Retail: State of the nation
The UK drinks retail scene is undergoing testing times, but there are signs of growth with the beers, wine and spirits category. Arabella Mileham speaks to analysts and key industry players to see where this growth is coming from.
A glance at recent headlines about the drinks retail landscape in the UK hasn’t painted the prettiest of pictures.
From the demise of Oddbins and the surprise sale of Majestic Wine’s retail business to fund Naked Wines’s growth, to rising Brexit contingency costs, it has been an undeniably turbulent 18 months.
On top of that, retailers have had to compete with tough comparables after the UK basked in an unusually hot summer last year, after seeing a boost from the royal wedding of Prince Harry to Meghan Markle and England’s success in the men’s football World Cup. It’s no wonder booze retailers were steeling themselves for a relatively tough year.
However, it’s not all doom and gloom. According to IRI, a retail market intelligence company, beers, wines and spirits (BWS) is still one of the top-performing categories in the grocery market, worth around £17.6 billion, and rising by 2.4% in the last year, on volumes up by 0.5%.
This boost has been driven in part by shoppers choosing quality over quantity, as demand continues to rise for more premium products, although the rising cost of production has played a key role, even though the larger 2018 vintage helped soften the prices after a tight 2017.
Much of the growth in the last year has come from spirits, which commands a 27.3% share of the BWS market, with values rising 5% by value, and 3% by volume.
According to Gemma Cooper, Nielsen’s commercial business partner for beer and wine, gin has been the big growth driver of BWS and its strongest sub-category, growing by £233 million in the past year.
“That’s a huge amount of money and a lot of it is coming through flavoured gin,” Cooper said.
This has had a knock-on effect on premixed cans and RTDs, which are enjoying a renaissance, having come “from nowhere” to growth of 15.1% on last year, or 27.7% versus two years ago. Lager has also had a boost, up by £126 million, thanks to the success of the England men’s football team during the World Cup last year, and last summer’s scorching weather.
However, the fortunes of wine, the largest category in the BWS sector, which is worth around £6.44bn, were more mixed. Overall, sales fell by 0.9% as volumes slumped by 2.5%, despite the overall price increases of price per litre being lower than the BWS average (1.7% vs 1.8%).
Pricing structure
According to the most recent data, the average price for a bottle of wine in the UK is £5.68, and Nielsen figures show that 23% of wine sold in the grocery market still sells for £5 or less. This has fallen from around 29% in the past year alone as retailers struggle to deliver products at such low price points, given the rising production costs and Brexit-related exchange rate fluctuations.
Unsurprisingly, sales at this level have pretty much dropped off a cliff, netting around £284m less in the year to June 2019 than in the previous year – the equivalent of around 6% of the market.
Price inflation has pushed a fair proportion of that volume into the entry level £5-£6 bracket, which saw growth of 11.1%, or around £160 million, but according to Kantar data, still wine has lost 300,000 shoppers since 2017, as younger customers embrace more “versatile” drinks like gin and RTD cans. However, as Simon Doyle of Concha Y Toro UK points out, there are promising signs that consumers are nonetheless trading up and buying more premium wines higher up the price tiers.
“Wine is really interesting – everyone talks about volume being in relative decline – and it’s been ongoing in small single-digit decline – but what’s interesting is that value is increasing,” he says. “Consumers are paying a bit more, and it is those small increments that matter.”
This has corresponded with a general decrease in promotional activity, Kantar points out, as the transparency of ‘everyday low pricing’ continues to find favour with customers, and retailers move to creating more “emotionally engaging” experiences instead.
To prove Doyle’s point, Nielsen’s data shows wines in the £6-£7 bracket rose by 7.7% in the 52 weeks to 15 June 2019, adding around £70m to the category, while the £7-£8 bracket (which accounts for around 11% of the market by value), saw a boost of around 10.8%. Together, those two price points accounts for around a third of the market by value, so that is a truly promising sign.
Even more promising is that further up the ladder, the £8-£9 bracket saw the largest overall increase in the whole wine category, rising by 12.7%, with the £9-£10 segment in 9.6% growth, albeit from a smaller base.
