On the rack

They may make their living out of one of life's greatest pleasures, but the wine trade, from those who harvest the vines to those who market the wines, have recently become an unexpectedly gloomy bunch. If they all ran
c-stores, however, they might be a bit more cheerful.

The reason for their long faces is an unprecedented set of circumstances which suppliers see as the 'perfect storm' for the UK wine industry.

Consumption has fallen for the first time in 13 years, with figures from retail analyst Mintel showing a fall of 2% in the volume of wine sales in 2008, taking the total down by 24 million litres to 1,162 million. In value terms, sales fell by 1% last year, the first drop to be seen since the 1970s. "The effects of concern over binge drinking, a trend towards healthy lifestyles and heavy government taxation have all had an impact on the market," says Mintel.

It's the latter which has really hurt the trade. From last spring's 9% increase in excise duty, through a further 8% hike when VAT was reduced, to this year's announcement of a four-year tax escalator at 2% above inflation annually, the tax on wine now makes up more than half of what the customer pays for the average bottle of wine.

Add in rising production and packaging costs and the strength of the Euro against the Pound, and the result is that international wine suppliers now see the UK as a difficult arena in which to grow and they are considering withdrawing resources to concentrate on more attractive national markets.

So there's the storm. But here's the ray of sunshine.

Ian Minichiello, Pernod Ricard channel director for convenience and multiple stores, says that the tough times elsewhere need not worry convenience retailers. "With at-home drinking increasing significantly, there's a great opportunity for the sector. We're seeing a cultural shift towards entertaining in the home, and the switched-on c-store operator is perfectly placed to take advantage of that."

Branded wines continue to grow in value sales, he says. "Among Pernod Ricard's brands, Jacob's Creek is up 2% MAT, even though Australian wines in general are declining. Montana's showing rapid growth at 7-8%; New Zealand lines are increasingly popular; and Campo Viejo is growing at 6-7% MAT."

Neil Barker, commercial director at Fosters EMEA, is equally buoyant. "Wine is the biggest opportunity for independents over the next three years," he says. "Convenience is king in wine, but growth won't come naturally - we'll all have to work for it."

Similarly, Will Bartholomew, wine consultant to Bestway, agrees that the doom and gloom should not extend to independent retailers. "What we're seeing is that independent specialists are still doing comparatively well in a declining market, and there's absolutely no reason why c-stores can't join them in bucking the trend," he says.

Recession simply means that people are spending less, he says, and that means they'll either drop from perhaps five bottles a week to three, or else they'll buy a cheaper wine then they're used to. "The crunch has hit the lowest earners hardest, so those who would have bought at the £3-£4 mark have now switched to beer. The sub £5 category isn't what it was."

There's growth, however, in £5-£8 wines - up some £9.5m last year, according to Nielsen, although the three for £10 offer which consumers see in the supermarkets seems to be the benchmark by which they judge value. But this reliable standby may have had its day, says Foster's Barker. "Three for 10 is not the only game in town any more," he says. "It's not profitable and it's not sustainable for anyone in the supply chain."

Bartholomew says that in his experience convenience retailers don't do enough to draw attention to the category. "They just don't shout enough," he says. "Some very simple pos, with only the name of the wine and the price, can work wonders. You should also merchandise elsewhere around the store, multiple face the whites in the chiller, and maybe add neck tags to the bottles. Wholesalers like Bestway, he adds, will provide materials for promoted wines.

"If all you do is change the price, it will be part of the blur," he warns. "Choose two or three lines and pick them out for promotion with a simple message repeated around the store - just the name of the wine and the price."

Pernod Ricard's Minichiello also advises the uncluttered approach, but his suggestion is to keep the choice down to the most recognisable labels. "My message to c-stores is to lead with the brands - give them as much space as you can. It varies form store to store, of course, but as a general rule less is more - don't get sidetracked into the cheap and cheerful."

People gravitate to the big brands because they stand for quality and value for money, he adds. "Most of us don't have the wine knowledge to choose a great wine every time so the brands act as a signpost to wines we know will deliver."

Nevertheless, Bartholomew believes there's always room for a few top-end bottles. "It's true that most consumers look for the reassurance of a well-known label, but there are a lot who would be happy to spend more once in a while if you give them the choice. It's a question of balance. Don't stock your shelves by brand; try ranging by country, with the cheaper choices at the bottom, and room for a few higher-quality bottles on the higher shelves."

Stocking by country is the norm - the multiples do it, so customers expect it - but make an exception for sparkling and rosé. Rosé is flying off the shelves, increasing its market value from £110m in 2004 to £527m in 2008 and forecast by Mintel to continue that growth over the next five years, reaching £742m by 2014.

Minichiello says: "With Champagne facing a challenging time, sparkling wines are taking its place. Jacob's Creek sparkling is the number one in the market. Give sparkling a section to itself - and make sure there's room in the chiller for sparkling, whites and rosés."

Foster's Barker concludes that success lies in the simple things. "You've got to do the basics brilliantly," he says. "Learn from the multiples; look at their ticketing, shelf-edge labels, availability, pricing, and how they re-merchandise a deal that works."