Why subscriptions are the future of retailing

Really? That doesn't sound very radical?

Hang on. Give me a chance. Often the best retail solutions are the most obvious, the easiest for consumers to understand and for operators to deliver. Yes, retail subscription models have been around for as long as we have been collecting the latest instalment of the Encyclopædia Britannica. But in recent years they have become a far more sophisticated retail model designed to build a loyal customer database that is willing to spend money with you on a regular basis. Thus providing a constant stream of almost guaranteed cash flow that means you don't have to rely on getting shoppers into your store, or users onto your website.

But hasn't that always been the case with a subscription offer?

Yes, but traditionally a lot of subscriptions we have signed up for have been for more mundane “have to have” services and goods. Like our utility bills, council tax, TV licence, or for insurance, health or tax payments. But over the last 10 years we have become used to voluntarily signing up to subscription models in order to get access to the latest, must have services, goods, content, music or film.

So what's changed?

It all comes down to the explosion in downstreaming services that did not exist five to 10 years ago. For years we've been used to paying for the TV we want to watch thanks to Sky and its premium services for sports, movies or drama. Now there are a whole raft of subscription sites for every kind of entertainment. First there was music thanks to iTunes, that has morphed into services like Spotify. Now Netflix and Amazon Prime have brought the equivalent of the local DVD shop into the comfort of our homes. All of which have been made possible by the breakthroughs in technology that have been able to create and deliver these downloadable services, be it via an iPod, iPad, smartphone or digital television.

Interesting. What else?

These technical advances have, in turn, transformed the way we now expect, and are happy, to spend our money. Look back 10 years ago at what direct debits you had. Now we are quite prepared to spend £100 a month to Sky for all its TV and broadband services. Phone tariffs are no longer about just making or receiving calls and texts, we're quite willing to spend £30 to £50 a month to have the right handset and amount of data we need to download what we want, where we want. Noticeably, the monthly subscriptions for the likes of Netflix, Amazon Prime, Spotify and Apple Music are all around the £10 level. After all what's another £10 a month? In the US the subscription e-commerce market has grown over 100% a year for the last five years.

So what's this got to do with wine?

Everything. Consumers now expect to be able to sign up to specialised, personalised subscription services that meet their personal needs and food and drink has become one of the fastest growing sectors for subscription offers. So much so that the big supermarket chains are now just as fearful about the rise of new meal-kit delivery subscription sites like HelloFresh (the Financial Times' fastest growing company in Europe in 2017) and Blue Apron as they are the rise of Aldi and Lidl. They are fast taking away market share from well heeled 25-45 year olds who are looking to pay premium prices for good quality, fresh ingredients that can be delivered to their homes. Services that take away the hassle of weekly shopping, and also allow you to cook quick, fresh, healthy and quality meals at home. The UK's delivery subscription market is now worth over £2bn a year with users citing convenience (45%) and value for money (60%) as the two key reasons for signing up (Whistl).

Sounds like they're also making consumers pretty lazy?

Lazy in that they now expect everything they want to be available to them, to their door, or wherever they happen to be. But it's also making them extremely demanding and hard to please. The recent Whistl report found one in five Brits now refuse to shop with retailers that don't offer a subscription model. The arrival of Uber and Deliveroo in our lives, means we now expect there to be an app for every sort of service that is available direct from our smartphone. Need petrol for the car? There's a van that will come to your car and fill it up for you. So why bother going to a shop to buy wine, however pretty and engaging it is and well informed its staff are, when you can just get a case or bottle delivered whenever and wherever you want?

OK fair enough, you can see why traditional retailers should be worried.

Subscription retailing is now a retail channel in its own right. We might not be able to physically see it, but it is operating like a virtual, parallel retail universe gobbling ever bigger shares of our disposable income. The rich and famous have for years been able to use concierge subscription services to keep them fed, watered and pampered, but now we all have access to our very own concierge-type services through the wonders of our smartphone. We just need to know which apps to use.

And finally?

Subscription models also make commercial sense. Once you can convince someone to sign up they are often too lazy to cancel. Just look at how many gym memberships you have versus the amount of time you go to a gym. Many a subscription retailer will still keep collecting people's money whether they use their services or not. Now wine has not quite managed to pull that stunt off yet, but it's surely open season for those operators capable of drawing customers in, getting them engaged and watching those monthly direct debits come in.

Sell more wine by making it appear not like wine

Come again? How and why would you want to do that?

Well, think about it. There are an awful lot of people out there who don’t like wine the same way we do. They don’t like the taste, they don’t understand which wines they might like even if they did and it’s a whole lot easier just to ask for a beer, cider or gin and tonic instead. So if you are ever going to convince that kind of consumer to give wine a go, then you’re going to have to do more than just past them a corkscrew and give them the latest copy of Hugh Johnson’s Pocket Wine Book.

You mean you have to cajole them?

Not exactly, but you have to give them very different reasons for wanting to give wine a try. It’s why we are seeing such a growth and interest in wine-based drinks that might have the wine purists turning up their discerning noses in disgust, but it’s what flying off supermarket shelves. Echo Falls was leading the way in creating the wine fusion market. There might be grapes in your glass, but what you can taste is the “zesty” white peach, strawberry, raspberry or grapefruit that has been added to make it into the kind of drink lots of non-wine lovers might want. Which they clearly do as the fruit fusion category has exploded to reach over £70m in sales in just two years.

 

“We are seeing pure and simple wine being sold in funkier packaging, like stubbies and cans that are designed to look more like a craft beer. ”

 

But is this really the future for wine?

If the overall wine industry wants to have a future then, yes. After all every consumer market has to persuade the next generation to buy into their category and their brands. We are not all born with a disposition to drinking Coca-Cola, munching Walkers Crisps, or snacking on a Mars bar. If we want to convince the next generation of drinkers looking for an alcoholic sugar rush on a night out to drink wine, they we’re going to have to play by the same rules that have got people, particularly younger drinkers, queuing up at the bar for the latest in fruit-flavoured vodkas, gins and ciders. Only then will we then have a chance of slowly persuading them to tone down the added fruits and sweetness and just go with what comes straight from a vineyard.

It all sounds rather depressing?

Oh, get over yourself. Go back to when you first started drinking wine. The days before you nosed a wine, and rolled it around in the glass assessing its colour and legs before getting it anywhere near your mouth. You were hardly reaching for a glass of Nebbiolo or Pimitivo straight out of college. No, the chances are you were introduced to wine by drinking a bottle of cheap, cheerful and, yes, sweet Lambrusco. We’re not re-inventing the wheel here. We’re just become a bit more knowing, and calculated, in how we entice new shoppers, particularly younger ones, down the wine aisle.

OK anything else?

Look at the rise in Prosecco. For a lot of mainstream Prosecco drinkers they don’t think they’re drinking wine, they’re just having a ‘Prosecco’. It has now become a brand, a drinks category all in itself. Look at Aperol Spritz. How many customers who order an Aperol Spritz actually know or care they’re ordering a sparkling wine, Prosecco, soda and Aperol - whatever that it is? It just looks cool, refreshing and what everyone else is drinking. But for bars, restaurants and retailers it’s become a very good way of shifting even more bottles of Prosecco. As are wine-based cocktails, where wine is the foundation for a drink that brings in a whole variety of flavours and spirits.

So is that why we are seeing wine being sold in all different types of packaging now?

Now you’re getting it. Yes, not only do all these types of wine-based drinks taste different from a standard wine they look different too. We are also seeing pure and simple wine being sold in funkier packaging, like stubbies and cans that are designed to look more like a craft beer.

What else is happening with brands?

The expansion of the wine category into these new areas is both a threat and an opportunity for established wine brands. There are those brands that don’t want to lose any of their wine credibility by moving into newer ‘non wine’ areas. Then there are others that can see how they can use the strength of their brand to take consumers into other categories and drinking opportunities. Let’s go back to Echo Falls. It now has its own summer berries flavoured vodka and don’t be surprised to see it move into flavoured gins or spiced rums in the future. Consumers are becoming used to seeing brands being stretched right across all grocery categories in search of new profits and growth. Look at Innocent Drinks that has seamlessly moved from smoothies and into the health and wellness category with coconut water blends and sparkling waters. Or Lynx deodorant that now covers all areas of male grooming from shaving to hair products. There’s even news of Dunkin Donuts launching its own craft beer range.

So it’s wine but not as we know it?

Very much so. Look at the 19 Crimes wine brand from Treasury Wine Estates. It has become phenomenally successful in a short period of time not because of the quality or story about the wine. No, its appeal is being driven because of the augmented reality technology that is being used to make the label. Criminals being sent to Australia for committing one of 19 Crimes, burst into life and start talking to you via an app. It’s opening up wine to younger consumers who are permanently attached to their smartphone and see the world through new technology. So yes, as you say. It’s wine, but not as we know it....

Why showing you care for the community makes good business sense

Isn’t that a bit like saying “they do a lot of work for charity, but they don’t like to talk about it”?

It is, but if you want to be seen as a good business it’s not necessarily showing off, it just makes a lot of sense. We’re also not just talking about raising money for good causes here, but the economic impact your company is having on the local community around you, and if you’re big enough, regionally and nationally too. If you’re changing things for the better then don’t keep it to yourself.

