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.
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.
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.