FRANCE: A fine wine line

The US has overtaken France in terms of volume sales in the UK off-trade – should the French be worried? Fionnuala Synnott discovers a nation better suited to the value end of the market

With 15.9% of the UK off-trade, the US has finally overtaken France, at least in volume sales. This is hardly surprising given that France has been losing volume in the under-£5 category for some time.
Meanwhile, the US category has gone from strength to strength largely thanks to the support of big brands such as Gallo, Echo Falls and Blossom Hill. Consumer trends have also worked in the category’s favour with American rosé proving a real hit with UK consumers. “The US category is driven by entry-level branded commodity wines. This explains the discrepancy between the category’s volume and value sales,” says Anne Burchett, managing director for Castel UK.
More encouragingly, France is still ahead by £31 million as far as value sales are concerned. France has made significant progress in the £10+ market, and has grown its sales by 30% over the last 12 months. It  continues to dominate this sector, holding 52% of market share (with Australia and Spain joint second with 11%).

Value proposition
French wine is more expensive than most (with the exception of wine from New Zealand). Thirty-seven per cent of it is priced above £6, compared with only 29% across the total wine category. Aurore de Tapol, brand manager at John E Fells, thinks there is nothing surprising about France selling at this price point. “France offers a variety of prices from entry-level to premium. It also offers great value, particularly between £10 and £15. France remains a reference point in terms of fine wine. Consumers always turn towards the great wines, our Guigal wine sales have grown by +14%.” Mathieu Chadronnier, director of the grands crus division at CVBG Dourthe Kressmann, agrees: “The quality of French wine continues to improve. Even over £10, we can still offer good value.”

But France is not the only category to produce good wines at this price. It seems the real secret of France’s success is the emotional attachment it has created among consumers. Chadronnier says: “The main reason fine French wine is so popular is history. There is a deep historical link between the UK and France, especially between the UK and fine Bordeaux.” Burchett adds: “France has a fantastic history and people are loyal to the category.  People aspire to get into even better French wine.”
After a short-lived love affair with heavily oaked, fruit-driven wines, UK consumers appear to be returning to refreshing, elegant wines. Richard Nunn, director of Louis Latour Agencies, explains: “Consumer preference often evolves the longer they have been drinking wine. As consumers begin to earn more, they tend to look to France. They also tend to eat out more and France dominates the on-trade.” As Lynn Murray, marketing controller at Hatch Mansfield, puts it, “People come back to France for its elegant, food-friendly wines.”
Nunn thinks France’s decision not to go down the varietal route was wise. “This was a good decision as the category didn’t lose its identity or its association with terroir.”

Classic regions
While other categories are finally waking up to the trade-up potential of regionality, France has been using it for years. David Gill MW, director of Bottle Green, observes: “France is particularly dominated by big brands driven by centuries of heritage, such as Bordeaux, Burgundy and Châteauneuf-du-Pape.” The classic appellations are doing particularly well at the moment. Lynn Murray, marketing controller at Hatch Mansfield, says, “The Rhône is growing, while Burgundy, Bordeaux and Sancerre are buoyant. These regions generally command a higher price point bolstering the £10-plus category.”

But French growth is not only driven by the classic AOCs. In fact, a close look at Nielsen statistics reveals that 41% of the Beaujolais offer is priced above £6, while only 22% of Bordeaux wine falls into this price category. As the market develops, wines from lesser-known regions are also becoming popular, with the South of France, Cahors and Costières de Nîmes witnessing good growth. “These regions have the advantage of offering quality from the Old World with the image of the New World”, says de Tapol. There is also a market for other categories of French wine, such as wines from the Pays d’Oc. De Tapol continues: “Generic bodies such as the CIVB, Côtes du Rhône and Sopexa work hard to promote French wine. This helps to promote the image of the smaller producers and highlight [lesser-known] regions.” Louis Latour’s Nunn agrees: “Consumption of cheap, awful wine has fallen domestically and we are seeing better quality at good prices. Vin de pays has improved enormously. If [the pressure from] the euro would ease off a bit, it would give [this category] even more opportunity.” He also sees some good opportunities for regional Rhône, the South of France and the Ardèche, as well as regional Loire wines.”
In a crowded market, France’s classification system helps the consumer to navigate the category. Matthew Dickinson, commercial director at Thierry’s, explains: “France is good at building connections and making people understand it. Burgundy has been using a classic icon structure for hundreds of years. Generic Burgundy, village, grand cru, premier cru – this was classic old school marketing before marketing even existed.” Nunn is also a fan of France’s multi-level quality range. “As they gain confidence, classic entry-level consumers can gather information as they trade up within the category.”

Some producers think that consumers’ attachment to France is more intellectual than emotional. According to Gill, at Bottle Green, consumers are more informed about France than other categories. “UK consumers have a complete understanding of the concept of châteaux and domaines but have no connection with the Italian system.” Hatch Mansfield’s Murray agrees: “People find Italy really complex. Consumers have to be more confident to spend over £10 in the Italian category, whereas people are more familiar with France’s regions.”  
However, Edouard Thouvenot, UK manager for Baron Philippe de Rothschild, does not think this is a significant factor in the buying process: “People understand the concept of the château but consumer knowledge in general is poor. Most people don’t understand that Chablis is a region or that Mâcon is French”.