But why are we talking about this now?

Well, it’s a particularly relevant message for the drinks industry and wine sector to take seriously. Not a week goes by without some sort of negative medical report coming out claiming how dangerous it is to drink alcohol on a regular basis. Yes, you might have the odd study that extols the positives of the occasional drink, but the overriding message is booze is bad and, by association, so are the companies that make and sell it. If that means adding more taxes, duty and hurdles that make life difficult for all those companies, then who cares? If it means paying more for a pint or a bottle of wine, that’s the penance you have to pay for indulging in such an unhealthy activity.

 

“Tesco now claims that out of every £1 spent by customers, 73p goes back to farmers and suppliers across the UK, 11p is paid to Tesco colleagues in wages and 3p is paid to the government in tax to pay for public services like the NHS.”

 

This has gone down hill all of a sudden.

Bear with me. It’s why we have seen our trade bodies, particularly the Wine & Spirit Trade Association, make the business and economic case to the government as to why another duty raise does not make financial sense, rather than try to make any sort of health arguments. It’s a strategy that has worked. Particularly since it has employed third party consultants, Ernst & Young, to make the business case for it.

What are those headline WSTA figures again?

Yes, they’re worth bookmarking and using at any given opportunity. The UK’s wine and spirits industry supports 554,000 jobs, contributes £50bn per annum in economic activity, including £17.5bn to the public purse, split £9.5bn from the wine industry and £8.2bn for the spirits sector. If you look at the wine industry on its own then it employs 172,000 people directly and 105,000 in the connecting supply chain. All of whom help contribute £19.9bn in economic activity, including sales worth £6.7bn in shops and supermarkets and £4.2bn through pubs, bars and restaurants.

Anything else?

The WSTA’s campaign to convince the Treasury to freeze alcohol duty finally paid off when the Chancellor did exactly that in last November’s Budget. It was then able to prove its long held claim that a freeze on duty would actually raise the amount going into the Treasury when in April the HMRC announced that in the four months between December 2017 to April 2018 revenues from wine and spirit duties were up £67m, or 2%, at £3.291bn and the yearly impact would be a £140m rise. See how powerful it is when the figures do the talking for you?

What else have you noticed?

Let’s look at how individual businesses are using economic impact reports to present themselves in a better light. Probably the best current example is Tesco. It was not so long ago that at its height of popularity it came out with the fateful statement that £1 in £8 was being spent in one of its stores. It was meant to show how successful and popular the chain was with the Great British public. But it soon backfired and was used to demonstrate, by competitors and critics alike, how dominant and powerful it had become. Traits the average British shopper saw as the business equivalent of scratching fingernails down a blackboard. The new Tesco, under chief executive Dave Lewis, is a very different beast and it is now using its size, scale and influence not to show off, but make the economic argument of how effective and important it is both nationally, but particularly to local struggling communities.

Sounds like you’ve been drinking too much Tesco cola.

No, I’ve just been studying its recent Value in Your Town report. It again uses the £1 analogy, but crucially it does so in a very different way. It now claims that out of every £1 spent by Tesco customers, 73p goes back to farmers and suppliers from across the UK, 11p is paid to Tesco colleagues in wages and 3p is paid to the government in tax to pay for public services like the NHS. Every £1 of direct economic activity at Tesco was also claimed to generate an additional £5.46 in value to the UK economy as a whole. It has noticeably divided the country by parliamentary constituency therefore allowing every MP and resident in those postcodes to see what impact Tesco has had there. Now admittedly these are Tesco’s own figures and they might have small businesses, suppliers and local c-stores throwing their cornflakes at the wall, but if you look at the bigger picture it's a very astute move from a retailer that is still trying to regain the confidence of the general shopper and its investors. It is also painting the rest of the FMCG, grocery sector in a good light so it probably won’t be long before we see similar reports from other retailers.

What does it mean for us lesser mortals?

These are all good examples to take lessons from. We might not be able to produce an all singing, dancing economic analysis study - just ask David Davis how hard they are to come by. But we all know our customers, and what benefits and services we are providing them. So rather than fill your website and social media feed with all the medals you have won, and pats on the back you have got, concentrate on what impact your business is having, be it in the local community or with your customers and their consumers. Tell the world about those and that’s where you’ll make the biggest impact.

Why we all have to think like publishers and media players now

Speak for yourself. You might spend your life writing and pontificating, but I actually produce and sell something that people want to consume?

And you do it very well. But how do you get people to know about it and then be able to go out, find it and buy it? In this increasingly switched-on world you can't just send out a press release, or stick a new product on your website and expect people to come and find it. Just look back at all the articles and pieces of information you have read this week. How did you come across them? Chances are they were all pushed out to you in one way or another. Be it a link in a tweet, a post on Instagram, Facebook, or via an email newsletter you have signed up to. Publishers now know they can't rely on you just buying their newspaper or magazine, they have to use a whole number of ways to get their must read content in front of your eyes in some way or other.

Yes, that's all well and good, but what's that got to do with me? I just buy and sell wine.

But think about it. Your bottle of wine is exactly the same as the article, social media post or piece of information that a publisher wants to get out there. Your challenge is just the same. To get your wine under the nose of the people you think are most likely to want to buy it. Thanks to advances in smart technology there are now countless ways to do that. There is the traditional route through straightforward content or advertising in the most appropriate trade and consumer press. But the most successful businesses are the ones that are taking complete control of the messages and content they are putting out there.

Really, how?

Let's take a look at holiday company Thomas Cook. In the early 2000s it, and other traditional travel businesses, were haemorrhaging sales to new online businesses like Lastminute.com and Expedia. Consumers fell in love with the idea of searching for and booking holidays themselves. To fight back Thomas Cook has turned itself into a holiday and media business. It has used high quality content that brings to life the holidays and experiences it can offer which, through careful data analysis of its 22 million plus customer base, it can personalise and target to different people. Content that it pushes out in short films on social media, and via its own publishing platforms both in print and digital and its award-winning website, Excursionist. Content that the search and SEO driven sites of their online travel competitors are not set up or motivated to provide.

Yes, but they are selling amazing holidays. I've only got wine to offer them?

Listen to yourself. What about all those compelling stories you are always telling me you have about every wine in your range. Every wine business, be they a producer, distributor, retailer or restaurant should be using all these story-telling tricks and devices to get their personal messages out to their target customers.

OK, give me some examples.

It all comes down to how well you can use content and technology to get into the hearts, minds and wallets of your customers. Look at what specialist retailers are doing with arguably the most powerful tool they have to hand, the personalised mailer. Different chains, like Majestic, are now sending out daily targeted mailers to specific customer segments with news about, for example, different wines their buying history suggests they will be interested in. How you respond will educate them, and their systems, about the kinds of wines and offers you want to hear about. In just the same way that Deliveroo will send you promotions of types of food it knows you have ordered before.

What else are people doing?

Well, Coca-Cola is running an ingenious scheme where it is asking anyone to come up with creative ideas that “celebrate Coca-Cola” for a new advertising campaign. It has already received over 1,500 free submissions. A pretty canny way to get to see what your customer base really thinks of you. You only need to use one and the rest can help build up your online community. A simple idea that any wine business could follow.

What can wine companies be doing better?

Anyone that is trying to run any form of subscription or wine club model for a start. The ones that stand out aren't just offering a directory and website full of wines and tasting notes. That's just the foundation on top of which all your content that really matters can sit. Be it a regular punchy newsletter that showcases what you do, new voices and videos to follow on social media, an online forum for customers to join in with, Twitter chats with winemakers, or invites to special events. Different touch points that help members feel part of your club. Make sure you get the tone right. Don't talk hipster if your average customer spends most of the year on a cruise ship.

And finally?

Producing good, relevant content is hard. Look back at the content you've been producing and ask yourself if you find it interesting? After all, if you make a big thing of the fact you would drink any wine you sell, then make sure any content or information you're sending out is good enough for you to read and enjoy. Then you'll be more than halfway home. 

* This article was first published in Grapevine that I produce for the London Wine Fair. 

Why we need more than just 15 minutes of fame

That's being a bit greedy isn't it? Why would you want to be famous in the first place?

I don't mean people staring at you in the street famous. I mean working out what it is you want to be famous for in the eyes of your customers, be it the trade or your target consumer. That's a very different kind of fame and it will increasingly determine how successful you are at what you do.

Really, why?

It's a bit like taking your company's values statement that sits pride of place on the wall in reception and turning it into something that really matters. Not to you, but your customer. What is it about you that makes them want to work with you, buy your products and come back for more? It's a harder question to answer than you think, particularly in such a homogenised industry as wine, where essentially everyone is just buying and selling different variations of the same thing - 75cls of wine in a bottle.

But surely every business is different based on the people in it?

They are, but it does not mean the end product or service they are offering is anything distinctly different from a whole number of other like-minded companies. Which brings us back to working out what it is you are really famous for. You can't just say you are dedicated to finding, supplying and selling the best quality wine in the world. There are directories full of companies all claiming to do the same thing.

So what's the answer?

