The Rise of Bulk Wine is Pulling Back the Curtain on the Wine Industry
It might come as surprise to many wine industry professionals, but bulk wine is now the fastest growing segment of the wine industry.
It might come as a surprise to many wine industry professionals in the UK, but bulk wine – and not bottled wine – is now the fastest growing segment of the wine industry. Major UK retailers are embracing the trend because it gives them greater control over which wines they can offer consumers. And major wine buyers throughout the wine supply chain are embracing the trend because bulk wine gives them much greater transparency into all the factors – including shipping costs, distribution costs, and marketing costs – associated with bringing a wine to market.
There are many forces at work here, including the globalization of the wine industry, which makes it easier than ever before to ship wine from one corner of the world to the other. It’s also important to keep in mind that customer preferences are changing (especially with the rise of young millennial wine drinkers), and wine buyers, retailers, importers, and distributors are rushing to adjust their business models to keep up with these changes.
The new private label business model for wine
Perhaps the biggest change to wine industry business models is the growth of the private label industry. In other words, there is a direct correlation between the growth of the bulk wine trade and the growth of store-owned private labels. Within the UK wine industry, this trend is particularly notable. According to one estimate, private label wines now account for nearly one-fifth (19%) of the wine ranges of the Top 6 UK retailers.
Anecdotally, you can see this play out right on the shelves of your favorite UK retailer. Take the case of Sainsbury’s, for example. As a way of attracting wine drinkers who enjoy Chilean red wines, Sainsbury’s introduced its own private label brand – Camino del Angel – to compete directly with the famous Chilean wine brand Casillero del Diablo. It was not just the wine inside the bottle that was similar, or the name that was similar – the actual labels of the two wines looked remarkably similar. If given a choice, which wine are consumers going to choose – the higher-priced branded wine or the lower-priced private label wine?
Taking a broader view of overall trends, private labels are everywhere you look these days. If you look at the total ranges of the top UK supermarkets, private labels now account for 52% of all goods available for sale, including 54% at Sainsbury’s and 49% at Tesco. So is it really any surprise that private labels are coming now to the wine industry?
Bulk wine is increasing transparency in the wine industry
One key factor to keep in mind is that the rise of the bulk wine trade is increasing transparency within the wine industry. In fact, bulk wine is now the most transparent sector of the industry. It is much easier to see how much it costs at each stage to make, ship, bottle and transport a bottle of wine. And that opens up new opportunities to reduce costs and improve efficiencies at each stage. For example, if it costs less to bottle a wine in the UK than at source, why wouldn’t you choose to bottle the wine within the UK? If it costs less to ship containers of bulk wine than containers of bottled wines, why wouldn’t you choose the more cost-effective solution?
Retailers and wine buyers want greater control over the wines they offer
Of course, major wine buyers and retailers would not be rushing to embrace the bulk wine trade if it didn’t make sense for their overall bottom line. What they are finding, increasingly, is that bulk wine is something that consumers are embracing because it means that they can buy a wine that is 100% tailored to their needs. Clive Donaldson, the Wine Sourcing Manager for UK supermarket chain Morrisons, says that “It’s like getting a tailored suit.” Instead of buying an off-the-rack suit (i.e. a bottle of wine that has already been made in a certain way), you can now work directly with the supplier to craft a wine that consumers actually want to buy.
Discount retailers in the UK such as Aldi and Lidl have been particularly aggressive about getting in front of the private label wine trend in order to win over new customers. The two retailers are famous for their nearly 100% line of private label goods, and now they are using that exact strategy to offer consumers award-winning private label wines. If there is a hot trend in the wine market – such as the Rosé wine trend – it’s a lot easier for retailers like Aldi to contact bulk wine suppliers and find the wines they would like to offer.
And, finally, the private label gives wine sourcing managers much greater power and control over how they reach their quarterly and annual sales targets. They are under constant pressure to prove why certain brands deserve to be on shelves, and that all SKU’s are delivering the right kinds of margins. With private label wines, it is much easier to meet those goals. For example, whereas a branded wine from Rioja in Spain might have razor-thin margins for the retailer, a private label wine from a different wine region in Spain might allow for much wider margins.
Of course, the real question to ask is how established wine brands are going to react to the sudden encroachment of private label brands on retailer shelves. By some accounts, only the Top 10 or Top 20 wine brands are really safe from private labels – the other smaller brands simply lack the marketing budgets and logistical efficiencies to compete with private label brands.
Join other members of the UK wine industry as they discuss bulk wine
One way to glimpse the future of the bulk wine and private label industry is by attending the upcoming International Bulk Wine & Spirits Show (IBWSS) in London in March 2019. There, members from each stage of the global wine supply chain – importers, distributors, négociants, suppliers, retailers and contract bottlers – will be meeting over a two-day period to discuss trends in the industry, to find new partnership opportunities, and to establish relationships with bulk wine suppliers and private label specialists from all over the world.
This article has been adapted from one that originally appeared on The Buyer website. The author of the original article was Richard Siddle, who covers industry trends in the global drinks business and provides insights and analysis for The Buyer.
Source: The Buyer