Retailers are negotiating longer-term contracts with their wine suppliers to secure better prices and protect supply.
Wine contracts typically run for a year but are increasingly evolving into two or three-year agreements, senior industry figures have told The Grocer.
Longer contracts helped to smooth out the effect of harvest fluctuations and shifting exchange rates, and gave suppliers time to plan, said Greg Wilkins, MD of wine supplier Brand Phoenix.
This view was echoed by Bibendum MD Michael Saunders, who said the practice was becoming more common. “Retailers want a stable supply, and suppliers need greater confidence to invest,” he added.
Tesco described the move to longer-term agreements as part of an ongoing strategy to work more closely with key suppliers, although it admitted agreements varied between suppliers. “By doing this, we are securing the supply of wine, as well as guaranteeing wine growers a buyer,” said Tesco wine category product development manager Laura Jewell MW.
Such agreements also had financial benefits for retailers, said David Peek at supplier Copestick Murray. “The best pricing is there for the taking for retailers in a position to give the most binding, unambiguous long-term commitment,” he said. “Their supplier will not need to factor in an allowance for any risk.”
Negotiating consultant David Sables, CEO of Sentinel Management Consultants, said that while the contracts could help suppliers forecast, longer contracts might not always be in the supplier’s interests.
“Some suppliers want flexibility,” he said. “They might have their own supplier further down the chain that they want to change and therefore don’t always want to be tied in to a longer contract.”