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"...Imagine,
if you can, a great Bordeaux château, a tiny estate in Piedmont
or a small, artisanal winery in California selling 100 percent of its
production directly to restaurants, retailers and consumers. I believe
it will be possible by 2015..."
From: 12 predictions for the
Wine Industry (2004) by Robert M. Parker, Jr., editor and publisher of
the
Wine Advocate
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The market for
quality wine up until recently....
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For
years and years, wine in Europe has been distributed according to the
classic distribution model whereby the producer supplies the wines to
an importer, the importer possibly supplies on to a distributor, the
distributor supplies on to the retailer who then in turn sells the wine
to the final end user.
The first importers selected the wine producers who had already
developed a good reputation and presented these brand wines in their
own country to both selling points and to the hotel and catering
industry.
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The power of the
importer
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Importers
generally claimed an exclusive importership with the producer, in order
to protect their own market in this way. If the producer is not
favourable towards making the marketing budget free, then it is the
importer who has to invest time and money in order to put the newly
imported wines on the market. If the importer already has a well
built-up network of retailers and hotel and catering customers, the
investments are quite limited.
As soon as a wine producer’s wines have already been imported by a wine
importer, it is no longer possible for another importer to likewise
import the wines from this wine producer. The other importer therefore
has to search for other producers in order to develop an outlet for the
producers in the homeland.
The first importers in a member country hereby created a power block
within the value chain, whereby the importer became the gateway for
wine producers to the outlet and, on the other hand, the importer
became the gateway for end users and retailers to brand wines. The
result was that importers became customer owners, by means of which
they had the highest margins within the value chain.
After 1991, when the Treaty of Maastricht was signed, it became
possible for retailers to buy wine from importers in other member
states. Importers of brand wines suddenly had competition from abroad,
because the interior borders within the EU had been removed. Up to 1991
the importer had a product monopoly on the imported wines, by means of
which the price fixing could be determined from a cost perspective and
not from a market perspective.
From 1991 onwards, a high cost structure with the importer was punished
for the first time, since retailers and the hotel and catering industry
could compare the prices and could address importers about their price
policy.
Retailers thereby wanted to become more powerful within the value
chain. In order to become more powerful within the value chain,
purchase combinations or retail chains emerged, in order to somewhat
contain the power of the importer in this way. However, the power block
of the importer towards the producers remained intact. Producers with a
less strong brand value have difficulty in entering the distribution
chains. The producers are not selected or they are squeezed out in a
huge way.
As more and more importers started to work in a member state, the entry
barrier for new importers became continuously greater. The added value
of new imported wines is difficult to demonstrate, meaning a great deal
of money is needed to get them onto the market. As a result of this,
new importerships can often not grow any further than small
specialized, usually hobby-like, companies supplying to friends,
acquaintances or friends of acquaintances. These are usually the small
companies which the less well-known producers of quality wines, easily
more than 99.9% of the market, are forced to do business with, as a
result of which the export volume is small and will remain small.
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The power of the
wine press
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Throughout
the world a great deal of wine is produced, far too much wine even. The
amount of quality wine made in the wine producing countries every year
is also too much.
Due to the enormous over-supply, it is barely possible for the consumer
to make a correct choice. Producers try to do everything in their power
to stand out. The lyrical descriptions of one producer are even more
attractive than the other, but the main point is that these background
descriptions do not reach the consumer. There are too many descriptions
and there is not enough time to make a perfect selection.
Producers try to relate their background descriptions to the importers,
who in turn pass on the description to their distributors. However,
importers, distributors and retailers must know the lyrical
descriptions of dozens, if not hundreds of producers. At the end of the
communication chain, the lyrical description has been reworded into a
standard description, which is almost identical to all the other
descriptions. The result is that the consumer does not get to hear any
distinguishing description and listens to independent authorities such
as the good friend who is a wine connoisseur or reads what the wine
critic press have to say.
