industry news
Marketing – Niche versus Mass - New Trends – How Small Producers can Survive and Thrive.
Article for The Wine Marketing Report July 2007
This article contains excerpts from the paper “Commoditisation of Wine – The Super Market Putsch - Big Business, Big Profit” that was recently presented at the 15th Symposium of Gastronomy in Tasmania. The full paper can be made available via email info@winehound.com.au should you wish to read further.
During the nearly 30 years that I have played a part in the wine industry the agglomeration of wholesale and retail distribution has accelerated at an alarming rate.
In the early days of wine production, in Australia, big business had no interest in the wine industry. It was regarded as a small group of artisanal producers based in far flung rural areas.
Times have now changed radically!
The duopoly of Coles and Woolworths in conjunction with immense multi-national wine companies are “commoditising” wine, that is, treating it like just another, bottom line driven, FMCG (Fast Moving Consumer Good).
This has already had and will continue to have a long range effect on producers and consumers as well as Australia’s global marketing opportunities.
The current discounting war is touted as “a boon for consumers” and in the short term it may appear, to the individual, to be just that. However the long term effects are many including
- The loss of individual flavour influenced by a range or viticultural, regional and individual winemaking styles
- A huge reduction in the range of wines available
- A large quantity of “clean” “reliable” but bland wine that tastes the same EVERY TIME just like baked beans
- Much reduced tourism destination options
My hypothesis is that all of the above will happen unless we fight the supermarket putsch. In fact that we can meet all of the major threats, listed above, head on with an intelligent marketing approach.
So the discussion points in this paper, based on my hypothesis, are
- How can marketing help us – How can we compete with multinational marketing budgets?
- A more in depth look at why these and other outcomes are currently valid and painful for the wine industry
- That both producers and consumers can play a part in preventing the “supermaketisation” of wine.
A number of smaller producers have benefited during the growth of large wine companies as their business have been purchased during the takeover phase as these behemoths swallowed up more and more of them. However there are still well over 2,000 small producers fighting to survive and the marketplace has changed for the large players.
As these companies have grown so has the competition between them. They now have an unprecedented amount of wine to sell. Constellation Brands (Hardy Wines), for example, have continued to grow buying up new and old world suppliers. However a world wide grape glut and the increasing global business savvy of old world suppliers, regarding commodity rather than top of the range wine, have had a downward pressure on sales and margins. Meanwhile low cost producers such as Chile and Argentina had entered the fray. The large companies are currently moving to sign contracts with or buy property in these areas. To reduce costs we will most likely end up with ‘global wines’.
To reinforce the trend toward “Big Business Big Profits” we have recently witnessed the giant timber company Gunns and the European chemical company Kreglinger purchasing key wine assets in Tasmania.
However the on-going research I undertake to assist my marketing clients has revealed some heartening trends. For example there is a definite swing back towards quality, via increased interest in individuality rather than collective culture as well as health and climate change issues such as “food miles” meaning that a segment of the population are increasingly looking for local, fresh, earth friendly produce and looking to support producers of the same. This provides excellent opportunities, with the right marketing advice, to reach these specific niche markets.
Recently in its “50 Big Ideas to Navigate Tomorrow” issue of BOSS Magazine (June 2007, Volume 8) the Financial Review referred to this effect stating “Mass scale doesn’t always mean mass clout. The so called “long-tail” effect helps explain the shift in many markets from mass-production to niche… The trend is about making money on the periphery, as the power shifts away from collective culture and individuality takes over. As consumer markets fragment niche is the way”
My research supports this assertion BUT it is a tricky road to navigate and the marketing approach is complex and needs to be holistic. To make this work a scientific, strategic marketing approach is required.
Marketing is an investment in your future not an overhead or cost.
To take advantage of this current heartening trend, which will enable smart small operators to continue to survive and thrive, it is recommended that they seek professional advice to ensure their investment pays off.
Labelling – Does your Emperor Have No Clothes?
Karen Goldspink Article For NZ Grapegrower 21 st March 2006
In the more than a quarter of a century that I have been working in the wine industry I have been constantly amazed at the reasoning behind choosing the design for wine labels.
There are pets and family crests, artworks and native flora and fauna, obscure hard to say names and those which stick to the very basic legal requirements, incorporating minimal, if any, design and legions of others all struggling to find their place in the market place, striving to be remembered and revered by appreciating fans.
Most of the proprietors of small wineries in Australia and New Zealand to whom I have directed the question “what made you choose that label” have answered “because we liked it” when pushed to explain why they liked it the response is usually based on purely subjective appearance preferences and/or things that are personally meaningful.
