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MP15137

MAPS OFF TRADE WINES OCTOBER 1997

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Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

The off licence wine market refers to still light wines, sparkling wines and Champagne sold through outlets authorised to sell these alcoholic products for consumption off their premises only. Duty free sales and personal imports are excluded, but do have some impact on the market by virtue of representing a significant source of competition. Still light wines are those produced from naturally fermented juice of grapes and not exceeding 15 percent above, and exclude fortified wines such as sherry, port, aperitifs and vermouths. Sparkling wines come in wired cork bottles and have more than three bars pressure, brought about by the wine being artificially impregnated with gas. Champagne is also a sparkling wine but produced in the region of France by the same name under strict guidelines and the name being legally protected.

The UK off licence wine market was worth £2,234.1 million in 1996, representing a growth of 38.2 percent on 1992 at current prices and 23.9 percent in real terms (based on 1992) price. By the end of 1997, the market was expected to be worth £2,234.1 million, representing a growth of 45.4 percent at current prices over 1992. The market has benefited from increased consumer confidence, a more discerning market and an ever widening choice of wine varieties from most if not all the world’s wine producing nations. Trading up explains why value sales increased more than volume which grew by 26.7 percent between 1992-96.

Still light wine is by far the largest sector accounting for 90 percent of value and an even higher share of volume of 96 percent in 1996. The shear variety of wines and extent of new varieties especially from New World supplier countries resulted in the sector growing by 47.3 percent, a higher growth rate than either sparkling wines or Champagne which grew by 32.2 percent and 30.7 percent respectively between 1992-97.

The off trade is particularly important to sales of still light and sparkling wines as it accounted for 84 percent of total volume, with the on trade representing the remainder. This share has remained fairly constant, but on trade sales of still light and sparkling wines have grown more significantly in actual terms from a smaller base. The on trade however, is the main sales channel for Champagne, accounting for 64 percent of sale volume in 1996 compared to 61 percent in 1994. Growing sales in the on trade are due to the proliferation of restaurants as well as more upmarket, theme pubs and pub restaurants.

The market is almost entirely reliant upon imports, with English made wines accounting for no more than 0.2 percent of the market. Lack of sun and heat, high humidity and rainfall as well as variable annual weather conditions are the principal climatic problems mitigating against wine production in the UK. Country of origin is probably the main way of segmenting wines within the still light and sparkling sectors. Almost a third (31 percent) of adults interviewed in the course of exclusive consumer research for this report agreed they chose wine based on the country it came from.

France remains the single most important supplier, accounting for 27.5 percent of off licence sales volume in 1996, although other traditional sources such as Germany and Italy have lost share. New World countries such as Australia, South Africa, USA, New Zealand and Chile are gaining share, largely due to their adventurous experimentation with new varieties (different wines from a single grape variety). They are also able to produce quality products which are competitively priced, but nevertheless able to command higher prices than wines from other countries. This was clearly seen by differences between the average retail selling prices for wines from individual supplier countries varying from £4.99 for New Zealand wines to £4.30 for Australia, £3.54 for France, £3.23 for Spain, £3.09 Italy and Germany £2.76.

Trading up and the increased consumer confidence that goes with it is reflected in number of trends that have characterised the off licence wine market. Red wines have continued to gain at the expense of white varieties (also due to perceived health benefits of reds) to the extent that reds accounted for 44 percent of still light wine sales volume in 1996 compared to 34 percent in 1992. In the still light wine sector, wines in the cheapest price band of under £3 lost some market share, accounting for 42 percent of volume compared to 44 percent in 1995. Sparkling wines saw an increased share of 2 percent in 1996 for wines priced between £6-£10 and 3 percent decline in share for those priced below £5.