That's clearly going to be different for every business. Look around your competitive set and you will quickly be able to identify what they do best, or better than you. What is it about them that gives them an edge? What would they say makes you unique and different? If you can't answer that, then you've got a problem. Look around different sectors and the most successful companies are the ones that have got a clear business strategy, image and identity. Take Naked Wines. It's all about its Angels supporting winemakers around the world. The Wine Society. A not-for-profit wine club made possible by the collective support of its paid up members. 67 Pall Mall. A private club for professionals who are passionate about wine. John Lewis, a department store you can trust to never sell you a product that is cheaper elsewhere.

But surely there is not an infinite number of ways to buy and sell wine?

If you can't find one then you're in the wrong business. Particularly now that competition is fiercer than it ever has been. Smartphones have put the buying power in the hands of the consumer and your decades of good, loyal service to the wine buying public now stands for nothing if your products come up more expensive on Vivino or Wine Searcher.

So who are the winners and losers in all this?

Potentially it's particularly bad news for the big generic businesses that claim to be all things to all folk. Like our major retailers and national drinks distributors. It means they are effectively all doing the same job - supplying wine from all over the world. Where the only differences between them comes down, in the case of a retailer, to the price or the quality of their private label. Or for national distributors how easy it is to place an order, how flexible they are on delivery slots, and what sort of support, training and trips they offer. They can stand out by being the biggest, with the buying power to supply wines at a lower price. Or they can diversify and specialise in new emerging regions, but then there are independent companies who are already doing that.

So what are they doing?

It's interesting to see how Bibendum is making quality, interesting content as one of its key points of difference. Already famous for its market-leading consumer and trade insights, it is now producing a premium quality e-book, Fine Lees, with customer and producer profiles and magazine quality content. It is also producing a regular podcast, Bibendum Radio, featuring members of its own team, producers and customers to push quality information out alongside the wines.

What else is going on?

We can learn a lot from what is going on in the hospitality and travel sectors. Here businesses that are essentially service providers, be it the food, drink, hotel room or airline seat they offer, are 100% focused on making themselves into brands that are relevant to what their customers want. If you have the money why do you choose one airline over another? Or book yourself into a certain hotel chain? It's the same with restaurants, bars and pubs. Noble Rot became famous amongst its customers for its off-beat, left field magazine, before channelling the concept of the magazine into a restaurant of the same name. Martin Williams, founder of M Restaurants, is quite clear he is all about building a brand, not a chain. A brand famous for providing excellence in service and hospitality that can take those credentials and the community it has created around them into other sectors, be it travel, fashion or whatever. It's what M is famous for that counts, not how many outlets it has.

And finally?

It's why we are seeing so many specialist subscription services starting up. It's where brands are going to be famous. The space available for brands, both big and small, on supermarket shelves is decreasing by the month as they look to build customer loyalty through their own private labels. So instead brands are looking to go direct to their target customers by building up their own subscription models. Just look at the success of Harry's, the US shave club, that is now raking in sales in the UK for its through your door regular supply of razors and cream. It became so successful that Unilever bought it for $1bn. If Harry's can become famous for such an unexciting product as razors, then there has to be enormous potential still for all those businesses, and individuals, who can become genuinely, uniquely famous for the wines they make but increasingly about how they market it, sell it, deliver it and get people coming back for more.

Why consumers want more than low prices to keep them loyal

You sure? Don't believe everything your retail consultant mates tell you.

Well, clearly we all like a good deal and it's always going to be an important part of any buying decision, but if you keep going back to your customer base with just another discount, followed by another, then people will stop buying and disengage with the offers you are sending out. Take Gap. If you sign up to its customer newsletter, you will receive an email every day offering some sort of discount. Customers wait for the 40% or 50% offer to come along before ever spending anything, and even then the numbers drop away quite quickly.

But surely it all comes down to price in the end?

You would be surprised. In a retail industry dominated by the everyday low pricing strategies of the German discounters, price has become less powerful on its own as a way of keeping your customers loyal. Shoppers now expect your prices to be as low as they can. To keep them loyal you have to offer them something else. It's why the majority of retail loyalty cards are no longer just about generating points to get direct discounts. They've subtly changed in recent years to be much more about how a specific retailer can help customers in other areas of their everyday spending.

How do you mean?

Just look at the loyalty schemes you are a part of. Tesco Clubcard, for example, offers you vouchers to spend in restaurants, a trip to the cinema, family days out and other experiences to enjoy. It's not just a way to get money off your next grocery bill. Sainsbury's noticeably gave up its own loyalty programme in favour of Nectar that allows you to spend your points across a number of services or non-competing retailers.

You got any figures to back all this up?

Absolutely. Recent research by Forrester shows that 59% of people want something extra other than price discounts from a loyalty scheme. They want rewards and services not available to others. Get that offer right and 69% of loyalty members will spend more with you and recommend your products and services to their peers. But it's not just about what they get, but how they get it. Fifty six per cent of loyalty customers see good service, like a dedicated customer line, or delivery benefits, as key to that relationship.

Interesting. What else?

Arguably the most disruptive influence on how we all now subconsciously judge a retailer's loyalty offer has come with Amazon Prime. Being an Amazon Prime member does not give you any more money off its products. No, it is all about making your life easier. Ordering products with just one click. Faster, more flexible ways to pay for your goods and then how, where and when you have them delivered. The chance to watch more films, access exclusive programmes (even Jeremy Clarkson), download your favourite music and then share it with friends and family. Being an Amazon Prime member is more of a lifestyle choice than simply a glorified alternative to collecting Green Shield stamps. As those retail consultants say, the trick is to be a loyalty company, not a company with a loyalty programme.

Yes, but the wine industry relies enormously on discounting to get people to buy more wine.

It does and has got into a right pickle as a result. It has created generation after generation of wine drinkers who think price first when deciding what wine to buy. It's why there are so few brands to connect with consumers on anything but a transactional level. But it does not need to be this way. Look at how smaller wine merchants or connected restaurants are becoming so successful. They rely far less on the prices they are charging, or their money off promotions to build a consumer base, but instead get a far more meaningful connection with tastings, events, dinners or winemaker talks.

But how do we make wine promotions more meaningful?

Again it is all about knowing who you are selling your wine too and pushing the right offer to the most suitable customer. Don't just send out a mailer with the same promotions to all your registered customers. Spend the time to break down your lists and then target specific customer groups with the wines they are most likely to buy. Most of all make your offers mobile, and digitally savvy enough that they can be used on smartphones. It might sound like common sense, but too often merchants, retailers or restaurants push the same offers to all customers and wonder why they are not picked up.

So what's the answer?

Well, ideally we would not be thinking about promotions at all. But all the other steps you can take to gain the trust, build the loyalty of your customers. How can you reward them in a way that makes them feel better? It could be providing them with more information about what you sell in ways they can relate to. It might be offering them better delivery options, incentives for recommending their wines to their friends. How you are going to use their data to get them more wines they like, be it online, in-store or a combination of the two. But in the end it all comes down to balance. We all like a good offer, but now we want it to come with bells, whistles and other personal benefits.

* This article was first published as part of the Grapevine views, insights and analysis newsletter produced for the London Wine Fair.  

How we will all get used to the power of our own voice in 2018

That’s a bit rich coming from you. How do you mean?
Happy New Year to you too. To answer that you only have to look at what was one of the biggest selling consumer devices this Christmas. Self-dubbed “intelligent personal assistants” like Amazon’s Alexa, or Google’s Voice, are literally allowing people to use the power of their own voice. These devices are set to be become as prevalent and normal in our daily lives as downloading music on Spotify or running our lives through an iPhone. The likes of Amazon Alexa and Echo not only respond to our demands to play a radio station, look up train times, or switch our cooker on at a certain time of the day, they will increasingly be able to listen, learn and adapt to our personal way of talking and thinking so that its algorithms are more in tune with what we want. As machine learning becomes more sophisticated, cloud-based devices, like Alexa, will become more intelligent, powerful and useful.

Yes, but do we really want to be barking out orders to faceless machines?
You might have said the same thing about asking Google to do everything for you. IT research body, Gartner, estimates by the end of 2018, 30% of all web browsing globally will not be done on a screen, but by voice. Particularly as more voice activated devices become the norm in cars, self-service machines and other areas of business. Radiocentre, the UK industry body for commercial radio, predicts 40% of households will have an Amazon Echo device by next year, up from 9% in 2017. The pick-up in the US will be even faster with Gartner predicting 75% of US households will have a voice device by 2020, up from 7% now. Samsung has revealed this week that all its products will be voice controlled by 2020.
 
It all sounds a bit like Big Brother to me?
Well, you’d better get used to it, particularly if you don’t want to be left behind when such devices become mainstream. It is why major grocery brands are switching their advertising revenues more towards voice-based search to ensure their products are picked up by Alexa-style devices and the algorithms they use to recommend brands to their users.
What are the implications for the wine industry?
They present a major new challenge to the over complicated and duplicated category of wine. Already FMCG brands in major grocery categories are having to look at how well known their brands really are. How easy is it for consumers to remember and say their names? How many top selling products are actually just bought on impulse when recognised down a supermarket aisle? To be relevant to these digital assistants, brands need to be instantly known to users and, most of all, trusted.

amazon alexa.jpg

 

What else?
You can see why searching for products by voice throws up major concerns for a category like wine that is driven by price, discounts and deals than real brand loyalty and awareness. Chances are it will be grape varieties, countries or regions that Alexa devices will have to interpret and recommend wines for. With so much duplication down the wine aisle it could be disastrous for many of our biggest selling brands unless they can find new ways to be remembered by their customers.


