Aldi’s award-winning red barely covers the cost of the VAT and duty. So what’s behind the move? And is it irresponsible?
Aldi’s decision to offer bottles of its Specially Selected French Cairanne for just £3.49 (down from £8.99) between 11-17 December is likely to raise eyebrows, and more than a few murmurings of discontent.
That’s because this isn’t your standard bottle of plonk. It’s a critically acclaimed côtes du rhône: an International Wine Challenge Bronze Winner. The Times wine critic Jane MacQuitty urged readers to “set your alarms for Aldi’s festive gift to the nation” in a review.
So how is the retailer offering such a wine at such a price? And how can anyone other than the customer benefit?
Promotions in wine are nothing new. Figures from NIQ in 2014 showed around six in 10 bottles in the off-trade were sold on promotion.
Back then, “the leading mechanic was three bottles for £10, or £3.33 a bottle”, one wine industry insider recalls, adding it “took the category a few years to wean itself off the drug”.
The impact of discounting continues to have a profound impact on the category – and discounts of up to 25% remain commonplace during Christmas promotional periods.
But Aldi’s jaw-dropping £3.49 offer is a callback to a time winemakers, importers and distributors would rather forget.
“Anything under £5 is a very sharp promotion,” explains our insider. “For Aldi to be all the way down at £3.49 feels out of kilter with what’s needed to drive a profitable category.”
That’s because at that price, there’s no money to be made. VAT accounts for 58p on each bottle sold, while – depending on whether the wine was purchased by Aldi before or after August – duty will account for either £2.23 or £2.67 per bottle. That leaves Aldi making just 68p or 24p on every bottle sold before any of its own costs.
“Either way, they’re losing money,” the insider says, estimating even with total volume and per customer spend limited to two bottles per customer, the promotion will cost “a large five-figure sum”.
The discount is so sharp, it brings Aldi’s Specially Selected French Cairanne well below the minimum unit price (of £5.25 for a 14% abv wine) in Scotland and Wales (the retailer says its exact prices by market “may differ to ensure products do not fall below MUP”).
This raises an ethical question: should a “proud and long-standing” funder of alcohol-related harm charity Drink Aware really be flogging booze for less than 50p a unit?
Aldi’s côtes du rhône wine at £3.49
As with any promotional activity, the cost is weighted against an increase in footfall. Aldi knows the success of this deal is linked to shoppers filling up their basket with other items in-store.
That’s why, says Savvy Marketing founder Catherine Shuttleworth, the timing of the deal – in the penultimate trading week before Christmas – is so important.
“If they can get shoppers in on the headline offer, when they get there they’ll be looking to get them to buy all their other stuff for Christmas,” she says.
As well as savings of up to 65% on other wines this Christmas Aldi is also dropping prices across 180 festive products, including Christmas dinner for six for under £14.
But having this headline-grabbing discount on a wine – a category notorious for its lack of brand loyalty – is a canny move.
Premium wine at a discount price
“The wine category is very important to Aldi in representing its quality stance,” explains former Aldi UK CEO Paul Foley. “It has a halo effect to the whole business, it gets male customers more actively involved in the brand and it is a differentiator to other discounters.”
But could the deal blow up in Aldi’s face, if shoppers get to store only to find shelves empty?
It’s possible, but not inevitable, Shuttleworth says. “If I get in my car and drive to Aldi and the product isn’t there, I’m going to be a bit peeved off. However, consumers are smart enough to know that when they shop with Aldi and Lidl there is a ‘when its gone it’s gone’ mentality and therefore a level of risk.”
So this is not about heavily discounted wine at all, adds Shuttleworth; it’s a clever ploy to lure in the middle classes many of whom are counting the pennies more carefully.
“People are going to be sticking to a budget this year, so it’s smart to try and get people to spend as much of that budget with you,” she explains.
All the supermarkets are jockeying to lure bargain hunters, with 25% off promos the norm, and with other promo combinations, there are sure to be some great deals around, while Lidl’s cheapest wine is £2.99.
But none currently look like matching this festive steal from Aldi. Offering the middle classes an award-winning côtes du rhône red at a budget-friendly price is like wafting a freshly baked mince pie beneath Santa’s nose.
Irresponsible? Possibly. Irresistible? Definitely.