“As long as the retail price can increase ahead of excise duty, and we can demonstrate to consumers why they should pay a bit more, what that extra 50p means to them in terms of tangible value to them, then I think it’s quite good news,” Doyle adds, noting that the challenge now is to get more households buying wine in the first place.
“We don’t grow by asking the same people to drink more and more of the same thing, we have to broaden our base to ensure we’ve got consumers who are engaging with our product,” he says.
And brands seem to be doing a good job of that. Branded lines performed strongly across BWS, accounting for around 84.7% of the market by value, up by 0.8 percentage points in the year, while own-label sales fell by 2.7%, but were driven largely by sales of own-label wine.
According to Cooper at Nielsen, a lot of wine producers and big brands are bringing people in through a particular variety or a country of origin and encouraging consumers to trade up by moving them through the price brackets.
Malbec, the UK’s third most popular red variety, has enjoyed a boom that helped boost Argentina as a country of origin by around 18.7%. Brands capitalising on this wave include Accolade’s Echo Falls, which added a US-sourced Malbec to its line-up in July, with Australian Vintage upping its planting of the grape in Australia in recent years.
“You only need to look at some of the most popular brands out there and you’re seeing them bring in products that go all the way up the price ladder, moving shoppers into the next bracket, then the one above that,” Cooper said.
Fizz has provided another bright spot, Kantar analyst Laura Christen says, with sparkling wine up by 5.1% over the year, boosted by rosés and crémant, which is starting to gain momentum, although IRI said Prosecco sales were “flat at best”.
Structural changes
Structural changes in the market and the needs of each channel are providing opportunities for growth, Mark Kears managing director of Les Grands Chais de France points out – and producers are responding to changing consumer-purchasing habits. Key trends include increasing demand for convenience, more people eating at home, premiumisation, and the growth in online sales and convenience stores catering for single-person households.
One of the strongest channels for BWS growth is convenience, according to Patrick Mitchell-Fox of IGD, largely driven by chilled merchandising for drinking now, and an improvement in in-store execution.
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As Simon Cairns, The Co-op’s BWS boss, says: “More and more customers are confident that you don’t need to go into a large multiple to get an interesting range of wine; you can go into your local high street and find an interesting, very credible and well-priced bottle.”
Speaking to db after last summer’s heatwave, Cairns said the weather had highlighted how important these two factors had been for the retailer, helping it gain a 7.7% bump in its BWS sales.
“We seem to have built real momentum, and convenience has a bright future,” he said. “Operational thinking is not sexy but availability in convenience is key; you don’t have the size of range to cover a gap, we have to have it there, or be able to get it very quickly. If not, the implications can be catastrophic.”
Online is another area ripe for growth, according to Humphrey Serjeantson, IWSR’s western Europe research director. IWSR’s research showed online booze sale nearly hit nearly £1.4m in 2018, with wine making up nearly 61% of value sales (£843,950) compared with spirits (£323,325) and beer (£220,000).
The level of trust consumers had in online retailers was continuing to grow, he notes, but crucially, online retailers were able to offer a larger range than traditional bricks and mortar retailers, while also offering a far more customised, personal suggestion for other purchases.
“Shops where you have very passionate, knowledgeable sales staff who can answer the questions of interested and knowledgeable consumers and still sell wines at a relatively reasonable price will still do well, but the global trend towards e-commerce and away from bricks and mortar will continue,” he says, pointing to Majestic Wine’s decision to concentrate purely on Naked Wines’ digital ambition and sell off the entire UK retail business.
Market Consolidation
Consolidation is also very much the word on everyone’s lips, from the demise of Conviviality, to deals between Booker and Tesco, and The Co-op and Nisa.
It used to be within the channel that consolidation happened, but now it’s multi-channel, with wholesalers coming to retailers, and vice versa,” Simon Doyle of Concha Y Toro says. “There’s a lot of movement, and those remaining are trying to re-establish their role from a retail or a wholesale perspective to make sure they stay relevant, and see what added value that joint force can add.”