What does this mean for retailers?
Voice activation is potentially good news for major retailers as customers are likely to defer to own label lines when they can’t remember the name of the Pinot Grigio or Prosecco brand they drank last. But arguably less good news for all those retailer, here today, gone tomorrow exclusive brands that rely just on their price and positioning to be sold in-store.

OK, carry on...
But the major challenge to retailers comes from the likes of Amazon and Google that have invested so much in leading the way on voice assistant technology. Not only are they making and selling the devices, it makes them potentially more relevant and more powerful than traditional retailers. We can expect Amazon, in particular, to roll out huge swathes of its own branded products that consumers will trust to buy through voice. It’s already happening. In the US 15% of Alexa owners use them to buy products on Amazon. Its own basic battery brand now outsells major names such as Duracell and Energiser.


So what can wine businesses do?
They need to look at ways they can be relevant in a world controlled by voice rather than screen search. Become known and trusted as the brand, or the business, that knows everything and anything you want to know about what to do with wine. Can you be the brand synonymous with advice on what food to pair with wine? Become the go to brand for a particular country, region or grape variety. Brands will be able to work with the likes of Alexa to become seen as experts in their particular field. Drinks companies like Scottish craft beer business, Bellfield Brewery, are already working with Alexa to provide a range of messages that tell its back story, or let users know the nearest place where they can buy its beer.


So there’s a lot to be getting on with?
Indeed and not all of it needs to have anything to do with voice control now. Wine businesses need to start that journey by becoming more trusted, more relevant to their customers than just being a simple wine brand, retailer or merchant. The more layers you can add now to what your brand stands for, what services and expertise you can provide, the better placed you are to give power to your own voice when you need to.

* This was first published as part of the Grapevine views and insights newsletter I produce for the London Wine Fair. 
 

Have we got wines to entertain you...

Sorry. Have I missed something? Who are you trying to entertain and why?

Well, it might take more than a one liner to get you off your seat, but look around and everyone on the high street, on the interweb, or bouncing around on social media are all trying to catch our attention by not just selling or telling us stuff, but looking to entertain and offer us an experience as well.

You mean turning the high street into the equivalent of It Ain't Half Hot Mum?

Now you're getting it. Yes, it's like all our retail chiefs have picked up on that famous “meet the gang cos the boys are here, the boys to entertain you, with music and laughter” line and are doing their very best to turn an afternoon down the shops in to an experience in its own right. Welcome to the world of “shoppertainment” which increasingly is as much about show business as it is selling you a pound of carrots, a bottle of Pinot Grigio, or a lifetime of insurance.

 

Gon then, give me some examples.

How about this. All the serving staff at John Lewis' new flagship store in Oxford's Westgate shopping complex have been taking acting and performance lessons at the local Oxford Playhouse. The idea is to give them personal confidence skills in how they talk and what their body language is like when serving customers. It's about the chain's ambition to “reinvent the department store for the 21st century” including dedicating a fifth of the store to 21 “services and experiences” areas offering haircare and styling advice, to helping you buy your Christmas decorations.

Anything else?

This week's Halloween saw as many ghouls, ghosts and contortionists on restaurant and retail floors as sommeliers and store staff. All trying to shock and awe to attract customers in. Martin Williams refers to his M Restaurants as being like a stage on which he can use his training from drama school to perform and project himself as head of house. Debenhams' stock room is even known as the “backstage” and there are signs for staff heading on to the sales floor that say, “Smile, You're On”. It's a different spin on the kind of welcome Bet Lynch would give you in the Rovers Return.

So why are retailers and restaurants behaving this way?

Just look at how you are reading this. Chances are you're glancing at this on your smartphone whilst doing a host of other things, be it downloading music, following a route on Google Maps, or taking part in a Twitter exchange. Getting someone's full attention is hard. Even if they are actually in your place of business looking to buy what you sell. Simply putting goods on a shelf, or writing out a carefully crafted menu, won't wash with the modern consumer who has probably downloaded your range on an app and done a SWOT analysis on your prices.

So good experiences are good for profits too?

Absolutely. Get the whole shopper experience right and not only are consumers happy to pay a lot more for the basic item in question, they are likely to come back for more and bring some friends and family with them.

Is that why more wine tastings are taking place in grungy nightclubs and underground bunkers?

You have been paying attention. Yes, the traditional wine tasting is slowly being transformed away from silent, oak panelled, soulless rooms, full of pin striped suits pouring wine. If all you have to offer is trestle tables and a cold buffet then it does not matter how cool climate your wines are. You run the risk of your wines being unloved and unbought.

But surely we don't have the time or money to be turning tastings in to “winetainments”?

Why not? It's about changing our collective mindset about how we as an industry are talking and promoting wine to the end consumer. To get that right we have to start with ourselves and how we talk and sell wine to each other. It does not need to cost any more money, it just needs more creative thinking, and risk taking to do things differently that are genuinely as memorable and exciting as you claim your wines to be.

What about retailers and restaurants?

Again you don't need to be hiring Billy Smarts Circus to sell a few more bottles of New Zealand Sauvignon Blanc. But you need to start offering more than a plate of salami and cheese to get people to turn up for a tasting. Look at last month's Wines of Argentina Barullo event which started off as a normal tasting and ended up as a full on rave with DJs from Shoreditch House. We've come a long way from expecting to be entertained It Ain't Half Hot Mum-style, but we still need to find new and fresh ways to “raise the rafters” and put a “hey, hey, hey” in to everything we do.

Why wine has to find a way to free itself from the shackles of the multiple grocery sector

This all sounds rather grown up, what do you mean shackles? Isn’t over 80% of wine sold in grocery retailing?

Yes, it is and probably more when you factor in c-stores and online. Which is all well and good when the dynamics of grocery retail are all swimming in the right direction for the benefit of all. But in recent years the driving factors within the grocery sector have changed. They have been turned upside down to become an unhealthy imbalance of power between the big supermarket chains, beholden to their share prices, and the privately owned German discounters that have no investors to please and can play a completely different game, backed by the strength of their global retail networks. Throw in the spectre of Amazon, that can afford to run a retail empire based on never seemingly having to make a profit, and you have a trading environment that is uneconomic for even the biggest FMCG brands, never mind the impracticalities of the wine retail model.

Phew! That's a lot to get off your chest. But why is wine at such a disadvantage in the current retail environment?

Wine businesses supplying the retail sector are no longer in control. They’re being forced to make decisions about where and how they sell their wine which they know to be unsustainable in the long term, but unavoidable in the current retail climate. That’s if they want to continue to have their products on shelf, and cash flowing down their supply chain. The knock-on effect of that means the wine industry as a whole is like a boat in the wash of a retail super tanker being thrown this way and that.

So what’s the big fix?

It’s not one answer, but a multitude of things. The big issue the wine industry has versus other packaged goods, including beers and spirits, is you can’t just turn a tap on to produce more wine when the market needs it. But that does not change how major retailers source, buy and sell wine. Wine is seen as even more of a commodity than it ever has been. Used to drive not just footfall to retailers’ stores, but full on stampedes with people queuing up at dawn to get their hands on £3.99 German discount-sourced bottles of Prosecco.

So what can we do?

The biggest change has to come from within the Big Four supermarkets themselves. They need to regain their confidence and start acting like the world leading chains they were once famous for being. For at least the last five years they have stopped driving their own agenda in the interests of their shoppers, but have been fixated on copying and following the retail strategies of the German discounters they are simply not equipped to compete toe to toe with. There has been a serious lack of leadership and direction from the supermarket sector. Just look back 10 years ago and the chief executives of the Big Four grocers were leading business figures in their own right. Everyone knew what each of the supermarkets stood for. But where are the Justin Kings, Terry Leahys, Allan Leightons or Lord MacLaurins of the current generation of retail leaders? What has made matters worse is the discounters, that have this magical power over the Big Four, have a policy of not talking to the City or the media and explaining what their retail strategy actually is.

Anything else?

Tesco is getting its act together again. Chief executive, Dave Lewis’s turnaround strategy is starting to make a real difference to not just the company’s bottom line but the confidence of the wider grocery industry. The wine sector could be about to benefit from those changes. Last week’s announcement that Tesco is to move its commercial strategy and development director, Robert Cooke, to head up its BWS division, is arguably one of the industry’s most significant news of the year. The fact you’ve probably not heard of him is potentially a good thing. The wine department is going to be led by a senior Tesco executive with direct contact and relationships with the board. He is not a wine trade professional beamed in from outside the company. Let’s hope he uses his influence with the board, he was formerly Tesco’s commercial operations director, to drive a sustainable, profitable wine strategy that goes back to mutually benefiting its suppliers and customers.

What steps should the industry be implementing?

We have talked recently about the steps wine companies are taking to take more control of their futures. This has to continue and become more widespread. Be it consolidating and growing their buying power; investing in technology, data and insights to make themselves more relevant; adapting their financial model to cope with a post Brexit future; focusing on innovations, new products, packaging and formats that provides solutions for retailers and customers to benefit from.

