C&C’s extension into wine and spirits - with brands it picked up after the demise of on-trade drinks wholesaler Waverley TBS last September - is a new take on the consolidation plays that are so fundamentally changing the wine trade, as it marks the first move by a cider and beer specialist into the market.
“It’s a small bolt-on business at this stage,” says C&C head of investor relations Alan Daly of its new International Wine Services division, and while there’s speculation that it will use more of the own-label wines it bought, and take them into the off-trade, the division is expected to contribute a “low single digit” percentage of operating profit.
But in whatever form it takes - Bibendum spun off its spirits division last month - consolidation is expected to only increase, as it delivers scale as well as flexibility for remaining suppliers while for busy supermarket buyers it offers a ‘one-stop shop’.
So how are relationships now working? As ever, the devil is in the detail. At its best, consolidation can help a supplier diversify its customer base as much as its range - Thierry’s came within a hair’s breadth of collapse last October after the loss of a Tesco contract that accounted for a third of its gross margin.
And Shaun Goode, commercial director of IWS says: “If you can trade in other categories, it adds incremental revenue streams and another opportunity where margins are tight.”
But the trend has been largely driven by retailers, says Richard Halstead, COO of Wine Intelligence. “Retailers only want to deal with people who can meet a benchmark in terms of portfolio, delivery and payment terms.”
Retailers are also turning to direct sourcing as they reduce their supplier base. Asda, for example, now buys half its wines through its own sourcing arm, IPL Beverages.
Supermarket buyers have been keen to deal with fewer suppliers for some time, says Greg Wilkins, MD of wine supplier Brand Phoenix. “All retailers have reduced their supply base over the last 10 years - it is now less than half what it used to be,” he says.
“The reality is that they can do a better job working with 50 suppliers than with 180.”
But despite the benefits there are risks. David Peek, commercial director at wine distributor Copestick Murray, suggests if the strategy is taken too far, it can lead to homogenous, unimaginative ranges, lack of competition and potentially a higher cost base. “The principle is sound and makes sense - a buyer cannot buy every single one of the SKUs in their remit from a different supplier - but it can be taken too far.”
Still, consolidation has forced suppliers to up their game.
Bibendum MD Michael Saunders suggests that for too long suppliers had relied on saying to buyers ‘I have a lovely bottle of wine, who wants to stock it?’ without stopping to consider if it was right for the retailer or end consumer.
“Being a supplier is not good enough, you have to wrap qualitative services around that.” he adds. This includes insight and education such as the Taste Test developed by Bibendum and adopted by Morrisons when it launched online wine offering Morrisons Cellar as a way of helping consumers select a wine suited to their palate.
Wine is becoming more like a standard fmcg category, argues Wilkins. “Today it is about having done the groundwork so the proposals in front of a buyer make sense for that retailer.”
As the retail wine market continues to mature, such attention to detail will play a big role in determining which suppliers mature with it - and which end up down the sink.
Reshaping the world of wine
August 2009: Wine importer PBL acquires rival HwCg from administrators.
July 2012: D&D Wines International is liquidated after going into administration.
May 2012: wholesaler Matthew Clark launches agency Catalyst Brands.
September 2012: On-trade wholesaler Waverley TBS collapses.
October 2012: Thierry’s Wine Services is bought by recovery specialists KKVMS, backed by private investors, and renamed Watermill Wines.
July 2013: Bibendum spins its spirits division into a new business - Instil Spirits - with plans to add premium spirits and lagers to its portfolio.
August 2013: Cider and beer manufacturer C&C launches its own wine division International Wine Services.