Wednesday, 29 October 2014

Supermarket own-label wines – who holds the cards?

This article is in Issue 5 of Meininger's Wine Business International, October 2014

Own-label wines have been much in the news lately. Wines from UK supermarkets such as Tesco, Asda and Morrisons have been awarded the highest accolades at the Decanter World Wine Awards and the International WineChallenge. Marks & Spencer won 280 medals this year, a haul matched by many of its competitors.

‘Another stunning victory for the UK high street via this great-value supermarket wine,’ Decanter declared in July, as it handed an International Trophy to Morrisons for its 2012 Valpolicella Ripasso from the ‘M Signature’ range. The wine retails for £8.99, and is made by Cantina do Soave, a Verona cooperative with more than 6,000ha of vineyards.

Decanter also gave an International Trophy (the top level of the Decanter World Wine Awards) to Marks & Spencer for its Eclipse Bio Bio Riesling from Chile, while over at the International Wine Challenge, Sainsbury’s, Tesco and Asda were garlanded with awards, including the IWC Own Label Range of the Year for Tesco Finest*.

Eclipse: Trophy
Own-label wines – and chocolate, coffee, tea, ice-cream, school shirts, soft toys and baked beans, for that matter – have been with us since the 1970s. Traditionally, own-label was seen as the cheaper alternative to the ‘real thing’: you knew that Sainsbury’s beans would somehow be inferior to Heinz. It’s only relatively recently, due in part to the rise of premium ranges such as Tesco Finest* and Sainsbury’s Taste the Difference (both launched in 2000) that supermarket brands have been accorded the same respect as proprietary brands.

‘It’s a great way to get customers on board and trying new things,’ Barry Dick, formerly Sainsbury’s winemaker and now at Accolade wines says. ‘They will trust an own-brand wine sooner than an unknown label. It’s a question of comfort and reassurance.’ A customer who might otherwise fight shy of Valpolicella can be introduced to the style via Morrison’s M Signature, for example.

Then there is the advantage of consistency, a concept dear to supermarkets’ hearts. ‘With own-brand you can deliver a cohesive brand of wine across world markets. It’s very compelling,’ Dick says. He adds that exclusivity is another great attraction of own-label. Anyone can sell a Casillero del Diablo Chardonnay, but only Sainsbury’s can sell Taste the Difference Chilean Chardonnay. In many cases it will be made by the same person. The higher-end ranges promote their collaborations with renowned producers. Domaine André Figeat appears on the front label of the Taste the Difference Pouilly Fumé, and when Denbies Wine Estate in southern England was signed up for the Taste the Difference English Sparkling, Sainsbury’s announced it with a fanfare. ‘It’s a great privilege to be selected,’ Denbies said.

It can also be a double-edged sword. Martin Krajewski, who owns the premium rosé producer Chateau de Sours in Entre-deux-Mers, Bordeaux, has had a 20-year relationship with UK supermarkets. He currently supplies a wine called La Fleur d'Amelie to Marks & Spencer, and Tesco stocks his Domaine de Sours rosé. Both are in the UK on an exclusive basis.

Krajewski does not supply own-label wines but he recognises the advantages: ‘For some producers having 50,000 bottles in a supermarket is brilliant,’ even though that may compromise any chance of getting the wine under their own name in the same retailer. There’s no reason why they shouldn’t, he says, but then ‘you’d be competing against yourself’.

A privilege to be selected: Denbies for Sainsburys
But he also explains that supermarkets hold most of the cards. ‘They don’t give contracts and things can simply change: they can drop you for any reason.’

The price supermarkets pay for own-label wines varies widely. Krajewski notes that he is perfectly satisfied with his arrangements at with M&S and Tesco, with whom he has strong long-term and trusted relationships, but adds ‘some supermarkets are quite capable of trying to squeeze you for less money’ when they are negotiating the next year’s deal.

No supermarket would comment on the relative prices it pays producers for own-label compared to branded wines, but one producer who wished to remain anonymous told Meininger’s that of all supermarkets, the resolutely upmarket Waitrose drove the hardest bargain, generally offering ‘ten per cent less than other supermarkets and selling at 25% more. They are the sharpest at this game.’ A Waitrose spokesman said, ‘We don’t believe this is the case, we provide our customers with excellent value and quality wines selected from around the world.’

On average, across all supermarkets and other wine retailers, more than a third of wines sold are own-label (some market watchers put the figure at 50%). It makes up some 300 of Tesco’s 800-strong in-store range, and almost the entire M&S offering. Sainsbury’s own-label wines are one-third of its range; the Wine Society, the 140-year-old mail-order cooperative, similarly bottles about one-third of its wines under its own banner.

There are many ways to make an own-label wine – it can be simply a matter of buying several tanks of Chardonnay from a cooperative and sticking a label on it. Or there are what one owner, Gavin Quinney at Chateau Bauduc in Bordeaux, memorably described as ‘tender blenders. You put it out to tender, get the samples, get to work with your test tubes, and make your blend according to a formula. It’s not winemaking, it’s a chemistry set.’