Rarely do I find someone who has based the label design on a sustainable marketing decision and who has tested some options in the marketplace on their specific target market.
The label on a wine bottle is akin to our choices in clothing and as much as we like to think we are not affected by what a person wears, and the way they look, the vast majority of us are. we are apt to make judgements, about people, based on this which are (most of the time), to a greater or lesser degree, incorrect. the same can be said of the wine label on your bottle.
In the Hans Christian Andersen tale “The Emperors New Suit” the emperor was convinced to wear a non existent suit as he did not wish to admit that he could not see something that others insisted existed. When you choose a wine label, based on an internal subjective decision, you are convinced it is meaningful but what if your target audience thinks that your “emperor” has no clothes? In other words it either, does not attract them in any way, is meaningless to them or even worse creates a perception totally different to how you wish them to see your “emperor”
Your wine label is part of your brand.
“A brand is the symbolic embodiment of all the information connected with a product or service. a brand typically includes a name, logo, and other visual elements such as images or symbols. It also encompasses the set of expectations associated with a product or service which typically arise in the minds of people. Such people include employees of the brand owner, people involved with distribution, sale or supply of the product or service, and ultimate consumers”. http://en.wikipedia.org
A brand can only be created through the development of a strategic marketing plan and the label, as part of this, must be based on solid, researched, synergistic marketing tactics to ensure that your emperor is really wearing andersen’s emperors imaginary “exquisite patterns and beautiful colours” that your delicious product deserves!
grape glut set to bite
Tthe winehound strategic approach enables you to bite back, achieve your potential and increase your profitability
One of the first things to go when business is tough is expenditure on marketing when in fact the only way to survive, during tough times, is to develop a good business and marketing strategy to stay in business. Adhoc selling to generate short term cash flow damages your brand forever The following observation by Stuart Bryce, President of the Tasmainan Vineyards Association is fully supprted by the Winehound. Slashing prices does long term damage to your brand. With a good brand you do not have to discount!
"If we drop our prices, we go broke. Additionally, that would also effectively be revaluing our brands. If you take a well-known $25 bottle of wine and start selling it for $20 just for cashflow, you can never realistically expect to sell it at $25 again," he said.
He added "big retailers are also compounding the problem by putting downward pressure on wholesale prices targeting producers desperate for cashflow"
by rohan wade the mercury 31jan 06
why do small wineries need a marketing plan?
karen goldspink (published in the ANZ wine industry journal)
The 4 most common reasons given, by small wineries, for not needing a marketing plan, are
- I can not afford it
- I can not afford to advertise
- I do not need it I already undertake marketing activities
- I have already tried some marketing tactics that have not worked
Marketing is an interesting profession in that the vast majority of people, who are not in the profession, have a very confused idea about what it is. This is because the word is often used in a somewhat vague context. For example advertising and sales people often refer to themselves as “marketers” whereas, in fact, advertising may not form part of a marketing plan and consistent sales are achieved only by appropriate strategic planning!
As a marketer I am not a lawyer, farmer or winemaker. If I wanted to produce a good crop, get appropriate legal advice or make wine I would seek the assistance of experienced people in the field (or probably fail in my endeavours)! Unfortunately many small business owners, with no marketing knowledge, fail to seek similar assistance from marketing professionals. Ad hoc marketing will produce ad hoc results hence reason number 4.
Why spend money on ad hoc marketing tactics when a small investment, in appropriate consultancy, can ensure all your personal time and hard earned dollars create a solid, long term return, based on a proper strategy?
In small business we often spend a lot of time “doing” rather than planning. This creates a scenario ripe for “panic marketing” which is usually an ad hoc gesture to increase sales in the short term. Often these tactics (especially if they are based on discounting) are disastrous, for the long term, or possibly a complete waste of money and/or time. Planned marketing increases margin whereas short term sales tactics can erode it.
The hard facts of the matter, for small wineries, in the harsh marketing conditions these days, is if you have not planned how to reach and satisfy your customer your 2000 competitors will beat you to it!
Decades of experience in the wine industry, small business and marketing has indelibly lodged these very true quotes in my mind “Fail to Plan - Plan to Fail”
“A Marketing Plan is the single most powerful small business tool”
So what can you do? The problem of affordability can be overcome by utilising the specialist skills of marketers that understand small business and the wine industry. They will be aware of current market conditions both domestically and overseas as well as the constraints of small business. They will help you develop a plan, within your budget, to build a profitable future in the industry that you love!
New global challenges face our small wineries
By meridith booth
19oct05
LARGE, medium and smaller Australian wineries face different challenges in global markets over the next decade, Australian Wine and Brandy Corporation chief executive Sam Tolley says.