And finally?

Wine businesses can also be braver and actually say no to the buying demands of the supermarkets and discounters. No-one is forcing anyone to sell wine that is uneconomic. There are now many ways to drive your wine business forward, and different growing channels to sell your wine too. The current multiple grocery retail environment makes making those changes even more of a necessity than ever before.

Why big and small businesses need to work together for mutual benefit

Sounds like you've been reading too many corporate annual reports. What are you on about?

You're not wrong there. My secret summer reading. But if you look closely enough it seems in the modern business world, big and small can and should work together. Rather than David spending all his time trying to kill Goliath he would better off finding a way to catch his oversized eyes and cosy up together.

David and Goliath, really?

If it catches your attention, then yes. You only have to cast your eyes over to the spirits industry to see how many of the major drinks producers now have their own strategically important innovation hubs set up to specifically work with and invest in start up businesses. Diageo set up its Distill Ventures hub as long ago as 2013 and has already spent £50 million in seeding and funding new spirits entrepreneurs. Pernod Ricard has followed suit with a similar Ventures initiative where it offers up to £1m to invest in startups. These drinks giants have realised the business potential in working with companies who might in sales terms be minnows, but who might have the edge in dreaming up the next creative, cutting edge idea.

You mean nick their ideas for themselves?

You might say that, but I couldn't possibly comment. The explosion in craft beer and spirit products has changed the rules for even the world's biggest drinks companies. They are no longer the all powerful, dominant figures they used to be. They also know they can't keep their investors happy by relying on year in year out growth for all their global power brands when drinks categories are being stretched by an increasing number of niche, more on-trend, craft-driven brands. The likes of Diageo can't compete by creating the cool artisan, authentic brands that consumers now increasingly want. But they can learn from the entrepreneurs behind those brands to find what trigger points they are using, what social media platforms are best for reaching their target customers.

Sounds interesting. What else?

Running these startup hubs has moved up the corporate agenda even more now the major grocers are cutting ranges where even Diageo and Pernod Ricard products are not safe. It is happening right across the food and drink industry where R&D budgets are notoriously much smaller than in other industries - making up only 3% of the $680m global industry spend on R&D, according to PwC. Coca-Cola, Kellogg’s, General Mills, Campbell Soup and Unilever all run similar funding schemes. Unilever says such initiatives are going to be vital for business success in the future. Aline Santos of its start-up division, The Unilever Foundry, says working with startups “can no longer be viewed as an optional extra...it's a strategic imperative”. Adding: “Startups are now widely recognised as invaluable sources of innovation, fuelling growth and providing pioneering business solutions.” Which does not say a lot for the well paid Unilever executives working alongside them.

So how do these start-up initiatives work?

There are all sorts of arrangements and partnerships being set up where the whole purpose of the link-up is for mutual benefit rather than being purely predatory. They simply would not work if they were. A startup might agree for a drinks giant to take a Dragons Den-style stake in their company in return for seed funding and expertise. Take Seedlip, the world’s first non-alcoholic spirit, which allowed Diageo to take a 20% stake in its business to help fund growth and development.

But surely these big drinks giants are looking to ultimately gobble up their competition?

For some, yes. Particularly in the beer industry where all the world’s biggest brewers have now bought up craft beer brands. Anheuser-Busch InBev has acquired 10 alone in the last few years. But again the time comes when smaller players are happy to take the corporate dollar. Super hip Innocent Drinks is now part of Coca-Cola, Ben & Jerry’s is owned by Unilever.

What about the wine industry?

There is, as yet, not the same level of partnership or strategic thinking that start-ups or smaller businesses can take advantage of working with major wine producers or distributors. But it is surely only a matter of time. For all the talk of consolidation in the sector, if two major distributors come together it is only creating more of the same. It's not radically changing the way they work or re-inventing an increasingly broken wheel. Big merger and acquisition deals are also high risk with no guarantee of success.

So how could it work?

Well, what if a national drinks distributor signed strategic partnerships with smaller merchants to bring flair and dynamism to their range? There has to be more room for collaboration and partnership between large and small distributors and importers. Where one can help each other, be it with range, contacts and creativity on the one hand, and efficiencies and distribution on the other. If it makes good business sense for both sides then what's to stop more David and Goliath partnerships evolving in the future? It can only be good news for the industry if it brings out the best of both sides for the benefit of all.

 

Why to sell more wine we have to know how to sell more beer and spirits

Sounds like you have been drinking all three. What are you talking about?

That's actually my point. We might in the wine trade be obsessed with all things to do with grapes and vines, but the majority of our customers aren’t. Wine is just one of a number of drinks they might have during the average week or month.

Yes, but what’s that got to do with beers and spirits?

Well, think it through. It makes sense for us to know the kinds of other drinks our wine customers are also purchasing. What sort of beers, ciders or spirits do they turn to on a night out? In an ideal world we would also know the kind of food they like, what sort of restaurants they go to, the holidays they go on. All of which help us build up a 360 degree picture of the kind of customer we are trying to attract. For deciding what sort of wine you want has become more of a lifestyle choice, as it is a desire to drink a particular grape variety or explore a certain wine region. 

“Too often our trade teams are split category by category and never the twain shall meet. Sommeliers are in charge of the wine, and bartenders stick to their cocktails.” 

OK sounds interesting. What else?

Looking at consumers more as drinkers rather than just through the prism of wine allows us to see them in a completely different way. It helps us to understand, for example, why there has been such a surge in interest in craft beers and spirits in the last three or four years. Products that are much easier to produce and tap in to the overall general consumer demand to explore and try out new things and experiences. We have talked a lot before about how the smart phone has not only opened our eyes to so many more possibilities in our lives, but has made it far easier to go out and get them. We are no longer having to rely on the tried and tested and the likes of Judith Chalmers to tell us which holidays to go on, or Delia Smith what dishes to cook. We are constantly on the look out for what’s new, different and exciting. The world has opened up and it’s all available at the touch of a button.

So what are we seeing across the drinks trade?

Supermarket drinks aisles and pub back bars are now made up of brands and products that have been created to serve a specific consumer need or drinking occasion. It is why we have seen such an explosion in new beers, ciders and spirits that are constantly changing before our eyes. Those categories have been far quicker to realise the need to personalise, even pigeon hole if you like, their offer and target specific customer groups or create brands that are occasion and experience driven. They also don’t have to rely on the vagaries of the weather and annual harvests to get their products on shelf.

And what about wine?

Just look at the two big wine success stories in the last three years. Sparkling wine and rosé. Both are, in their own way, riding the same wave that has been so successful for craft beer and spirits producers. Products that are on the one hand aspirational, yet affordable, but are also creating specific drinking occasions for consumers to enjoy and treat themselves.

So wines, beers and spirits should work together?

Well, for all the talk of having separate bespoke trades for wines, spirits and beers, they are usually all sold together, or at least next to each other. Be it in the BWS fixture of a supermarket or across the back bar of the average pub or bar. The majority of independent wine merchants also sell beers and spirits. And if they don't they probably should be. But how much notice do we take of what is being sold in which category and why? Too often our trade teams are split category by category and never the twain shall meet. Sommeliers are in charge of the wine, and bartenders stick to their cocktails. Yet watching, analysing and talking to your customers about the beers and spirits they buy will teach you a lot about the kinds of wines you should be listing too.

In what way?

It can help determine quite how adventurous your customers are, and how willing they are to pay for it. Do they stick to the Stella and Gordon’s or prefer a Belgian Pilsner and small batch distiller. How happy are they to trade up to exotic beers and untried spirits?

Anything else?

Forget the drinks industry for inspiration. You could just ask them if they would stick or twist at 14 in Blackjack. If they twist, go heavy on the Grüner Veltliner, local craft ale and Bathtub gin and if they stick, keep stocking up on the Pinot Grigio, Fosters and Smirnoff. 

Could bigger formats and gifting be the saviour for wine brands?

You sure? That’s a lot of gifts to go around.

Calm down. One step at a time. But, whisper it gently, things are a-changing down the local supermarket wine aisle. The wall of wine is slowly being broken down into more distinct areas, where we are no longer just confronted with row after row of exactly the same sized bottle of wine.

You must be going to different stores than me.

Well, it’s not everywhere, but if you know where to look then there are some very interesting changes taking place. Each of the major multiples all have their trial stores where they bring us freshly made coffee and ironed newspapers long before the rest of us get to see them. It is in those stores where you are seeing new additions to the wine aisle. Particularly different formats, bigger sizes, magnums, and where limited edition gift packs are being used to make shopping the wine aisle a bit more of an experience.

What’s bringing all this about?

It won’t be the first trend that starts in the on-trade and ends up in our supermarkets. Flick through any on-trade report worth its salt in the last couple of years and sales of bigger sized bottles, particularly magnums, are giving Prosecco a run for its money. Which is good news all round, as bigger formats should, in theory, mean better margins. The recession may have made us all far more cost conscious consumers, but as the boom in sparkling wine has shown us, we are also far keener to find ways to give ourselves a treat, and share new experiences. Splashing out on a bigger sized bottle of wine ticks both those boxes.

What about gifting?

