and priced between £6 and £20. The founders claim the wines are 20% cheaper than other UK wine merchants. Already, From Vineyards Direct is enjoying an average spend of around £300 from 2,000 customers and is expected to shift £1m worth of wine in its first year. “Book clubs’ success is based on a 20% discount on a hand picked small selection and that’s what we are doing for wine,” explains Campbell.

The future
It’s perhaps unsurprising that the UK’s biggest supermarket chain is also the biggest player in online retail, but its internet wine offering is in fact twofold: wine is available by the bottle through the online grocery ordering service, and also by the case through the Tesco Wine Club. “We believe that those two combined give us over 50% of the online market,” says Nick Juby, commercial manager, Tesco Wine Club. “The main difference between the two is that, on the one hand, while you can buy individual bottles you will be limited by the range you can buy in the grocery section. Conversely buying by the case we offer our entire stock range, plus exclusives and mixed cases, so the range is much, much bigger.”

The wine club now has a staggering 520,000 members, customers who have deliberately opted in to the service. “It has grown significantly more quickly than the main business. One of the reasons we’re very keen to get into the online side is that we’re trying to look from the customer’s perspective, and convenience is a key benefit to the customer.”

The convenience of buying online for home delivery does benefit the customer, but it also benefits Tesco’s bottom line in another way. “There’s a limit to the amount of money you can take through any individual store, whereas with dotcom there’s no such limitation. Online, weekly sales can change by a factor of 10.

It’s just a fact that supermarkets, at Christmas for example, can get extremely busy and you couldn’t sell 10 times the amount of goods, there’s a limit to the number of people who can get into the store and get through the checkouts.”

As Juby points out: “There are no walls to online space.” And, with the low running and marketing costs, the growth opportunities for the future of online wine retail seem to be limitless.

So buying wine online is the future. Retailers will persuade customers to spend more money, more quickly, and consumers will be shopping in an increasingly diverse and risk-free environment. And when it comes to a heavy, bulky item like wine, the convenience of ordering without even having to pick up the phone, and then having the booze delivered straight to your door, leaves you with much more time to get on with the finer things in life. Like drinking it.

© db August 2007


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