UK Off-Trade Analysis 2010
Where do you buy yours?
Multiple grocers lead the retail fold, but other exciting sectors include online and specialist shops
THE WORD recovery was doubtless the most commonly used term of 2010 and while UK retail certainly saw some alcoholic drinks growth over the course of the year, it was, it must be stated, irregular. Primary winners in the increasingly cut-throat battle for consumer spend were once more the multiple grocers, while overwhelming losers were, like last year, those in the so-called â€œimpulse sectorâ€ â€“ essentially convenience stores and multiple-specialist off-licences. Within this general picture there were pockets of dynamism in the online and independent arenas, where clever positioning and eclectic offers enticed curious consumers and gave hope to suppliers of the small volume and little-known labels.
Thankfully the intense round of shopÂ closures that characterised UK drinksÂ retailing in 2009 was not repeated inÂ 2010 and the worst of the damage wasÂ done when First Quench Retail (FQR)Â â€“ Britainâ€™s largest off-licence retailÂ chain â€“ filed for bankruptcy on 29Â October 2009. At the time,Â commentators blamed decliningÂ discretionary spending for this high-profile collapse, but hindsight hasÂ shown two important aspects to theÂ demise of almost all of FQRâ€™s 1,200Â shops. Firstly, the UK high street hadÂ gone beyond saturation point when itÂ came to convenience retailing andÂ secondly there was a need â€“ sadlyÂ not comprehensively supplied byÂ FQR â€“ for a specialist drinks retailerÂ with a genuine point of differenceÂ from the supermarkets because thereÂ is simply no way to compete withÂ them on pricing.
However, for producers and importersÂ there are advantages to theÂ supermarket sector. The mostÂ important of these is the opportunityÂ for incredible distribution throughÂ even a single listing. This is becauseÂ any one of the major multiple grocers,Â dubbed the â€œBig Fourâ€, has a massiveÂ market share. In total, theÂ supermarkets account forÂ 80% of the UK off-tradeÂ in terms of wine sales byÂ value, and are growing atÂ 6% (NielsenMAT to weÂ 04.09.10). Of this, theÂ largest portion is held byÂ Tesco (over 32.8%)Â followed by Sainsburyâ€™sÂ (18.6%),Asda (16.4%)Â and thenMorrisons (13.8%).
Catching up on the Big Four is TheÂ Co-operative Group (Co-op), which isÂ the UKâ€™s fifth largest supermarketÂ chain, and, as of July 2009, owner ofÂ Somerfield, a 900-strong supermarketÂ chain, which it acquired for Â£1.57Â billion. This group has 7.1% share ofÂ multiple grocer wine sales (see pieÂ chart, p10).
Beyond these high-turnover multipleÂ grocer brands is Waitrose, smaller andÂ more upmarket, it has a relativelyÂ eclectic alcoholic drinks range whichÂ accounts for 4.1% of the market.Â Thereâ€™s also the similarly upmarketÂ clothes and food retailer Marks &Â Spencer (M&S), which has a 2.4%Â share of supermarket wine sales.
Aside from operating large and oftenÂ out-of-town outlets, the majorÂ supermarkets have encroached ontoÂ the high street and petrol stationÂ forecourts with smaller formats suchÂ as Tesco Metro and Express,Â Sainsburyâ€™s Local or M&S SimplyÂ Food. These are designed for top-upÂ shopping and contain a limited rangeÂ of alcoholic drinks.
All of these retailers have highÂ volume sales and extremelyÂ competitive pricing. Because ofÂ their volume demands theirÂ purchasing power is enormous,Â which can be unviable for manyÂ producers who cannot meet theÂ volume requirements, deliveryÂ speeds, consistency of product orÂ the necessary price demands.
Most multiple grocers have in excessÂ of 400 drinks products (although theÂ number on sale at any one time mayÂ change). For the most part, they areÂ selling to price-conscious consumersÂ withmid- to low-end productÂ knowledge. In recent years theÂ emergence of supermarket own-labelÂ beers, wines and spirits has opened upÂ more business channels for producers.Â The buyers formultiple grocers areÂ category-exclusive buyers and willÂ receive hundreds of samples fromÂ which to select new products. TheirÂ prerequisite for selecting an alcoholicÂ beverage is increasingly to provide aÂ point of difference, and they haveÂ strict quality guidelines. Shipping inÂ bulk and bottling in the UK isÂ becoming an increasingly importantÂ aspect to the supermarket supplyÂ chain andAsda is building its ownÂ bottling plant in Norfolk calledÂ Vinpack.
It is worth adding that theÂ supermarkets are also becomingÂ major online drinks retailers too (seeÂ section on onlineÂ retailing) and Tescoâ€™sÂ Wine by the CaseÂ web-based operationÂ generated over Â£58mÂ of sales in 2009.Â Meanwhile,WaitroseÂ is working on theÂ expansion of its WineÂ Direct online arm.
