What the wine trade needs to learn from the Tesco/Booker deal

This article first appeared in the Grapevine newsletter written for the London Wine Fair. 

You mean if it happens. Go on then, why is it so important?

Well, if it does go through it’s possibly the greatest "if you can't beat them, join them" business moves of all time. It's also one of the bravest and jaw dropping when you look at what it potentially means for Booker and its traditional customer base. Booker after all is the king supplier to independent grocers, corner shops, local pubs and restaurants who publicly and privately castigate Tesco, and its like, for effectively driving them out of business. To them Tesco is the Dark Vader of the high street. 

But what does the wine industry need to be concerned about?

It will take time for the shop floor and supply chain ramifications of such a deal to work their way through, but it shows how much the retail and supply chain landscape is changing. It also reveals the new, dynamic, open minded, rip up the rule book way of doing business that now exists within Tesco. And clearly even more so at Booker. But scratch below the headline and the deal actually makes brilliant business sense. It would give Tesco better control over that last final mile to its stores and customers. Be it supplying its own network of convenience stores or tapping in to Booker’s own symbol presence through Premier, Londis and Budgens. 

Yes, I’ve read the papers. Anything else?

But it means it would also be far better equipped to Amazon-style get goods to people's houses and business within minutes of ordering it. The deal means it would be able to use Booker's network of local depots, cash and carries and its fleet of vehicles that is the real DNA of the business. It is also surely finally proof that convenience, and getting goods and services to people in their homes as quickly and easily as possible, is now the most important retail nut to crack. The IGD, for example, predicts that by April 2019 sales from the convenience sector, discounters and the internet will be bigger than from supermarkets for the first time, collectively increasing sales by 56%. 

Yes, but where does wine come in to it? 

You and your wine. Sometimes it makes sense to look at the bigger picture than always thinking wine first. Yes, clearly any Tesco Booker deal would have massive implications for both the on and off-trades when it comes to their combined wine buying power, and the wines they go on to stock. But it also goes to the heart of the very different trading conditions we are all having to operate in. 

What do you mean?  

The trade is having to face up to a cocktail of outside influence and disruption that is harder to predict than normal. Wine businesses need to decide where they stand on a number of key issues. First up is whether they should remain wine businesses at all. We're not talking about throwing the towel in, but taking a long hard look at how consumers are behaving and what they are drinking, and whether trading only in wine is going to be the most successful trading model going forward. The continued rise in craft beer and premium spirits is having more of a disruptive influence on the wine category that many in the trade are willing to face up to. We might talk about wine drinkers, but consumers don't see themselves that way. Increasingly so considering the great alternatives there are now to wine.

 

So what changes are we seeing?
It’s not just Tesco and Booker that are ripping up the rule book. It is striking how many wine distributors and suppliers are quietly diversifying in to new areas. Be it their own craft beers, spiritsor premium mixers, or setting up their own mini-event and tasting businesses. It is striking that the likes of Copestick Murray, WX Brands and Origin Wine, so often a barometer of where the trade is heading, are each launching products in one, two or all these areas. The Tesco and Booker deal is just confirmation of the continued growing pressure in both the on and off-trades to drive costs out of the supply chain. It makes sense that customers want to be handle fewer deliveries and deal with fewer suppliers. Many are now employing supply chain consultants to help them do just that. 

If you are going to stick just to wine, then you need to be completely on top of your game to succeed as customers look increasingly to cut their number of suppliers or switch to one stop shops.

And the future? 

It is why the Tesco and Booker deal is so important. It might not effect you immediately or even directly, but what it stands for and the reasons why it has come about are what everyone in the trade needs to understand to be able to face the hard trading conditions of 2017.