It's been a challenging year for alcoholic drinks, with a disappointing World Cup accompanying rising duty, a fiercely competitive promotional environment and sometimes punitive foreign exchange rates.
And, as if that weren't enough, there's a new coalition government that's promising to get tough on binge-drinking, while regional and local council moves to set minimum prices add an additional legislative threat.
Perhaps we shouldn't be surprised, then, that new leadership has emerged within the major grocery multiples to tackle these challenges. Peter Darbyshire, MD of the UK's biggest independent wine supplier, PLB, believes "the retailers have brought in new faces for fresh strategy and to ask the question 'how do we reinvigorate the BWS category and drag the consumer kicking and screaming away from pure reactive buying based on price promotion?'"
The musical chairs began in May last year, when Justin James replaced Warren Anderson as head of BWS at Sainsbury's. A few months later, Direct Wines swooped for Waitrose wine chief MW Justin Howard-Sneyd, sparking off a domino effect that continued in July with the transfer of Master of Wine Pierpaolo Petrassi to Waitrose from Tesco, which then poached MW Laura Jewell from Spar. And, in January this year, Asda recruited former Cobra Beer CEO Adrian McKeon to became its new BWS category director.
With the music apparently having paused for now, it's a chance to take stock. So what can we expect from the new personalities? How significant is the appointment of the two MWs at the retailers? To what extent have retailer strategies been changing in the light of the new appointments? And how are the retailers performing?
In a World Cup year, strategy was always going to be different, with a shift from wine deals down 6% year-on-year, according to trade investment analysts Assosia towards lager/beer and cider, up 56% and 91% respectively [52w/e August 2010].
But it's clear that all the retailers have been keen to drive some value back into the heavily promoted category, on the back of an improvement in the economy, and total off-trade alcohol sales have risen in value by 7.2% to £10.2bn, and by 3.1% in volume [Kantar Worldpanel 52w/e 11 July].
While some of the value gains reflect the impact of duty increases, the market has seen moves to encourage premiumisation. "People have a natural tendency to look for 'better' products in the recessionary environment because they are going out less often and when they do spend they want to treat themselves, says Simon Litherland, UK boss of Diageo.
At the category level, cider continues to boom, while sparkling wine has seen a renaissance as the economy has picked up with prosecco challenging Champagne's pre-eminence thanks to its lower price point and successful marketing and product development while wine has also made solid gains. Conversely, beer and lager sales are static, with value up 2.3% to £2.2bn and volume up a paltry 0.4%, despite the World Cup and all those promotions.
With the consumer hooked on a deal, that leaves many suppliers between a rock and a hard place. Refusal by brewers and wine producers, in particular, to engage with low or no-margin volume retail strategies have resulted in falling sales, and the jury's out on where it will end.
But where does that leave the supermarkets? All the major retailers apart from The Co-operative Group and Marks & Spencer grew alcohol sales value in the past year. The fastest growth was recorded by Sainsbury's sales are up 11.8%, and market share grew to 16.6% in the take-home market [Kantar] and BWS head Justin James claims Sainsbury's internal figures show alcohol sales up 10.5% in value with volume rising almost 10% [52w/e 17 September]. He attributes success to a number of factors, including a couple of market trend "injections", and inflation (1.7% over the past year).
"Conversion from on to off-trade is one factor, and the impact of First Quench business transferring is another," he says. "Additionally, there is the growth of our convenience stores, online sales and an underlying strength in our customer position." James adds that customers are putting more alcoholic drinks into their basket and are spending more per visit, although frequency of shop "remains a challenge".
The ability to offer the right promotions at the right price is also critical, however. Overall, the level of promotions has increased once again, up 4%, though this was offset by a 3% reduction in the average saving [Assosia]. But there were marked changes in trade investment strategy, with Morrisons and Sainsbury's increasing promotions overall, while Tesco and Waitrose reduced them (see p53).
All the retailers boosted lager/beer promotions, but sub-category strategy on deals varied enormously. On wine, for example, Sainsbury's increased the number of promotions by almost 20%, while Tesco reduced promotions by the same rate. Sainsbury's also increased its use of the x-for-y mechanic by 156%, and was the only retailer to offer more three-for-£10 deals, up by 74% [Assosia].
Margin bleeds away
The three-for-£10 deals, which started about three years ago, have been difficult for the retailers to move away from, especially as consumers have become more bargain-hungry during the recession, says Darbyshire. But the switch in personnel at the major multiples is a recognition of the need for change.