SPECIALIST OFF-LICENCE CHAINS
A further 16.9% of the UK retail wineÂ market is accounted for by theÂ â€œimpulseâ€ sector,made up ofÂ dedicated wine, beer and spiritsÂ shops, which are traditionally locatedÂ on the high street. This sector isÂ suffering froman 11% decline (NielsenÂ MAT to we 04.09.10) as the multipleÂ grocers continue to steal market share.
Historically, this part of the UK retailÂ market contained well-known high streetÂ brands such as Unwins andÂ Threshers. The collapse of Unwins off licenceÂ chain in December 2005 sawÂ the disappearance of this retail brandÂ from the UK, while the Thresher nameÂ also vanished after its owner FQRÂ went into administration in OctoberÂ 2009. The latter retail group alsoÂ operated theWine Rack brand, whichÂ still survives because the name and 14Â shops (out of 370) were sold toÂ wholesaler Venus Wine & SpiritÂ Merchants.
With the collapse of First QuenchÂ Retail, the largest national operator isÂ Oddbins, with 129 stores in the UK. ItÂ predominantly sells wine andÂ Champagne, although it does containÂ a wide range of Scotch whiskies andÂ has recently unveiled a new â€œministoreâ€Â concept called Oddies, with aÂ narrower range of wines. The firstÂ outlet opened in Tyne and Wear at theÂ end of 2010 and if it proves a success,Â further outlets will be rolled out acrossÂ the UK.
Oddbins also recently redesigned itsÂ website, a service which now providesÂ â€œexclusive offers and small parcelsâ€,Â from a range of 700-750 lines,Â including over 60 mixed cases.
In general,multiple specialist retailerÂ trading conditions tend to implyÂ higher margin requirements, whichÂ result in a higher bottle price on shelf.
Consumers choose to shop inÂ specialist chains either because ofÂ their location or because theyÂ generally have moreÂ knowledgeable, approachable andÂ attentive staff, which the majority ofÂ multiples lack. However, multiplesÂ such as Tesco and Waitrose haveÂ fought back by introducing fineÂ wine sections and trained wineÂ advisors. While the range profile ofÂ the specialists is not significantlyÂ different in size from that of theÂ multiples, their typical consumersÂ have a higher average spend perÂ bottle and greater wine knowledge.
Another major brand in UK wineÂ retailing is Majestic Wine, with overÂ 150 stores in the UK. It occupies largeÂ warehouse sites with parking andÂ only sells wine by the mixed case. InÂ September 2009 the group reduced itsÂ in-store minimum purchase from 12Â bottles to six although the minimumÂ purchase for online orders andÂ deliveries remains at 12 bottles.
Attentive, knowledgeable staff, instoreÂ tastings and discount offersÂ translate to a higher-than-averageÂ spend, especially since consumers areÂ typically moreÂ wine appreciative.
The business is expanding throughÂ home delivery via internet orders asÂ well as new store openings.A furtherÂ 12 are planned for 2011 and theÂ retailer has a target of 250 outlets inÂ total, although it is thinking ofÂ revising that figure upwards.
One thriving aspect, albeit small (aÂ further and final 3% of the UK offtrade)Â is the independent sector, whichÂ has benefited both from the collapse ofÂ the multiple specialist sector (theÂ disappearance of Unwins andÂ Thresher) and an increasinglyÂ knowledgeable and experimentalÂ consumer who doesnâ€™t appearÂ satisfied with the narrow range onÂ offer in the major multiples. Success isÂ apparent among those retailers with aÂ clear point of difference in terms ofÂ wine range or store lay-out, as well asÂ those that can provide in-storeÂ sampling â€“ a technique employedÂ effectively by The Sampler, whichÂ offers shoppers to chance to try aÂ range of fine wines from EnomaticÂ wine preservation machines. It hasÂ just opened a store in SouthÂ Kensington which joins its inauguralÂ outlet in Islington.
In general, independent retailers areÂ more likely to list premium and nicheÂ products and they will often buy stockÂ on allocation. As a result, stock willÂ rotate more frequently than in otherÂ off-trade premises. The leadingÂ independents include Berry Bros &Â Rudd, Justerini & Brooks, RobersonÂ Wine, Laytons, and Philglas &Â Swiggot.
Perhaps the most upmarket sector isÂ wine retailing within the UKâ€™s leadingÂ department stores. Famous namesÂ such as Harrods and Fortnum Â &Â Mason in London, and Selfridges andÂ Harvey Nichols, which both haveÂ branches nationwide, tend to cater forÂ a consumer with a high disposableÂ income and good product knowledgeÂ and hence carry a range of quality,Â rare and fine winesÂ and spirits.
Refurbished to an extremely highÂ standard has been the Harrods WineÂ Shop, which opened in October 2010Â complete with an air-conditioned fineÂ wine vault, tasting area with wineÂ sampling machine, â€œaroma zoneâ€ andÂ private dining room. It accommodatesÂ as many as 3,000 products with winesÂ on shelf from Â£7.95 to Â£795, and isÂ dedicated to wine education as well asÂ pure retailing.