Mr Tolley, who will speak at today's Institute of Chartered Accountants of Australia Business of Wine conference in Adelaide, expects the industry's easy ride to end as multibillion-dollar wine companies and new world industries compete with Australian wine.
Big wine producers, with turnover higher than $50 million, would need to merge or partner with large-scale grape growers and supermarket chains to grow, Mr Tolley said.
"The medium-sized players – with turnovers of between $20 million and $50 million – will need to really focus on their own distinctive brand strategies and seek to target new channel opportunities with a more specialised approach," he said.
Small wineries selling less than $20 million a year would need to focus on domestic drinkers and "investigate new ways of reaching consumers because the big and medium players will dominate the supermarket shelves and bottleshops".
Effect on small producers of deregulation of the liquor industry in Victoria
The industry is currently in a severe oversupply situation, domestically, and it is becoming increasingly hard for small vineyards, especially newly established ones, with over 1,700 of them in the marketplace, to find a profitable way of getting their wine into the marketplace let alone create “pull through” to actually sell it!
Current industry indicators point to this becoming increasingly harder for example it was suggested recently by Ernst and Young* that the removal of the 8% limit on packaged liquor licences, due to commence in Victoria in 2006 will see “50 percent of remaining independents close their doors” Independents are the mainstay for smaller wineries and with their closure, or purchase by one of the majors, competition in the restaurant trade will be at an all time high.
* Winestate Magazine
The importance of effective newsletters
Recent research carried out in NSW indicates that just under 1/3 of visitors to wine outlets belong to mailing lists with 60% saying they were not interested at all. However, Guy Grant asserts that it is possible to “cultivate a cult”*, via newsletters. Guy goes on to say that it is a “superficially simple but inherently complex task” and that “content is king” which needs an appreciation of “both effective communication techniques and successful wine marketing strategies”
In other words expert advice can mean that this highly competitive area can achieve high profit margin sales. See how the Winehound can help you
*Guy Grant Wine Industry Journal Vol 19 No 5
Mixed messages caused by discounting
Many people are still enjoying the experience of visiting cellar doors to purchase wine direct from the producer. However there is a current threat to small producers selling product through this profitable distribution channel.
In a bid to create cash flow some small producers have sold parcels of wine to large retailers at heavily discounted prices. This product often ends up being sold at less than cellar door prices through mainstream outlets. This annoys customers and destroys the brand and the image of the winery involved. Unfortunately some visitors, to cellar door, are starting to tar all small winery outlets with the same brush, there is anecdotal evidence of visitors tasting and saying “I will buy it at my local retailer as the wines are always cheaper there” If this happens once it sticks in the consumers mind and it is very hard for small producers to refute this.
Letter from the Winemakers Federation of Australia regarding the reinvestment of your WET tax rebate
An Open Letter on the new WET Rebate . . .
The reforms to the Wine Equalisation Tax (WET) announced in the May Federal Budget provide an unprecedented opportunity for small wineries to rebuild their businesses and get them back on a profitable footing.
Profitability in the wine industry has declined steadily since 1998, and the decline has been most acute for small wineries below $5million annual turnover.
WFA, state associations and regional coordinators fought hard to secure the WET rebate on the first $1million of sales, giving wineries some breathing space to reinvest in the parts of their businesses that will be profitable in the longer term. Our objective was to build profitability and sustainability back into the small winery sector.
Whilst this new rebate, worth up to $290,000, will ensure that more than 80% of Australia’s wineries will not remit WET, the effect of the rebate in the marketplace should not be overstated.
Those wineries account for less than 5% of the volume of the wine sales in Australia. For the very large companies that are responsible for over 80% of domestic sales, the tax reduction is negligible bordering on nonexistent.
Any expectations from the trade of widespread price reductions are misguided.
Ultimately, the marketplace will determine the price of wine, as it should. But as wineries, distributors, agents and retailers set about the task of determining prices over coming months, they would do well to dwell on the following.
If this tax cut is traded away it will demonstrate two things to the Government. Firstly, the industry’s arguments about a tax reduction being necessary for regional investment were just empty rhetoric. Ergo, there will be no case for future tax reductions. And secondly, if a tax cut can so easily be passed on to consumers, so too could a tax increase.
This new rebate, which should take affect on 1 October, has been hard won. It’s now up to the industry to ensure it’s well used.
Yours sincerely
Stephen Strachan
Chief Executive
PS – thanks to all in our industry who helped to achieve this victory.
Winehound Marketing & Managegment strongly supports the viewpoint expressed in this letter
"Use your WET rebate to build a sustainable and strong brand in the marketplace. Do not degrade it by trading it away" Karen Goldspink