The wine critic press, led by Wine Spectator, Wine Advokate, Gambero
Rosso, Decanter, Vinum, Steve Tanzer, among others, is becoming more
and more powerful because their opinion is increasingly swallowed
whole. The success is understandable because wine lovers everywhere in
the world are on guard against the many bad buys which can happen when
they purchase wine blindly. As a result of the large offer of wines, it
is likewise barely feasible to taste all the wines. Renowned wine
critics and their scores make the world of wine a great deal clearer
for consumers!
The wine producers are not completely happy with this. If your wines
receive an excellent score, then as a wine producer you will have no
wine left in your wine cellars within a day. If they score between good
to very good, but dozens of producers score higher, then that is the
start of the problems; never mind the situation if the powerful wine
critics are non too enthusiastic about your product, which can have
disastrous consequences.
From the above-mentioned the only conclusion can be that wine producers
have little to say in the wine market. Only the large, powerful
producers or small producers with a high cult status can manage to hold
their own in this market.
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Social, economic
and technological trends and developments
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There is
undeniably a question of a fast globalization of economies, whereby
digitalization plays an important role. The competition is therefore
ruinous and it is becoming increasingly difficult for companies to
stand out. For some product categories it has become virtually
pointless to create new products in the hope that they will stand out.
In addition, there is the factor that the consumer is changing at a
fast rate. The consumer has the following characteristics, according to
‘Make Dust or Eat Dust’ by Rogier van Kralingen:
 Is price
conscious
Is price
conscious
Seeks
surplus value
Is short
of time
Is
indifferent to marketing
Is very
demanding
Is well
informed
Is
socially conscious
Is
financially well-off
Is an
opportunist and hardly loyal
Has a
tremendous choice of possibilities
Has
consumption experience and is on guard
Is
searching for meaningfulness now more than ever.
Furthermore, the rise of the autonomous consumer is clearly visible, as
the consumer is less and less satisfied with products made by mass
production which do not sufficiently meet individual needs.
The second factor is the increase in the experience as a means of
consumption. Experiences are increasingly becoming an integral part of
the product or service, and they will play a more central role in
people’s consumption patterns.
A third important factor is offered by the Internet in particular and
that is the fact that the consumer is becoming more and more
interactive. Co-creation is no longer new, in view of the successes of
YouTube, Flickr, MySpace, Wikipedia, etc, etc. The future will see a
further shift, whereby co-creation will grow to become co-innovation:
consumers who start to help think and help participate in product
development.
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Who are your wine
drinkers?
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For
years and years, in Europe wine has been distributed according to the
classic distribution model, whereby the producer supplies the wine to
the importer, the importer possibly supplies on to a distributer, the
distributer supplies on to the retailer who then in turn sells the wine
to the final end user.
It is almost incomprehensible that for that reason a wine producer does
not know his own wine drinkers. Hardly a single producer is capable of
serving up customer details of all the consumers who have drunk his/her
wine or have a supply of it in their wine cellar.
In itself, this is of course quite logical, in view of the present
distribution structure, but technological, social and economic
developments are bringing end customer ownership much closer.
Imagine that you as a wine producer have the information to hand about
your ‘drinking audience’. That means that you as a wine producer
yourself can communicate one to one with the wine drinker. The lyrical
description about the wine company, the wines, the wine makers, etc.
will thereby become a unique background description because it is
communicated directly from the source. The producers can therefore
steer the consumption by advising upon ‘drinking windows’, they can
draw attention to ‘peak moments’ and will also be able to involve the
end consumer in the experiences with regard to the harvest, the product
development, the taste developments from various vintages, food
matches, films, etc. It will even be possible to set up an interactive
platform, where consumers and producers can meet each other.
In this way producers create a bond with their wine drinkers with
regard to their wines. A bond which is completely impossible to achieve
in the present distribution chain. Since that bond does not exist,
consumers listen to the authority when making their wine choice and the
producers must just wait and see again whether that will have a good
result for them or not at the end of the chain.