But consolidation is also resulting in fewer routes to market in the UK, and fewer SKUs on the shelves, according to Paul Letheren of Off-Piste Wines.
“There are issues for suppliers not being able to get their wines out, and I suppose as that comes through there is less choice on the supermarket shelf,” he argues.
“Ranges at every retailer are being reduced. They are cutting out a lot of the fat they don’t need, and each wine has to work harder for the space it has.
” Marks and Spencer has seen its range cut by around 100 products since 2016, while Asda slashed brands this year – including delisting Jacob’s Creek entirely – to add around 100 lines, including McGuigan Black Label, Most Wanted, Casillero Del Diablo, Treasury Wine Estates’ new Embrazen brand and more of its own-label Winemaker’s Choice range.
It is, argues Letheren, about having the right wine in the right retailer doing the right job. “If it’s not, then the supplier’s job is to identify that before the retailers do and come up with an alternative.”
The right mix
Although the space for BWS hasn’t changed, retailers are being more strategic in the way they allot that space and the mix has changed, Cooper argues. Whereas before, a range might be cut by getting rid of the lowest-performing SKU to make way for a more successful one, now there are more factors to consider.
Cooper says: “Retailers are saying, ‘do we replace them with bigger packs, or line extensions in no/low, do we give more space to mixers, or non-alcohol?’ So it’s not that tradition of cut one to bring in another, it’s about how to make that mix the most effective it can be.”
Wine is being squeezed “from all angles” by new formats, RTDs and beer, while brandy, Scotch and liqueurs are making way for more gin, and alcopops are being replaced by pre-mixes and RTDs. And although lager occupies the same amount of shelf space, it is now incorporating bigger packs, such as kegs, four-packs of craft beers, or multipacks, as well as low- and no-alcohol choices.
As Cairns says: “It’s not about just expanding the range, it’s expanding the right range and format to suit the customer mission.”
Differentiation
According to Patrick Mitchell-Fox, senior business analyst at IGD, some retailers have been more successful than others at differentiating their BWS offers. “Some good examples include Tesco, which has been quick to embrace the craft ethic, adding trendy cans to its range, whereas Sainsbury’s has been seeking to establish some limited elements of differentiation by introducing exclusive products,” he says.
Offering consumers choice for exploration and discovery has helped The Co-op stand out, Kears notes, incorporating new formats such as pouches and singe-serve cans, which are finally starting to gain traction.
Meanwhile, Waitrose launched an own-label range of lesser-known grape varieties, the W series, and trialled a wine- and beer-refill system at its temporary Unpacked store in Oxford, something often seen in the independent market, Mitchell-Fox notes, but seldom in the big-box retailers.
However, Doyle argues the BWS aisle can still be an intimidating space that is tough to navigate, and retailers need to work harder on engaging and exciting customers, and making a product more fully relevant to a particular occasion that a consumer might be having. “We’ve seen other categories do such a fantastic job on that, wine has been a bit slow to catch on. There should be pointers in the aisles, as well as additional feature space to try to get across to consumers why a wine or product is relevant,” he argues, pointing to Cono Sur’s chilled Pinot Noir campaign.
“While Cono Sur’s rate of sale is good, it’s not enough to justify a great big feature in store, so how do we ensure that consumers know about smaller brands that might be doing interesting, innovative things, and make sure they have an opportunity to engage?” he asks.
The importance of getting this right was underlined in IGD’s recent Shoppervista service, which found 29% of wine shoppers claimed to decide to buy wine on impulse once in the store, with a further 58% making their exact product decisions there, with 15% of wine shoppers saying their decision to buy was influenced by a special display, compared with an average of 10% in all categories.
Although retailers have their work cut out for them, there are enough bright spots on the horizon to justify the enthusiasm of Majestic UK managing director Josh Lincoln. If the Majestic sale goes through, and the retailer can rise again, it may prove that there is far more life in the UK retail landscape than the depressing headlines suggest. db