Fortnum&Mason also has a newÂ and luxurious wine section alongsideÂ a wine bar, while Selfridges in LondonÂ has a modern drinks area encircled byÂ wine sampling machines.
Although heralded as a new majorÂ force in UK retailing to rival the BigÂ Four supermarkets (mentionedÂ earlier), the so-called â€œdiscountersâ€Â havenâ€™t taken quite the large chunk ofÂ the UK alcoholic drinks market thatÂ some suspected, and currentlyÂ represent 4.9% of wine sales throughÂ the multiple grocerymarket (see pieÂ chart, p10). The discounters includeÂ the likes of Lidl ,Aldi and Netto andÂ rose to prominence as the recession bitÂ deep in late 2008 and during earlyÂ 2009 with their enticing offer of own labelÂ products at everyday low prices.Â A no-frills approach to merchandisingÂ and local sourcing allow themto keepÂ costs down.
However, as consumer confidenceÂ rebounded towards the end of 2009Â and during 2010, the offer lost some ofÂ its allure, while the supermarketsÂ responded to the discounter threatÂ aggressively, in particular with wineÂ offers such as three for Â£10. It shouldÂ be added though that the wine rangesÂ in discounters has expanded to attractÂ a broader customer base.
CASH AND CARRY
This route to market can offer drinksÂ brands access to the fragmentedÂ network of convenience stores (as wellÂ as the on-trade, as many caterers andÂ small businesses will use wholesaleÂ for their alcoholic drink supply). ThisÂ also applies to the independent retailÂ section of the off-trade (local off-licencesÂ and shops), so getting brandsÂ listed here can mean reaching largeÂ numbers of small buyers and isÂ certainly a good business option.
However, access to the centralÂ buying teams and obtaining an orderÂ from them can be timely and difficultÂ to achieve. The main wholesalers areÂ Makro, Booker and Landmark. TheirÂ product ranges are limited to aboutÂ 100. Cash-and-carry buyers are lessÂ likely to have specialist drinkÂ knowledge and the drinks categoriesÂ may form only part of theirÂ business/job function.
INTERNET AND E-COMMERCE
Aside from a multifarious mass ofÂ independent wine merchants thatÂ popped up in the UK during 2010,Â the other story of last year was theÂ growth in wine, beer and spirits salesÂ through the web. Estimates of exactÂ market size vary but IMRG CapÂ Gemini reported growth figures ofÂ over 20% in online alcoholic drinksÂ sales by summertime 2010, whileÂ wine sales aloneÂ are believed toÂ have surpassed theÂ Â£200m mark fromÂ 2.5m cases sold atÂ an average price ofÂ Â£80. The largestÂ online operator isÂ supermarket TescoÂ with its â€œWine byÂ the Caseâ€ web basedÂ arm, whichÂ generated over Â£58m worth of salesÂ in 2009.
Boosting this sector is the growingÂ number of web users â€“ as many asÂ 70% of UK households had internetÂ access in 2009 â€“ as well as yet moreÂ operators. Notable, aside from marketÂ leader Tesco, is Waitrose Wine Direct,Â Ocado, Majestic, Everywine, Slurp,Â The Wine Society, Laithwaites, VirginÂ Wines, Oddbins and Averys, whileÂ newcomers making rapid inroadsÂ include Gondola (newly rebranded asÂ Your FavouriteWines), NakedWinesÂ and FindWine.
In general, online wine retailers sellÂ by the case, so traditionally haveÂ consumers with higher total spendÂ who are also willing to experimentÂ and trade up.Where retailers haveÂ both an off- and online offering, theÂ latter tends to offer a greater rangeÂ with exclusives and parcels of moreÂ esoteric wines.
MAIL ORDER ANDWINE CLUBS
Although mail-order and online salesÂ tend to be combined, (see table, p11)Â drinks business research suggests thatÂ for wine as much as 10.2m cases areÂ accounted for by mail order, fourÂ times the size of the online wineÂ market described above. The size ofÂ this market is attributable to theÂ strength of companies such as DirectÂ Wines and The Wine Society. TheÂ former, which generated sales ofÂ Â£350m worldwide in 2009 containsÂ retail brands Laithwaites, VirginÂ Wines, Averys as well as The SundayÂ Times Wine Club, while the latter, TheÂ Wine Society, has a Â£70m turnover andÂ is a mutual organisation owned by its members. Such clubs and companiesÂ are characterised by their enviableÂ consumer loyalty, offering suppliers aÂ chance to introduce less obviouslyÂ commercial wines.
Business is exceptionally competitiveÂ for the UKâ€™s budget airlines, whichÂ increasingly look to on-board serviceÂ to increase profits. This can mean bigÂ opportunities for the drinks industry.Â The main large airlines also haveÂ excellent drinks offerings in their firstÂ / business / club / executive classes.Â Many employ wine consultants fromÂ the industry and some have their ownÂ buying teams or buyer. The leadingÂ five travel operators in the drinksÂ trade are airlines BritishAirways,Â VirginAtlantic, Easyjet and Ryanair,Â and train operator GNER. db