Chapter 5: Reaching the End Consumer within a Free Market – Retail Sector Flashcards
1
Q
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Define Retail/retailer
A
selling wine to the end user for consumption, whether in the retail sector or in the hospitality sector, as opposed to selling wine to another part of the wine trade (importer, distributor, wholesaler).
2
Q
Define Retail sector
A
selling wine in shops or on the internet to the end user, in contrast to the hospitality sector. The wine is sold to the end user for consumption, with the exception of wine sold to investors, which may be being bought to be re-sold at a later date.
3
Q
Wine Sales in Retail vs Hospitality
A
In many markets, the volume of wine sales to consumers to take away and drink at home is much higher than those in bars and restaurants.
For example, in the UK, retail sector sales account for around 80 per cent of wine sales by volume.[1]
4
Q
List the types of Retailers in the Retail Sector
A
- Supermarkets
- Deep Discounters
- Convenience Retailers
- Specialist Wine Retailers
- Hybrids
- Online Retailing
- Global Travel Retail
- Wine Investment Companies
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5
Q
Supermarkets
A
- In many countries, supermarkets (and hypermarkets) are the most important retail outlets for groceries and household goods, allowing consumers to buy everything they need under one roof.
- Examples include the US Walmart, the South African Woolworths, the French Carrefour or the British Tesco
6
Q
Supermarkets (USA, UK, France)
A
- In many markets, such as the USA, UK and France, supermarkets have the largest market share when it comes to wine sales.
- They are therefore an attractive option for producers wanting to sell large volumes of wine.
7
Q
How Supermarkets Stock Wine
A
- Supermarkets generally stock wines from well-known and popular regions and/or grape varieties.
- They will be made in a style that appeals to a wide range of customers, many of whom have little wine knowledge.
- In wine-producing countries, the range will often be dominated by local wines.
8
Q
Supermarkets & well-known brands
A
- Supermarkets often sell a range of well-known brands, such as Jacob’s Creek, Barefoot and Oyster Bay.
- These brands help to attract consumers to buy wine at the supermarket. However, because these big brand wines are widely available in a number of retailers, consumers can compare the prices across the retailership and buy wherever they are cheapest.
- As a result, these brands do not promote customer loyalty to particular supermarkets.
9
Q
Supermarkets & Private Labels
A
- 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).
- These are often termed private label wines.
10
Q
Types of Private Labels
A
- These may be wine brands that are exclusive to the particular supermarket – the supermarket may have created the name and the brand although the supermarket’s name does not appear prominently on the labels. This is an approach favoured by Walmart and Costco in the USA and Marks & Spencer in the UK.
- Alternatively, some supermarkets have an own-brand range of wines (that clearly display the supermarket’s name and branding on the label), such as Sainsbury’s Taste the Difference in the UK.
- In either case, if these brands are popular, they can promote customer loyalty to that supermarket and, for this reason, they have become extremely important in recent years in many markets.
11
Q
Buying Private Label Wine as a supermarket
A
- 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 that they sell elsewhere.
12
Q
Producer Risks of working with a supermarket
A
- Excess of Supply for Supermarkets
- Substantial feels for promotion
- Very strict contractual requirements
13
Q
Producer risks of working with a supermarket (Excess of Supply for Supermarkets)
A
- Supermarkets need to ensure that they offer a sufficiently varied product range: there is no point in having lots of similar wines competing at the same price.
- Therefore, because there are often more producers wanting to sell to a supermarket than the supermarket needs (i.e. an excess of supply over demand), supermarket wine buyers have enormous negotiating power, especially when it comes to price.
- As a consequence, producers typically do not receive as much for their wine as if they were to sell it through other channels.
14
Q
Producer risks of working with a supermarket (Substantial Fees)
A
- Producers are usually expected to pay substantial fees to have their wine stocked by the supermarket and for any additional promotion, such as desirable product placement in the shops or coverage in the supermarket’s magazine.
- When supermarkets offer price promotions (see Promotion), they usually expect producers to pay for any reduction in profits due to the reduced retail price.
15
Q
Producer risks of working with a supermarket (Very Strict Contractual Requirements)
A
- The contracts between supermarkets and producers usually have very strict requirements regarding quality control, time and manner of delivery, packaging and labelling.
- If these are not met, the supermarket can often simply refuse to take the wine. Also, as supermarket placement is competitive, if a wine does not achieve the expected sales volumes and profit margins, it may be delisted.
- All of these issues could have serious financial repercussions
for producers. In the worst case scenario, they are left with a large volume of wine that they cannot sell.
16
Q
Supermarkets and non-private labels
A
- There are some premium supermarket chains, such as Whole Foods in North America and the UK, that buy wines from artisan producers under the producer’s label.
- These wines are bought in smaller quantities on the understanding that when the wine sells out, there is no more available.
- The range of wines in these supermarkets will appeal more to consumers with a strong interest in wine, and may offer a useful route into a new market for these artisan producers.
17
Q
What is a deep discounter?
A
- A deep discounter shares many of the features of a supermarket but sells at lower prices.
- Examples include the German-based companies Aldi and Lidl, and the Danish-based Netto. In the USA, Trader Joe’s can be considered a deep discounter, subject to the three-tier system.
- The deep discounters’ business model is to offer permanently low prices. They rarely, if ever, have any form of time-limited price promotion. This model is now being adopted by many traditional supermarkets.
18
Q
Deep Discounters are able to keep prices low by:
A
- They take a lower profit margin than traditional supermarkets, relying instead on the volume of sales for their profits.
- The shops are often basic: goods may be stacked on pallets rather than shelves. They also tend to be away from prime retail locations, meaning lower rents.
- The 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.
- They rarely stock major brands, as these tend to be more expensive (because of the marketing budget). 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. While 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.
19
Q
Deep Discounters & expensive wine
A
- Sometimes, deep discounters will buy a small amount of a more expensive wine, which they usually stock in their shops in more affluent areas or ahead of times of increased spending such as Christmas.
- This has started to attract consumers with a stronger interest in wine to their shops. While 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. For example, according to Wine Intelligence, in 2012, 23 per cent of British wine drinkers had bought wine from a discounter; in 2018, this had risen to 37 per cent.[2]
20
Q
Convenience Retailers
A
- In contrast to supermarkets and deep discounters, which are usually located either in town centres or out-of-town shopping areas, convenience shops are found closer to where people live and are open for longer, sometimes 24 hours (although local laws may not permit the sale of alcoholic drinks for that entire time).
- Convenience retailers may be independently owned or franchised
21
Q
Convenience Retailers stocking wine
A
- Convenience shops stock brands popular with their local customers. Therefore, in the case of wine, the range is usually similar to but smaller than those of the supermarkets.
- This may be dominated by major brands; however, some convenience groups (e.g. 7-Eleven or Spar) have their own exclusive brands.
22
Q
Convenience Retailers vs Supermarkets (price)
A
- Convenience shops tend to be, but are not always, more expensive than supermarkets. This is partly because the premises are smaller, making rents proportionately higher. They also tend to be premises that were designed for other purposes, making them less efficient.
- Also, convenience retailers usually employ a higher proportion of staff relative to their size than supermarkets. Finally, where there is a franchise arrangement, the operator has to pay a fee to the franchise owner. However, consumers are often willing to pay a little extra for the convenience of a local shop to save them having to go further to a supermarket.