Well, unless you are constantly celebrating something we are not buying these bigger sizes just to drink at home. Instead they are being seen as the ideal alternative, but ultimately super safe gifting option. Ideal for a memorable wedding present, or to add a bit of theatre and drama to a dinner party.

What does this mean for brands and the wider wine trade?

It could potentially shake up what’s being sourced elsewhere down the wine aisle. For the last 10 years it has been the rise of the super varietal that has driven supermarket sales. Shoppers may not know their Nuits-St-Georges from their Walker Bays, but they know which grape variety they like. It has created a Premier League of grape varieties that now rule the world.

So where does gifting and new formats fit in to that?

If they continue to grow as they are now, it does tip the scales a little back towards all those producers and suppliers that have invested so much in developing wine brands. Proper brands with real values that don’t just introduce a Pinot Gris to keep the chattering classes happy. They now have the opportunity to develop well designed, positioned and beautifully executed larger formats and gifting options for their brands. New packs and bottles that crucially move them up the pricing ladder.

Sounds interesting, anything else?

For the brands that get it right it potentially moves at least part of their business out of the wine aisle completely. They could now become very relevant to those more premium shoppers looking for new ideas for their occasion-driven shopping missions. The opportunity to engage with higher spending consumers in a completely different way. It also gives them the chance to be sold in different retail environments, like at airports or in premium department stores. It would mean rather than look for a mention in one of the weekly national wine columns - rare for a mainstream wine brand in any case - it will become far more exciting to be featured as part of the gifting ideas sections that pad out women’s lifestyle and luxury magazines.

Who’s doing this well?

Well of course nothing is really new. If a wine brand really knows how to succeed in the gifting arena then they only have to look over to the Champagne brands as they have relied on gifting boxes and larger formats for decades.

What other ‘gifts’ have you got for us?

Well, for the more premium supermarket wine brands it offers the chance for salvation. The opportunity to escape the sword of Damocles that stands above any brand on a multiple fixture. Super size yourself, get out of the rat race, trade up, find a pretty box to put yourself in and the world can look a very different place. 

* This is part of the latest Grapevine news and views review produced for the London Wine Fair. You can sign up and subscribe to receive Grapevine here.

Why everyday pricing is no longer possible or expected by consumers

You’ve been reading too many wine supermarket press releases.

I doubt that. I think they’ve stopped sending them out. But just look at the numbers. We as a nation are now prepared, if not happy, to buy an average bottle of wine that is closer to £6 than £5 for the first time. OK that move to £5.56 at the turn of the year might be all down to inflationary pressures, including the 15% drop in value of sterling, but it means the average bottle price is up 19p a bottle in the last two years, and that's not even factoring in the latest duty hike in March.

 

But surely price is always the first thing any wine buyer looks at - for trade and consumer?

It certainly used to be, and is still a hugely significant deciding factor, but our overall relationship with “price” per se is changing. At least it has since June 23, 2016. That decision to leave the EU also set in motion a series of economic pressures that have resulted in grocery inflation now sitting at 3.2% and overall inflation not far behind at a four-year high of 2.9%. The impact of that on the average shopper is the equivalent of having to do an extra seven shops a year or £133 per household, says Kantar Worldpanel. So, yes, on the one hand consumers are still very sensitive about the individual price of any given product on the shelf. But when we realise prices are going up across the board (butter by 20p, tinned salmon up 14%, plus similar hikes on clothing, energy, or even computer games) then it’s the collective impact that becomes the issue, rather than the individual cost of a bottle of wine. 

OK, tell me more?

You only have to look at the national newspaper headlines over the last fortnight to see how our collective attitude towards “price” is having to change due to Brexit. For the first time families will have felt the direct backlash of a weak pound by having to pay more for their annual holiday and seen how far your pound goes when travelling abroad.

This is all getting a bit political. Thought we were here to talk about wine.

Bear with me. You don’t need to spend too much time on social media to see how divisive the whole Brexit issue has become. But equally we know as a country we voted to leave the EU, better or worse. A fact demonstrated in a YouGov poll last week that found three out of five people who voted to leave regard "significant damage to the British economy to be a price worth paying" for Brexit. What’s more 39% of the nearly 5,000 people surveyed said it would be worth losing their job, or having a family member lose theirs, in order to leave the EU. So if prices are going up then that’s a cost we are prepared to pay.

That’s all very interesting but what does it mean for us all in the wine trade?

Well, it’s important we understand the consumer we are trying to sell to and there’s no doubting we are all living and working in a very different retail environment to just over a year ago. But there are also long standing factors at play here, regardless of Brexit. We have talked before about having to serve the post-recession consumer that has never been more price aware or sensitive. But at the same time you only have to look at the boom in Prosecco to see how even price conscious consumers are happy to treat themselves - on a regular basis.

If that’s the case why are Aldi and Lidl continuing to do so well?

They are indeed, but look closely at their figures and it’s not just all about saving money that has made Aldi and Lidl the darlings of the high street. It has had great success with its premium own-label wines and has found selling wine at £15 plus a bottle has all been part of its strategy to attract more middle class shoppers through its doors.And the multiples?It’s also where the big supermarkets are succeeding. It is their collective sales of premium own-label, up 13.9%, that is driving the grocery market compared to branded growth of just 0.9%. The fact supermarket own brand lines now have a record 51% share of grocery spend shows how we have all become value conscious consumers.

So in a nutshell?

We might all in an ideal world like to still have our cake and eat it, otherwise known as everyday low pricing. But in these unforeseen pre-Brexit days, we are now far more understanding that unforeseen economic and political factors mean we are going to have pay a bit more for our daily bread - including an above average bottle of wine.

This is part of Grapevine newsletter that I produce on a fortnightly basis for the London Wine Fair. You can subscribe to receive a free copy here.

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Running stores could be the next big thing for wine suppliers and producers

Come again? Wouldn’t that be robbing Peter to pay Paul?

Well, that depends on who the Peter and Paul are in the equation. If you mean are we going to be seeing a Matthew Clark or Gallo-themed wine shop on the high street any time soon then probably not. At least not for now. But behind the scenes careful thought is being given as to how wine distributors and producers can get closer to the market by being part of either their own retail operations or working alongside partners in the industry.

How do you mean?

A lot of this activity is taking place already, but under the guise of wine vans and pop-up bars at food and drink festivals, and sporting events around the country. Not a week goes by without news of another wine business running their own pop-up. Be it a wine generic like Vins de Bordeaux running its recent Bordeaux Butterfly Bar at London’s Broadgate Circus. We've even seen big high street names like Aldi and Tesco run their own wine-themed retail pop-up shops. Get it right and you can become a consumer and tourist attraction in your own right. Take Campo Viejo’s well established annual Spanish fiesta and its recent five-day wine and food experience, ‘Fiesta de Color’ near London Waterloo. 

What about wine distributors?

Going direct to the consumer is already big business for some major wine distributors. Conviviality even has its own division, Conviviality Trading, that looks after its own events and sampling campaigns. Its Peppermint businesses, for example, is a dedicated outdoor bar event operator managing over 40 events a year. The Wondering Wine Company, which started life at Bibendum, its also now covering 40 plus consumer and sporting events a year selling Conviviality drinks through its fleet of vintage vans and has had a go at running its own pop-up retail store.

What else?

As traditional wine importers become brand developers and owners in their own right then running their own retail - or event - concept is a great way to first trial, develop and then seed those brands with consumers. Copestick Murray, which usually has to rely on its retail partners to sell its wines, is currently promoting its iHeart wine range with a summer tour of festivals and events in its new branded camper van. Buckingham Schenk is running a pop up bar for the Viñalba Argentine wine brand in London this October. Look hard enough and there are plenty of other examples of wine importers doing the same.

So where’s the high street retail angle?

Ah, good question. Yes, the vast majority of this activity has currently been targeted campaigns, mainly at outdoor events, for short periods of time. Restaurants might have evolved out of pop-ups, but wine merchants or retails stores haven’t. But that could well change as distributors look to take more control of their destiny. They might be in charge of sourcing their own wine, but they have no control over how their wines are sold.

OK, sounds interesting.

Major drinks distributors are already providing lots of commercial support to help bars and restaurant groups build their wines sales and manage their drinks lists. It would not be a big leap of faith to turn that support into funding a restaurant, bar or wine merchant to open a retail site (or two, or three) where they would have a lion share of the wines being sold there.

Are you just making this up?

Heaven forbid! But you only have to do a bit of lateral thinking to look at the amount of time being spent by traditional wine distributors on setting up these pop-up bars and events to make you question what the ultimate objective is here. Particularly when you could argue such initiatives are a big distraction from the day job of servicing their customers and getting the right wines to them on time.

So what is going on?

All of this pop-up and events activity is doing one thing. Bringing wine businesses and producers in direct contact with consumers. It is cutting out the middle man. It is allowing them for the first time to get their hands on real, raw consumer data it can use to better understand the business they are in. They don’t have to rely purely on Nielsen, CGA or IRI sales data. They can see and hear with their own eyes and ears how consumers behave when buying not just any wine, but their wine. That’s worth trudging around muddy fields in the summer for. Or better still having a retail store you have a stake in and let the sales data do the work for you.

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How the UK's wine future is as a trendsetter not volume sales driver

You’ve been watching too much of the G20 summit?

