Chapter 5: Reaching the end consumer - Retail Flashcards
What are private label wines?
Wines that are exclusive to a particular supermarket
What types of wines do supermarkets usually carry and why?
Well known brands, well-known regions, well-known grape varietals which are made in a style that appears to a wide range of customers. These brands help attract consumers to buy wine at the supermarket.
Why do well-known brands not promote customer loyalty to particular supermarkets?
Big brand wines are widely available therefore customers will seek the lowest price.
Why do supermarkets like to stock private label wines?
In order that consumers cannot easily compare prices, supermarkets like to stock wines bottled under labels exclusive to them (even if they are wines available elsewhere under different labels).
The supermarket may have created may have created the name and the brand although the supermarket’s name does not appear prominently on the label.
Favored approach by Walmart, Costco
If private label wines and own-brand wines are popular, what can they do for supermarkets?
They promote customer loyalty, so they have become extremely important in recent years in many markets.
What do private label wines mean for their producers?
Private label wines need to be available in large volumes and therefore usually come
from larger producers. For such producers, supermarkets offer an attractive opportunity to
sell large volumes of wine and enjoy high levels of market exposure, sometimes in more
than one country. In many cases, supermarkets buy directly from producers, meaning there
are no intermediary costs. Many supermarkets also employ winemakers who work closely
with producers to supervise production and ensure quality control – such expertise may help
producers to improve the quality of other wines which they sell elsewhere
What are the risks to the producers of private label wines?
- Supermarkets need to ensure that they offer a sufficiently varied product range: no point in having lots of similar wines competing at the same price.
- There are often more producers wanting to sell to a supermarket than supermarket needs, supermarkets have enormous negotiating power, especially regarding price.
- As a consequence, producers typically do not receive as much for their wine as if they were to sell it through other channels.
- Producers expected to pay substantial fees to have their wine stocked by the supermarket and for any promotion - desired placement or coverage in supermarket magazine. When supermarkets offer price promotion, they usually expect producers to pay for any reduction in profits due to the reduced retail price
- Contracts between supermarkets and producers usually have very strict quality control requirements, time and manner of delivery, packaging and labeling. If these are not met, supermarket can refuse to take the wine. Supermarket placement is competitive. If a wine does not achieve the expected sales volume and profit margins, it may be delisted. This may have serious financial repercussions for the producers who may also have a large volume of wine they cannot sell.
What is the role of premium supermarkets like Whole Foods?
buys from artisan producers under the producer’s label. Bought in smaller quantities. Range of wine will appeal more to consumers with strong interest in wine. Useful route into a new market.
How do deep discounters keep prices low?
- lower profit margin, relying more on volume of sales
- Shops are basic: items may be on pallets,, away from prime retail locations so rent is cheaper.
- product range is limited - a more streamlined product range is cheaper to maintain. Deep discounters do not usually sell multiple brands of one type of product. Most products, including wines, are private label; for example, Charles Shaw’s ‘Two Buck Chuck’ was originally produced for Trader Joe’s. This presents opportunities for producers, to work with the deep discounters to develop such brands.
- Rarely stock major brands as they tend to be more expensive. They often work with less well-known producers with lower overheads, buying up whatever stocks may be available on the understanding that when the wine sells out, there is no more available. This may be appealing to producers who have a surplus of wine to sell.
- They often buy directly from producers, cutting out any intermediary costs. Whilst they strike just as hard a bargain as the supermarkets, they tend not to charge their suppliers for stocking their products. As producers also do not have to cover the costs of any price promotions, this means greater profits than if they sold their wine on discount through a traditional supermarket.
Why do deep discounters sometimes buy a small amount of more expensive wine?
- usually stock these items in more affluent areas or during times of increased spending (Christmas)
- This has started to attract consumers with a stronger interest in wine to their stores. Whilst there, many of these customers have also tried the less expensive wines in the range and, finding they like them, gone back to buy more. As a result, these retailers are now increasing their share of the wine market too.
How are deep discounters able to charge low prices?
- Take a lower profit margin, relying on volume for sales
- Basic shops: good on pallets, tend to be away from prime retail locations which means lower rent
- product range is limited. Streamlined product line is cheaper to maintain. Usually do not sell multiple brands of a product.
Why are specialist wine retailers a good option for smaller producers/producers from lesser-known regions?
- Few specialist wine retailers have the purchasing power of the larger retailers. Therefore while they stock a few major brands (particularly sparkling and fortified wines), they tend to focus on wines from smaller producers and less well-known regions.
- The average price of wine sold at a specialist retailer is higher than supermarkets because specialists cater for customers who are more interested in wine and are willing to spend more per bottle: “high-involvement” consumers. This also means that producers are likely to make a better margin, despite usually having to pay a distributor to sell and distribute wines
Why are high involvement consumers willing to spend more at specialist retailers?
- They appreciate the broader range of wines on offer and the more personal service
- Wine specialists employ knowledgable staff who can “hand sell” the wines - in other words, tell the story of the wine, provide info about the region/producer, as well as pairing suggestions
- Customer will trust the staff to guide them to a wine they will enjoy and may be willing to buy an unknown wine on staff recommendation.
- wine tastings, sometimes with the winemaker.
- education classes.
How are hybrid retailers beneficial for the retailers themselves?
- Consumers can try wines before they decide to buy, encouraging consumers, especially those with less wine knowledge, to purchase wines they might otherwise not.
- Good way to showcase new wines and wines from lesser known regions or varieties.
What are the downsides of hybrid retailers?
They may need to stay open later into the evening and require additional staff to serve customers.
-There is also additional beauracracy involved in opening premises in which people eat and drink than a simple shop.