That’s the lower end of the spectrum, producing wines that are unlikely to win awards. At the other end, the supermarket is involved at every stage of the process, from drawing board to label design. Quantities also vary hugely. Marks & Spencer made 500 cases of the northern Spanish white Txakoli; a premium Taste the Difference wine at Sainsbury’s would be perhaps 2000 cases, and a mass-selling style like Marlborough Sauvignon Blanc 100,000 cases.

Getting a listing is not a matter simply of waiting for the supermarket to come calling. ‘You need to know the buyers at the supermarkets and be in close contact with them,’ Krajewski says. ‘Know what they are looking for each year, which are the growth markets or categories, produce products that can fill those niches or gaps, do it early and be prepared to wait one, two or even three years to get a listing. You also need to be pitching at the right price points and be flexible on volumes. ‘

What surprises some people is the degree of expertise the supermarkets have in-house. Marks & Spencer for example employs three full-time winemakers, two of whom are graduates of Roseworthy Agricultural College at the University of Adelaide, while the most experienced member of the department, Sue Daniels, is a veteran of 32 years in the wine business.

‘It’s the untold story,’ Daniels says. ‘Most people think there’s a man tending grapes, and that’s it.’

Getting an own-label wine on the shelf is a long and involved process. In M&S’s case, the initial impetus might come from the food category. ‘We look at things working well in the rest of the business,’ Daniels says. ‘For example, there has been a big push on Spanish foods.’ They knew the north of Spain, the Atlantic coast from Santander to San Sebastian, is renowned for its food, so they hit on the local wine of the region, Txakoli, as an addition to the range. Once two possible suppliers had been identified they were visited – ‘we make clear this is going to be a partnership’ – tank samples tasted and a bespoke blend is put together. M&S buyers are involved at an early stage in order to make financial decisions as to quantity and bottle price. ‘Then we go back later to put the final blend together.’

Supermarkets are often criticised by producers for high-handedness. It is not unusual to hear complaints that buyers drive down prices and demand producers pay promotional and other costs. One artisan winemaker in the South of France told Meininger’s his doors would in future be closed to one particular supermarket – he was offended by the buyer’s demands that he increase the residual sugar in his rosé.

The supermarkets Meininger’s has interviewed energetically reject the notion that local winemakers are sidelined. ‘It’s a very collaborative process,’ Tesco product development manager Graham Nash says. ‘I have never encountered hostility from a winemaker. We encourage them to have their views, but often they don’t want to give views, as they understand we know our customers better than they do.’

Of course, there are opportunities for conflict, Barry Dick concedes. ‘But the clever ones let you get on with it. We will have benchmarked other supermarkets and will know what style works. If they are sensible they have all the numbers in front of them and will see the advantages – they don’t have the knowledge of the UK market that we have.’

Thierry Coulon, managing director of the huge Beaujolais negociant Paul Sapin, has worked with Marks and Spencer for 18 years and provides it with a range of wines from a dozen different countries, from France to the US. He is impressed by the level of commitment the buyers and winemakers show. ‘They know exactly what they want and they take hours and hours to achieve it. Sometimes we are in the tasting room all day. And it’s never a question of them arriving and leaving on the same day – they always want to see the vineyards, to know the region, to go deep into the process.’

Coulon also stressed that buyers and winemakers take the same pains whether the wine they are blending is a high-end New Zealand Sauvignon Blanc, or an entry-level wine. ‘There’s no way of selecting a cheap wine quickly – they are just as exigeant.’

The degree of involvement of the retailer’s winemaker can vary, however. If quantities are very small, or if the wine in question is little-known, the retailer might defer entirely to the producer. When M&S wanted to try out the Japanese Koshu grape, Daniels said, ‘it would have been arrogant of us to think we would be able to blend better Koshu.'

Own-label has burgeoned in the UK for many reasons – the growing power of the supermarkets, the success of premium ranges, and the nature of the average consumer’s relationship with European wine regions, which will lead them to trust an own-brand wine much sooner than one from an unknown Chateau, Domaine or Schloss.

In the US the scene is very different: statistics are hazy but some commentators reckon own-brand accounts for only 5% of the wine market. The main reason for this, according to John Bradbury, brand manager for Codorníu-owned Aveníu Brands, is the three-tier system, under which production, distribution and retail of wines must be handled by different companies. This means a supermarket can’t create its own wine as it can in the UK, but has to employ a third party. “It’s a structure thing, not a consumer thing,” Bradbury says. But, he adds, supermarkets are cottoning on to the value of own-label. Costco has its well-established Kirkland brand, which covers everything from underwear to cookies to wine. “Its reputation for good prices and good quality is evolving,” Bradbury says, and other retailers are likely to follow suit. The branding company Winery Exchange produces the boutique H&G brand for Whole Foods Market and supplies a dozen retailers with own-branded wines. “The private label business is small in the United States,” Winery Exchange’s Sandrine Perry told Meininger’s, “but it will get bigger.”

Back in the UK, most big retailers consider their own-label offering is stable. The Wine Society CEO Robin McMillan says they are “happy where they are” with their range and are unlikely to increase it, and Nash says Tesco will stay close to its 300 branded wines.

The publicity given own-label wines by this year’s awards ceremonies means more and more producers will be keen to work with UK supermarkets, which will have wider choice and more bargaining power to produce exactly what their research tells them the consumer wants. Once again, the supermarkets hold all the cards.

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