Threats
In the competitive UK market, complacency is a fool’s game. France must stay alert if it is not to fall to third place in the value market as well. Other categories are rapidly gaining favour with consumers looking for premium wine. Gill, at Bottle Green, comments: “Spain has cracked it. The biggest breakthrough at the £10-£20 price point has come from Rioja. The UK consumer has a complete understanding of its wines and styles.”
Although everyone agrees that Italy has potential, consumers do not understand the category as well. “The idea of an Italian estate hasn’t filtered through to consumers’ consciousness. The category needs to be more branded,” says Gill. He also thinks Italy has a stylistic issue above £10. “Consumers are familiar with the best styles of wines such as Barolo or Chianti but these are food wines and are not as user-friendly as some French wines because the tannins are more prominent. These wines are not as appealing to the mass market as Bordeaux, Burgundy and Rhône.” But Burchett, at Castel, disagrees and thinks “Italy is in a very good place”, as it has “the same kind of legitimacy” as France.

Ironically, the US does not appear to threaten France at this price point. According to Gill, this is because California suffers from a credibility gap. “California has a problem. Its premium wines are so popular in the local market that, in the UK, £10 quickly becomes £20. The rest of the category tends to be dominated by entry-level brands and is not hitting the mid-market. It is therefore hard to get mainstream consumers to trade up.” John E Fells’ de Tapol adds: “Some Californian producers work hard on their quality and their image and are direct competitors to top Bordeaux wines. Others rely on their brand, volume and distribution but have less quality wines to offer.”
Other New World countries do pose a threat, however. Gill at Bottle Green thinks South Africa and Chile are possible contenders for the French crown. “Estate-driven Pinot Noir and Carménère are certainly helping Chile. They are creating a market that has growth potential.” Hatch Mansfield’s Murray adds, “Chile is growing from a small base. It has some really good premium producers and produces some very good wines at this price. Chile produces some classic Bordeaux varietals but it needs to produce more Pinot Noir at the premium end.” But Burchett doesn’t think Chile (or for that matter Argentina) has been in the UK market for long enough to pose a real threat to France at this price point. However, in time, she expects Chile and Argentina to follow suit and grow their premium presence.

New Zealand is very much a quality category. Murray says, “New Zealand is very strong. The category has grown by over 0.5m in the £5+ sector, albeit from a small base. The £10+ sector has also seen very significant growth of 64%.  We see a lot of interest at that level and Villa Maria does particularly well at the top end.”
In fact, all of the country categories are growing over £10, with the exception of Australia, which declined by -4% (MAT 19.04.08).
According to Gill, the problem lies with brand Australia. “Australia keeps shooting itself in the foot with its big branding. Currently, there is a desire for authenticity from consumers and buyers. But Australians continue to make wine like their fathers did. They need to make better quality wine with consistency at this level. But, over time, £10-plus growth will begin to happen in a coherent and consistent fashion.”
Thierry’s Dickinson thinks any category can grow in this space, provided it has the right credentials. “A lot of this is about provenance and heritage, anyone who has these, in addition to quality wine, can gain market share. South Africa has the best chance but in practice it could be anyone, anywhere.” But building a premium reputation takes time. Bottle Green’s Gill warns: “Anyone looking for a quick fix will find it doesn’t exist. It takes a long time to build credibility. Even in France only a handful of regions have it.”

Fine wine’s future
It seems unlikely that France will be superceded at the £10+ price point. But its market share seems sure to become diluted as the market develops. Chadronnier comments: “The premium wine market is not the same as it was 30 years ago – there is more competition than before. Over time, French market share will become diluted [due to the increased number of players].” But Mathieu is optimistic about the future of fine wine. “The fine wine market will continue to grow and develop. As long as it continues to improve the quality of its wine, France will retain its position, as it is the acknowledged reference point for fine wine. More countries are producing fine wine, but I am not sure there is another country that has such a broad range of fine wines.”

Louis Latour’s Nunn thinks the current economic climate represents more of a threat to France than other countries, especially in the £10+ category: “The economic downturn is a threat to sales and business as people become more risk averse.”
Chadronnier thinks France will retain its position in the value market for a long time due to the quality of its wines: “When going for luxury, people go for something they know. They like the reassurance.” Thouvenot, at Baron Philippe de Rothschild, adds: “The never-ending will of consumers to drink better will benefit France.”
But Gill warns against complacency: “So long as they [French producers] don’t start getting ahead of themselves and believing their own press, the category will continue to grow.”
The future does not seem so bright at the volume end, however. The lack of big French brands (relative to other categories) means that, unlike other categories, France cannot redress the balance with promotions. This loss of market share may therefore prove difficult to claw back. As Thouvenot says, “The UK market is consumer-driven but it is also buyer-driven. What is missing for France is a big brand with big shoulders to impose price positioning, such as Jacob’s Creek or Rosemount. We don’t have strong brands that can drive prices up, apart from JP Chenet, which is entry-level.”
However, some wonder whether it is important to lead the market at all. Thierry’s Dickinson says: “Ultimately, France is well-placed to come back to the number one slot. But you could argue that it doesn’t matter so long as it is growing. Volume sales don’t really matter to French producers. The French are as good at business as anyone globally. If France wanted to dominate a particular category it could, the question is: does it really want to dominate the £3.99 rosé category?”  db © June 2008