Thankyou, you give me too much credibility to think that, the reality is more spending time listening closely to how the world of wine now views the UK. Regardless of Brexit and what all that might mean in terms of future trading arrangements, the UK is now being seen in a very different light by most major wine producing countries that it was three, five and most definitely 10 years ago. 

 

How do you mean? 

If you think about it major producers in Chile, Australia and South Africa are going to be catching whatever cold is coming out of the UK a lot faster than we get to see it right under our noses. 

They have been the first to feel the fall out from the big seismic changes that we are now seeing in how our major supermarkets are behaving and the impact of the slow, but sustained and strategically vital switch in power away from the grocery giants to the discounters. Aldi and Lidl might only even now only hold 12% of the market, but their influence on how the rest of the grocery (and wine) industry is behaving is total. 

 

That’s a bit dramatic isn’t it?

What we often forget about the quite, unassuming, cheap and cheerful image of the discounters is they are, in fact, global retail juggernauts. They may act like minnows, but in reality they are big Great Whites circling the world, slowly dominating where they operate. It means they can operate small buying teams, compared to the big supermarkets, as they are backed up by the huge buying power of their central office. They have a fraction of the operating costs as they have tiny ranges, very limited stocks and are not bogged down by pleasing shareholders every quarter.

 

But what’s all this got to do with wine?
What Aldi and Lidl have done is send shockwaves around the traditional grocers who simply do not currently have the infrastructure to respond. They need big property empires to drive the volume and value sales their shareholders demand. They need big ranges to attract hordes of family shoppers and they also now need to run state of the art online and home delivery operations to satisfy changing shopping behaviour. All of which the discounters don’t need to worry about. 

As a result it has seen massive changes to the way the average supermarket wine aisle is now run. For producers and distributors it means buying decisions based, to coin a phrase, “for the few, not the many”.

 

So the rest of the wine world has felt the after wave of that?
Not so much the after wave, but global wine producers were hit with all this months before we saw the impact on shelf. Suddenly guaranteed volumes of wine from what might have been their biggest export market are no longer there anymore. It has forced them to change their export strategies and look at the UK through very different eyes. Yes, it might mean pushing more wines in to the independent merchant and on-trade sectors, but for big volume, co-operative based wines from Old World classic regions that has not been a realistic option. Most big branded wines can’t play in those sectors either. 

 

What are you hearing on the ground then? 

Well, it has been interesting to talk to major producers, co-operatives and negociants over the last year and hear how their tone has changed when they talk about the UK. It’s a subtle difference, but, yes, you will still hear them enthusiastically describe the UK as being a “trendsetter” a “key benchmark” a “shop window” for the rest of the world. That has always been the case. But the big difference now is it’s not then followed up with talk of how their sales are increasing and what big plans they have for the future in the UK. What’s more their export managers are spending less time in the UK and concentrating on bigger, more profitable markets around the world. 

So we’re becoming a strategic hub?
It’s not probably going to be the sales line used by the government’s UK Trade and Investment team, but for large parts of the wine industry, then, yes. The UK is still going to ship and sell a lot of high volume wine, it’s just the number of producers that will benefit is going be greatly diminished.  

 

And the good news? 

There’s also plenty of that going round too. The supermarket channel may have become increasingly difficult to crack, but it has resulted in far more interest from wine producers to sell their wines in different channels and to help fuel the growth in small independent distributors selling to niche independent and fine wine merchants, wine bars, and a vast and diverse restaurant and gastro pub scene. The type of agenda-setting outlets and operators that will become the UK’s increasingly premium wine image to broadcast around the rest of the world.  

* This article was first published on Grapevine, produced for the London Wine Fair. 

Why own label makes increasing sense for shoppers and retailers

You and your own label. Why are we returning to this now?
 

I’m not being rude, but it’s all about the economy, stupid. Yes, own label, private brands, exclusive labels, call it what you will, have been enormously important for supermarkets and retailers over the last 30 years. The big difference now is that private label is not just being driven by retailers, but consumers are increasingly changing their shopping habits and voluntarily deserting household brands for a cheaper own label alternative. Average household budgets are being squeezed. Families are having to live with lower than inflation salary rises and increased utility bills and are becoming ever more knowledgeable about how they can cut their basic food and drink bills. Starting with switching more to own label.

Where’s the proof for that?

Everywhere. Analyse the latest end of year trading statements for the major grocers and whilst their headline growth figures are nothing compared to what they were 10 years ago, where they are all doing particularly well is their increase in own-label sales. Tesco’s overall sales might be up 1.9% but they are being driven by a 6% increase in own label. Morrisons says its new ‘The Best’ premium own label line is behind its recent return to form. If you drill down in to individual categories, like wine, then the growth in own label is even more marked. 

 

Any specific figures? 

Recent research from Retail Economic shows that 48% of consumers would switch even more to own label if weekly food shopping bills go up by 3%. Kantar Worldpanel has average food bills up by 2.3% on this last time last year and some analysts are predicting average 8% price rises for products from the EU over the next two years.

 

So what’s fuelling this? 

Well, a number of factors are at play here. Firstly, the fact own label has been a stable part of our dinner table for the last 30 years means we are all quite comfortable with the idea of buying retailer own brands. Particularly now there are such well defined economy, mid-price and premium ranges to suit all needs and tastes. Then there is the discounter factor. The vast majority of shoppers, regardless of their background, are now familiar with the Aldi and Lidl offer. Ranges that are almost exclusively dominated by own label. Discounter brands benchmarked to be as good if not better than their branded alternatives. They have helped raise the bar of what we now expect from own label. And the fact their respective sales growths (Aldi 18.3% and Lidl 17.8%) far outstrip what the multiples are doing will drive the push to own label even more. What’s more major retailers are now far more confident about taking out even the best selling brands (noticeably Sainsbury’s) as they increasingly believe their customers don't mind.  

 

Anything else? 

The other major driving factor is price. We might not have left the EU yet, but already food and drink prices are going up and with sterling showing no sign of improving they’re likely to go up further still. So it’s only to be expected that the average shopper will turn more to those retailers that have spent the last 20 years continuously telling us they are there to make our lives easier - and cheaper. They have gone out of their way to be part of our lives way beyond our kitchen table. Trust us, they say, to find you the best value holiday, look after your household and car insurance, offer you the best rate credit card or loan deals. If you are prepared to have effectively an own label bank account then any negative perception of a retailer brand is over. If food and drink prices go up further still post-Brexit, then we will expect our retailers to look after us and protect our family spending. Because that’s what they tell us they’re there to do. 

Is this just a supermarket phenomenon? 

Not at all. Yes, they will benefit the most, but shoppers we are now quite happy accepting or even voluntarily choosing the own label equivalent in all areas of our life. Providing we think it is good quality and good value. It is opening the door for national and local wine specialists to develop their own ranges like never before. Step forward the new “Majestic Loves” £5.99 range. Similarly the on-trade now has the opportunity to really cash in on own label from pubs, through to wine bars, or Michelin-star restaurants.

 

What are brands doing?
Not a lot. There isn’t much they can do faced with the overall economic picture. Instead they are switching their promotional strategy away from big expensive above the line advertising campaigns to more targeted, consumer specific, online and social media campaigns where they can build that individual relationship with their core audience. The big trouble for the major household brands isthat option is not really open to them. So they’re having go toe to toe with the major retailers just to get any of the shelf space that used to be theirs by right. The big winner in all this? The consumer. So when you’ve finished the day job, cash in and get your hands on your favourite retailer’s privates. 

* This article was first published as part of the Grapevine publication I produce for the London Wine Fair. 

 

 

Will wine ranges soon be picked by Big Brother algorithms and bots?

You’ve been reading your Steve Jobs book again? What’s all this about robots and wine?

If you are traditionalist and like to think of wine suppliers and buyers carefully working together tocurate lists and negotiate prices based on their years of experience and tasting skills, then look away now. Computers are already automatically determining ranges and prices of goods in wine and other categories based on equally carefully crafted algorthims. Just look at Amazon. It is not employing members of staff to trawl the aisles of Aldi and Asda to look at their ranges and work out how much, say, their own wines need to be to keep up with the competition. It is using carefully programmed algorithms to trawl the internet, compare prices and change automatically up to half of all the prices on its site every day. There is no need for a Master of Wine or wine buyer with decades of experience to assess sales pattern trends using that model, the algorithm will do that for you. 

 

You’re right it all sounds very Big Brother. 

We may not realise it but carefully constructed algorithms are dictating many of the decisions we make on a daily basis. Take the movies you are shown to watch on Netflix. That is based on all your previous searches and are said to result in 60% of the films you watch. Data scientists are even being used by Hollywood to decide which films to make. It’s why Wall Street now employs some 2,000 physicists to keep ahead of the algorithms managing the millions of transactions taking place every day on global stock and currency exchanges. Algorithms that can close a deal a milli second faster than another really are worth their weight in gold.  

 

But are algorithms dictating what wines we are buying and selling?

Yes, and they will do so to a greater extent in the future. You might be working in a company that already has algorithms and bots helping to manage what you do. Particularly if you are involved in ecommerce or using wine recommendation apps. Vivino has just introduced Vivino Market that is using a range of machine learning algorithms to scan the 20 million consumer reviews, 65 million ratings, and 10 million wines it now has on the platform, to give any of its 23 million users a personalised wine recommendation in less than a second. 

