Independent retailers

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 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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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.