"Consumers loved the three-for-£10s, but it bled margin out of the industry. I think this movement of people had to happen because the promotions have been value-destructive for suppliers and retailers," says Darbyshire.
So who's ringing the changes? While the appointments that receive the most attention in the consumer media, at least are the MWs, who add to the prestige of a BWS department, it is at the category director level where real changes in retailer strategy are being implemented, according to Darbyshire.
"At Tesco, for example, Laura Jewell will be able to influence the quality of wines, and will be expected to differentiate the range and offer wonderful quality and value within the parameters she's set, but it is [Tesco BWS head] Dan Jago, or Sainsbury's Justin James, or Asda's Adrian McKeon rather than the Masters of Wine who determine the criteria for their departments."
These all-powerful figures have been busy putting new plans together. At the start of the summer, James revamped the wine aisle, introducing new sections called Case Deals, New Arrivals and Everyday Favourites, which offer a selection of wine by style, not country. He also transformed entry-level wines into a new branded range called House, which has registered sales growth of 30% on the lines it replaced.
"Our strategy is underpinned by consumer insights," he says. "No decisions are taken without customer data to support them. More than at any other time, the consumer is at the centre of our plans."
At Asda, and only nine months into the job, McKeon is making significant changes of his own. In June, Asda started trialling electronic wine selectors in store, which will be rolled out nationwide this autumn. Other innovations judged to have been a success include the "wine cube", a 2.25-litre bag in box, priced to hit a more accessible point than the three-litre standard size.
But it's the change in promotional strategy that's most significant. With Asda committing simultaneously to ban below-cost selling and to return to its EDLP roots, the number of wine promotions has fallen by 25% in the past year [Assosia], and can be expected to fall further. And the nature of the promotions has also changed, with the number of 3-for-£10 deals declining from 1,400 to 365, a drop of 75%. At the same time, straight save promotions have increased by 115%.
"He's changed some of the promotional formats, from three-for-£10 to three-for-£12," says Matthew Dickinson, commercial director of importer Thierry's. "There was an inevitability about that, but you need charisma to tell the board 'we have to change this', and the reasons why. It's a massive risk because sales can go into freefall. At that level you have to be able to lead from the front."
As the former CEO of Cobra Beer and MD of Beam Global Spirits & Wine, McKeon's background will give Asda insight into the supplier perspective, and his commercial experience will be a bonus, believes Steve Barton, director of Brand Phoenix, which imports First Cape wine.
McKeon is sure to give Tesco's Dan Jago, a "run for his money", adds Karen Salter, joint MD at Beverage Brands. Jago made a similar transition from the sell side four years ago, when he switched from his role as joint MD of wine importer Bibendum. He is currently busy premiumising the retailer's own-label beer and cider, as Tesco launched its first Finest beer and cider range this week. The 10-strong selection involves tie-ups with respected suppliers such as Thatchers and Weston & Sons.
Such moves exemplify the benefits transferring from the supplier side can bring, according to David Cox, director at New Zealand Winegrowers. "Dan made a similar jump to Adrian, and as a result we've seen a number of changes at Tesco. He went down a premiumisation route and positioned Tesco as a company that has been good to do business with. It helps to have someone from the supplier side."
The parlous state of the economy has resulted in significant changes to Tesco's strategy, however. "Some large retailers, such as Tesco, have had to cut back their ranges of more interesting wines in many shops because customers just weren't picking them up," says a senior wine industry source. Now the focus and the continuing brief for MW Laura Jewell, who starts as senior product development manager this month, is to deliver a broader offer within the Finest range.
The decisions Jewell makes will be closely watched. But her track record at Spar, where she oversaw a transformation in the chain's offering, is particularly strong. "Spar never had a massive impact on wine, partly because of the nature of the group," says Dickinson. "Laura was recruited to bring added value to its wine, to sort out the own-label offer and to bring it to the standard of the other major retailers, which she did with a lot of success."
However, past performance is no indication of future strategy, he adds: "Tesco is a very sophisticated retailer, very evolved, constantly changing, and bases strategy on what customers are saying. On the other hand, every person has an individual style, so Laura will no doubt use the customer information she gets and perhaps see something different from Pierpaolo."