 

That’s a potential game changer? 

Absolutely and what is particularly worrying for the traditional wine trade is that Vivino is not a wine business. It has from day one been focused on collecting enough data about highly marketable, well heeled consumers to drive a Big Data-fuelled business, one that is now highly attractive to third parties to access. “We had to grow our community first in order to leverage the power of our data,” says founder Heini Zachariassen. An increasing number of other algorithm-based apps and websites have all been set up in the hope of taking their cut from the marketing power of the average wine drinker.  

 

This is too much for me. I can’t keep up...

Sorry, but you have very little choice. There is no place for luddites in modern business. Many of the software tools we innocently use on our smartphones, laptops and desktop computer are jam packed with bots and algorithms effectively controlling what we see and do. Our social media feeds are full of them, which is why we all get to see the same daft videos of cats and dogs on Facebook.

 

Any other examples?
Well, brands, retailers and social media platforms like Facebook and Snapchat are increasingly using artificial intelligence and chatbots to engage with users. Beauty brands are now able to “talk” customers through trying different types of make up to selfies posted on a smartphone. If a website takes you through a series of conversational steps to book a table, buy a plane seat, change your password, or order a case of wine then you have probably been interacting with a chatbot to do so.

 

What else can they do?
The most advanced chatbots are being used by brands on messaging apps, like the new Facebook or eBay Shopbot service, to not just “chat” to users, but are capable of learning from each interaction so that they appear even more authentic and personal to the next user. Chatbots are increasingly being used to improve our experience of e-commerce by placing orders knowing what we have previously bought, contacting us throughout the delivery process and then following up to find out what we thought of what we have just bought. Soon bad customer service will be for any transaction where we don’t feel like we’ve had our hand held all the way through the process. Even if by a robot. 

 

What else can we expect

Well, here’s one for you. Facebook is working on new augmented reality technology that could allow us to type, hands-free, up to 100 words a minute just by using our brain waves. All it would involve is for us to wear a device that can read our thought patterns and then write them out for us. I can assure you this article has not been written by a robot...by a robot.

 

Why businesses need to be ready to change or risk being left behind

That sounds very philosophical. Have you been raiding the Chinese fortune crackers again?

Oh very funny. Excuse me whilst I churn out one of the most repeated business mantras of modern times and good old Jack Welch's line that if the rate of change going on outside your business is faster than the rate of change inside your business, then chances you’ll soon be going out of business. Or words to that effect. It might sound like classic US management speak, but how many businesses really are able to adapt and cope with changing times?  It is one thing saying you have a flexible business model it is another proving it. But there has arguably never been a more important time for companies to look and change what they are doing.

How do you mean? 

We are living in such disruptive times. Be it politically, economically or socially. The wine trade, for example, is still coming to terms with last summer's collapse in the pound which continues to wreak havoc across the sector, not just here in the UK but around the world. What's more we've not seen anything yet. The UK has not even triggered the infamous Article 50 and we are already seeing the impact the forthcoming Brexit is having on the economy. 

OK I’m all ears... 

What is particularly crippling for business is uncertainty and we are up to our neck in it. Talk to any UK business chief, big or small, good or bad and they all say the same thing. The current trading conditions make normal business planning impossible. Particularly for an industry that is 99% reliant on importing the goods it sells from around the world. Goods that are bought not just on how good they are but how much they cost due to the relevant strengths of the currencies where they come from. Drop the equivalent of a bomb on the value of those key currencies and you have the nightmare scenario we all find ourselves in. Yes, currencies move up and down all the time, but not to this degree and over such a length of time.

So what's all this about the need to change? 

Well, it stands for reason that if the trading conditions you are operating in have changed completely then it does not make sense to carry on doing business in the same way. It is striking how polarised the wine industry has become in the short period of time since the referendum vote. Split between those companies that have carried on as normal and those businesses that are dramatically changing the way they work. This is not just a post Brexit trend, but it has helped intensify and shine the spotlight even more on how companies are choosing to operate. 

 

In what way? 

It is all about taking more control, to coin a phrase, of your own supply chain. In particular taking steps to do all you can to manage the costs at each stage of your own trading circle and where possible put in measures that make them most efficient. That might mean going out and working with producers to make and blend your own wine. It could be bottling more wine in the UK and creating more exclusive labels. Or it might mean looking outside your current markets and opening up new areas, moving in to exports, or shipping wine direct from producers to other customers around the world. It could even mean moving exclusively out of wine and start sourcing, shipping and selling spirits, beers or soft drinks. Standing still and being tossed one way or another based on the whim of the currency markets does not seem the best place to be. 

But are you not just advocating change for change’s sake? 

Absolutely not. There is no point changing your business model if you are not sure a switch in direction is going to work. It might mean just re-evaluating what you are already doing and making sure every part of the business is operating as efficiently as possible. Tweaking 5% to 10% of what you do could have a much bigger impact on the overall business. But spreading your risk, working in different channels, selling different types of wine or alternative drink categories, gives you flexibility and protects you far more from being over reliant on one channel or a limited number of customers. It might even mean we are not all fixated by any movement in the rate of sterling, the euro or dollar. And there is more change going on there than even Jack Welch could handle. 

* This article was first published by Grapevine the fortnightly insights, news and views publication I produce for the London Wine Fair. 

Are you doing enough to help the aged?

That's a bit of a personal question isn't it?

Sorry, I don't mean you individually. I mean us collectively. How much time and dedication do we as an industry spend trying to sell and promote wine to the 60 plus age group?

How do you mean?

Let's face it, none of us like getting any older. There's nothing worse than reading the latest consumer survey and realising you are about to slip from one demographic to another. So imagine how the so-called baby boomers feel when they read the latest stats about how many Generation Z or millennials are getting into wine. Not only are they slipping ever deeper in to the last age demographic on the list, they are doing so much pretty much unloved, and from a marketing point of view uncared for.

Where’s the evidence for that?

Well, when it comes to advertising and marketing the 60 plus age group is pretty much forgotten. This is ironic considering they are the people with the largest disposable incomes, the most time on their hands to read and discover more about wine, and even go and explore different wine regions. The vast majority, 70%, are also regular drinkers (ONS), and hardly likely to have their head turned by the latest cranberry infused cider on the market. Yet they are usually the last to be actively marketed to.

Go on then show us some figures...

New research by High50, a website aimed at the over 50 market, claims only 4% think advertising is directly aimed at their generation. A “Marketing to the Over 55s” report from Mailjet found that nearly a third (27%) of those aged over 55 in the UK feel brands are too focused on targeting younger people. A worrying 32% said they never received any relevant offers or promotional material from brands they are interested in buying. It's not just wine, but the same across all major consumer and FMCG categories. In the US, baby boomers dominate spending in 119 out of the top 123 consumer goods sectors, yet only 5% of the “advertising dollar” is spent on them.

There are also a lot more older people?

Now you're getting it. The number of people aged 60 years and over, already outnumber those under 16, and by 2024 up to 20% of the population will be over 65 or retired compared to 17% now. That figure is expected to rise to 25% by 2035 (ONS). They are also increasingly well off, fuelled by payouts from final payment pension schemes, the ONS estimates the average income of a retired couple is 13% higher than they were before the recession in 2008, compared to a 1.2% fall for non-retired households.

 

But surely wine companies recognise the importance of the older drinker?

Indeed and there are parts of the wine trade that have the grey pound firmly in their sights. The big, direct mail companies have long seen the potential in tying-in loyal customers to monthly payment plans. The Wine Society, Laithwaite’s and Sunday Times Wine Club all have focused wine lists aimed at older, safer customers looking for tried and trusted wines. Laithwaite’s, for example, runs its informercial TV adverts to target the daytime Cash in the Attic audience. Even the average age of customers at Naked Wines and Majestic are nearer 45 to 50 than in their 20s or 30s. Younger people have different priorities than spending over £100 on a case of wine.

But don't we need to concentrate more on attracting the next generation of wine drinker?

Clearly it is in everyone’s interest to bring new and younger drinkers into wine. Which is largely the role of the major mass market supermarket brands. But we should not lose sight of where the bread and butter of our trade is coming from now, and increasingly in the future as we live, and drink, for longer.

So what should we be doing?

Well for all the miles of content that is written about so called hipster and natural wines we need to be also talking and writing about the Chiantis, the Grand Reservas and making sure what you might call the safe Sunday night, costume drama wines are also getting more attention and focus. ITV’s new The Wine Show is very much on the right tracks. The celebrity stars of the show are based in the safety zone of Tuscany and only ever venture out to other traditional Italian holiday hotspots favoured by the 60 plus age groups. They might get wine brought to them to be tasted by the globe-trotting whippersnapper wine expert, Joe Fattorini, but it is in the comfort of a Tuscan villa. If you are looking for inspiration on how to talk, listen and engage with the older consumer then it may be worth going to see the New Old exhibition at London’s Design Museum, which is packed full of creative ideas of how to do exactly that from leading brand, design and advertising agencies. After all, as we have learnt along the way, wisdom really does come with age.

* This article was published as part of the Grapevine newsletter I produce for the London WIne Fair.