How to crack the UK market

Part 1: What to expect from this challenging but important market

 

  • Angela Mount
  • 2018-10-08
The UK has long been the epicentre of the wine industry, but with Brexit looming and pressures on margin, how do you maximise opportunities in this challenging market?
The fact remains that the UK is at the heart of the international wine industry, a showcase for wines, with a professional, albeit fragmented, trade structure. London, of course, is also host to the International Wine Challenge, the world’s largest and most influential wine competition.

Simon Cairns-resize
Get your strategy right, and opportunity beckons; it’s about understanding how to tackle this. As Simon Cairns (above), BWS category director at The Co-Operative, says: 

“Producers need to understand our market, before they come to us. If they decide to go direct, they need to understand the exigencies, and the infrastructure in which they will have to work. If they look for an importer, the first stage is to understand the strengths and weaknesses of each one, depending on the sector they wish to target. Those starting blocks are fundamental.”
Firstly, why do it?

The facts
The UK alcohol business is worth £16.8billion. Value has grown by 3.9% in the last year, however volumes are flat.
Within this, wine has grown by 2% value to a £5.5billion market, but declined 2% in volume; price points and retail inflation account for the value growth.
Sparkling wine continues to grow at 6% value and 2% volume, fuelled primarily by the Prosecco phenomenon. In contrast, Champagne has been hit by this trade down, with value down 7% and volume by 16%.
The average retail price for wine has risen by 4%, with New Zealand at £7.21 showing 9% growth and Argentina at £6.29, with 5% increase, the top two performers.
All wines under £6 retail value have declined, partly due to duty levels at £3.55 per bottle.

Why focus on the UK?
The UK wine market is a challenging one. With ongoing pressure on pricing and a move to bulk wine shipments for high volume, plus the growth of own-brand wines, margins at the lower end are constantly being squeezed.
However, premium price points are growing, as consumers drink less but better. The UK wine industry is also still a central hub with wines from around the world finding a place.
This is a sophisticated, albeit complex, market with a network of channels and opportunities.

How different sectors work
The UK wine industry is split between off-trade retail and on-trade retail.
The off-trade consists of supermarkets, specialist retailers, independents, cash and carries, and wholesalers.
Supermarkets account for more than 75% of UK off-trade wine sales, however the dynamic and structure have changed, with polarisation and acquisition. Last year, Tesco acquired Booker Cash and Carry, strengthening its stronghold over the market. Currently Sainsburys and Asda are in talks to merge.
This gives increasing power to fewer retail players, increasing their bargaining power with producers.
Producers also need to be fully aware of the on-costs, efficiencies and timings of dealing with supermarkets. Working with independents can be quicker and offer more breadth of scale. It depends on your retail strategy.
The on-trade consists of pub and restaurant groups, together with independent restaurants and pubs. Specialist importers are needed for this complex market, which requires a hands-on sales team.
This sector has not fared well in the last 12 months, with more than 3,000 establishments closing. Both volume and value are down, although sparkling wine continues to shine, increasing by 5% in value, to reach sales of £600million against £110million in 2012.
The IWC offers Discovery Tastings for both sectors – a potentially cost-effective way to open doors.

Paul Letheren
“A producer should firstly identify what market they want to be in, and this will probably be linked to their production. If small, then independent and on-trade will be the best route through an importer where they are not overly represented in your area or style of wine. For the larger volume accounts you need a different approach. Or go direct. You need to be flexible and trust your importer. They are the ones who know the customer best, and who can guide you. Success of your wine in your market is no guarantee that it’ll work in the UK. Labels and blends may need to change in order to get a listing” – Paul Letheren (above), managing director, Off-Piste Wines.

Pros and cons
The UK wine market is very diverse. The ‘one hat fits all’ approach will never work here.
The first thing producers must do is evaluate their scale, their budget, and analyse the market, in terms of approach and target.
You also need to understand the cost structure in detail, including duty, import taxes, shipping and storage costs, together with required retailer margin. This will be explained in a later article in this series.
The second thing is to understand the import structure. It is possible to import direct, but unless you are already well connected with retailers, or they approach you, this route is difficult. An importer can provide insight advice and sales lead-ins, depending on their relationships, which is why understanding the key relationships and channels within which distributors operate is so crucial.
Before tackling the UK market, do your homework on all aspects. This is vital. Part 2 of this series will explore the best ways of working, strategies for success and explore what buyers are really looking for.

IWC-Education-Bursary-sliderHow does the International Wine Challenge (IWC) help you?
With such a vast array of wines available to UK consumers, how do they select and choose? Many consumers are nervous and confused about choosing wine and revert to what they know, or look for recommendations. Medals and commendations on bottles give them the confidence to select from the vast choice on the shelf, given the level of professional accreditation associated with the IWC.

Angela Mount is a wine writer, presenter, consultant, and one of the IWC's panel chairs. Previously she was head of wine buying for Somerfield supermarkets, where her tastebuds were famously insured for £10million.

Part 2: Understanding the UK market is here




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