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The future of the
market for quality wines
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The
existing distribution model for quality wines has reached the end of
its life cycle for various reasons. Marketing communication from the
producer is impossible whilst this is extremely relevant in a world of
over-production. Only the large brands which are organized as beverage
companies such as Carlsberg, Heineken, Coca Cola, etc, can produce a
perfect marketing communication. This is completely impossible for the
much smaller, quality wine producers.
Wine producers will start to reconsider their position and take on
board the world developments with regard to social, economic and
technological areas.
There is a noticeable trend whereby the polarization between fast food
and slow food is increasing. People have the increasing inclination to
resist mass production of food and they are more aware of the
consumption of this food. Buying at the source is a trend and if it is
up to consumers they would also prefer to buy their wine at the source:
from the producer.
As the result of the globalization of economies, we are seeing an
enormous increase in parcel services which can ensure the fine
distribution of wines to the end users.
Technology is enabling us more and more to buy at a distance via
e-commerce platforms and also to find what we are looking for, as a
result of the availability of advanced search engine technology.
If wine producers take all these factors into consideration, then it
will not be long before they seize the chance to start to approach the
end user directly.
The wine producers will recognize that they will be able to realize the
direct sales to end users with all the subsequent advantages. The wine
producers will become customer owners and will therefore know their
‘drinking audience’. Marketing communication will enable them to better
show the uniqueness of their products and they will be able to create
more loyal customers. The wine producers will thereby be in charge
themselves with regard to the price policy and will therefore no longer
be handed over to price competitors further along in the distribution
chain, who destroy their wines with regard to the price.
Wine producers will only select importers who supply to the hotel and
catering industry. This form of distribution will remain critical
because the hotel and catering industry will continue to be an
important outlet channel. It will not only be an important sales
channel but it will also enable producers to promote their wines to end
users who are not familiar with their wine. For a producer of quality
wine, the wine is the pre-eminent marketing instrument. Distribution to
the hotel and catering industry via importers will be an important part
of the total distribution campaign because it will attract the new end
users who, having experienced a wine tasting found via search engines,
will go in search of the wine they have experienced.
Producers are still barely aware of the number of end users who are
already searching for them. The amount of people reached by their
website is much higher than they think, and as soon as producers
realize this, they will understand that their website will have to
become a point of sales. After all, the first potential customers who
are prepared to make a quick transaction visit this website. They
should therefore be helped immediately so that these potential end
users are not lost for ever.
A perfect hotel and catering distribution will therefore start to play
an important role in attracting new end consumers who can order their
wines via the producers’ websites and can have that delivered to their
door within the whole of the European Union. Direct marketing and
loyalty tools will enable producers to let the end users come back for
repeat orders or to buy new vintages.
Wine sales via the Internet will boom enormously and the classic
distribution model will die a death. It already appears to be too
expensive now, as a result of which the classic bricks and mortar wine
shops are pricing themselves more and more out of the market. The
consumer is becoming increasingly price conscious and the future of the
local wine shop is extremely gloomy. Importers are noticing that this
market is subsiding due to competition from the Internet and they are
even making a thorough search for new outlet channels. Importers will
be forced to do this because the added value of importers in the value
chain is becoming increasingly smaller. Importers will change into
‘supply holders’ and this role will be mainly of value to hotel and
catering entrepreneurs who can have the wine delivered quickly upon
call. Importers will have to apply themselves to realizing added value
to hotel and catering entrepreneurs by presenting themselves as full
wine service providers.
In a few years’ time, in Europe there will be tens of thousands of wine
producers who make the step to dividing their distribution into a B2C
branch and a B2B branch, whereby a well organized form of cooperation
between producers and the hotel and catering industry, such as with
vouchers, kick-back fees, possibly facilitated by importers, will have
an overwhelming effect on the B2C turnover.
Wine e-Commerce for the near future...
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