In terms of consumer profile, incidence of wine purchasing peaks among the more affluent such as those from the AB socio-economic groupings, home owners and those aged 35-44. Whilst much of the market’s growth is being driven by existing drinkers consuming greater quantities, greater promotion of and extension of wine ranges through the grocery multiples, the general feel good factor, widespread entertaining in the home and demystifying wines have a good chance of helping to broaden the consumer base for wines. Existing wine buyers are quite set in their purchasing habits. the consumer research commissioned for this report shows 48 percent normally buy their wines within a certain price range, occasionally opting for more expensive or cheaper varieties. A majority have preferences for specific countries.

There is a distinct lack of branding in the still light wine sector, with no single brand accounting for more than 2 percent of total volume. Wines are mainly sold and differentiated by country of origin as well as individual producer region (e.g. Bordeaux), grape varieties and areas within regions. Retailer own labels accounted for 47 percent of still light wine sales volume through the off trade in 1996 with exclusive labels for retailers accounting for a further 40 percent. This contrasts with the more brand orientated sparkling wine sector. Within the Champagne sector, the more prestigious and highly priced Grandes Marques (e.g. Moet) accounted for over half sales volume, increasing their share on 1995. By April 1997 however, lower priced premier prix Champagne brands had gained share due to their being heavily price promoted by retailers as had retailer own label, thereby increasing overall margins for the Champagne houses.

The UK market is served by a large number of importers, among which there are subsidiaries of some major international drinks companies who have a portfolio of wine and Champagne brands. Some of the larger players include Matthew Clarke, Bacardi Martini, IDV, Caxton Towers, E&J Gallo Winery, Seagram, Southcorp Wines, LVMH, Marne & Champagne and Veuve Laurent Perrier. Some of the major players - notably Seagram, have chosen to increasingly focus on more profitable businesses such as fortified wines.

Above-the-line advertising expenditure on wines amounted to £10.5 million in 1996 equivalent to 0.5 percent of total off licence sales. This is a low figure, largely due to the heavy emphasis placed upon below-the-line promotions by brands and retailers. Apart from this, the major retailers (including grocers and off licence specialists) spent £8.3 million above-the-line on wines. In some cases, the specialist multiples such as Thresher and Victoria Wines have created exclusive clubs for their individual store fascias targeted at different types of customer in terms of affluence, age and extent of wine knowledge. Newsletters, special offers, previews, discounts, tastings are among the benefits members receive.

Promotional bodies representing individual supplier countries will often work with and partly finance tailor made promotions for specific retailers, especially off licence specialists, in order to convey aspects such as variety, quality and reliability to the consumer. Advertorials as well as advertisements in trade magazines are commonplace.

The retailing of wines is increasingly concentrated in the hands of the grocery multiples, with Tesco and Sainsbury between them accounting for 31 percent of all off licence wine sales. Thresher and Victoria Wines are the leading off licence chains, accounting for around 14 percent of the market between them.

The grocery multiples offer the advantage to shoppers of being able to make all their regular purchases under one roof. They are hoping to make wine more of a regular purchase. the specialist multiples have fought back by new store formats varying form larger sized warehouse type outlets aimed at the more upmarket shopper or those used to booze cruisespurchasing in bulk to more generalist local convenience stores offering a range of food and drink items, of which wines form a part.

The future of the off licence wine market looks relatively bright and is forecast to grow by 24.2 percent at current (1997) prices between 1997 and 2001. The UK is an extremely open market, and the British continue to broaden their wine tastes. There is also a clear commitment by a number of major retail groups to wines, with a number of new outlets being opened by the specialist off licence chains.

The very diversity of the UK off licence market increases the challenge facing any supplier, as consumers and trade buyers can be faced with a choice of 500 wines from up to 30 countries. Many observers agree that any supplier wanting good volume sales of a new-style wine not previously seen in the market, should respect price barriers in that certain qualities are expected within each price band.

The growing perception of wine as an everyday purchase ultimately increases the scope for new and existing suppliers to increase their sales. Whilst there is always the danger of confusing the consumer with too many products, there is clearly scope for segmenting wine ranges in various ways as well as upgrading certain wines such as Lambrusco who have been loosing share to competitively priced wines of a reasonable quality such as Vin de Pays.

Text © 1997 MAPS

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