In the interim, Jewell's absence is being covered by former Oddbins buyer Anna Nichols. Spar also lost wine trader Dror Nativ to Sainsbury's this summer both positions that Chris Lewis, licensed trade director at Spar, is recruiting for. With boss Jerry Marwood declaring the dedicated off-licence "dead in the water", Spar's wine programme is, he insists, something that will continue despite the personnel changes.
"It's been a long process and is in many ways my pet project," says Lewis. "There have been quite a few personnel changes recently, but I'm completely committed to this and am here for the long term."
Spar's future plans include working on price activity and ranging to take advantage of the "big opportunity" it sees in BWS. "The multiples have been using wine almost as aggressively as they do beer and, while that's nothing new, the promotions have got sharper in the past 18 months. We do now have three-for-£12, but there are many more half-price deals," he says.
The decline of 7.6% in value sales and 13.7% in share to 8.2% at The Co-op Group is also no cause for concern, adds a spokesman for the retailer. "We've divested more than 200 stores since the acquisition of Somerfield, so our combined market share has naturally declined, but on a like-for-like basis our BWS sales have grown, and it remains an area of strength for us, given that we overtrade relative to our overall market share."
Trading at Morrisons has also picked up, though the improvements are more broadly in line with overall gains. Not surprisingly, with a new chief executive and the imminent arrival of a new trading director, changes are afoot here too, with own-label wine on the cards, claims Darbyshire.
"Morrisons is rethinking quite a lot of its strategy," he says. "It has its Market Street concept and is asking how to present wine in a way that fits with that ethos."
The retailer has been calling on suppliers to get involved with its plans for beers, wines and spirits, says Claire Studd, head of category development at Diageo.
"Morrisons has more trained experts in wine in its stores than other retailers and is transferring that skills set into spirits," she adds. " We've worked with Morrisons to help create in-store experiences such as the Pimm's and strawberries campaign, cross-promoting the two and using experiential marketing to create more interaction in store."
Using its customer collaboration centre, which provides buyers with an interactive store environment, Diageo is working closely with all the retailers to build customer loyalty and add value to the BWS category, says Studd.
Loyalty is an area where independents have an advantage over the supermarkets, according to Justin Howard-Sneyd.
Howard-Sneyd, who started the most recent chain of appointments, became global wine director of Direct Wines in February, after a long career as a BWS buyer that included roles at Sainsbury's, Safeway, and Waitrose. Speaking directly to consumers, independent specialists such as Direct Wines have an advantage over the grocery retailers, he believes, in communicating directly with customers about wine.
"I've been very excited about coming to Direct Wines, partly because we have a dialogue direct with our customers and that is a massive advantage compared with the big retailers. However you do wine, when somebody walks into the supermarket their primary thought is the shopping they're doing. They will slow down in the wine aisle, but you still only have about 80 seconds to sell them anything. Here we send out lots of mailings, we speak to people on the phone or in our stores. It's a whole different ball game."
Howard-Sneyd's appointment is another example of the advantages that fresh thinking, and a fresh pair of eyes, can bring to a department. Expect more changes in personnel as the market evolves.
Ad spend (Billetts)
Not surprisingly in a World Cup year, advertising spend was up dramatically. The three biggest drinks brands in the UK, Stella, Foster's and Carling, all increased their ad spend this year to offset declining off-trade sales. But fast-growing Carlsberg isn't even in the top 10 of advertisers.
After a big push on Stella 4, this year saw the return of Stella's core brand to TV screens, while Foster's again focused on humorous TV ads. Budweiser's increase in ad spend was the most amply rewarded in terms of sales.
In cider, market leader Strongbow more than doubled ad spend as it continued the campaign trumpeting cider as the hard-earned drink of the working man. Conversely, ad spend for Magners declined. The most heavily promoted spirit is Smirnoff.
Take-home sales: Kantar
The alcohol market has grown 7.8% this year to £10.2bn, driven by growth in cider and sparkling wine. Price rises mean shoppers now pay 14p more per litre compared with last year.
The average volume per shopper has risen to 109 litres an increase of 2.7% as shoppers purchase more alcohol per trip. The move from the on-trade to the off-trade continues, and shoppers are opting for more premium drinks.
Nearly 40% of spend on alcohol comes from still wine, which continues to perform above the market average. The fastest-growing sector is cider, which has risen by 17%, with NPD into fruit ciders prompting a 6% rise in shoppers.
Beer has grown 2.2% below the market average. Beer's share of total alcohol has fallen from 22% last year to 21.2%.
Focus On Alcoholic Drinks