The face of wine is changing: how traditional agencies are rethinking their strategies
Supermarkets’ recent headline-grabbing range culls are just the latest in a long series of changes that have rocked the trade and forced suppliers to take a hard look at the way they do business.
Seventy-five per cent of wine suppliers polled in OLN’s Wine Report in May said traditional wine agencies would have to change their business models to survive – whether by refocusing from supermarkets to independents or more fundamental changes.
The market changes have seen countless suppliers bought out or going to the wall, including such well-known names as Thierry’s and Stratford’s, with others, such as Bibendum and PLB, merging to form new companies.
Eighteen per cent of those polled in the Wine Report said they had lost listings in the latest rounds, with another 23% saying margins and prices were coming under increasing pressure.
But Ania Zymelka, a senior consultant at wine information company IWSR, has warned that the majority of UK wine suppliers are still overly reliant on the three to four major players who control 80%-90% of the off-trade wine market, and that brands wield little power in the marketplace because there is too much choice for consumers.
The past decade has seen a number of reworkings of the traditional agency model, with suppliers working more closely with producers, transferring their focus to the vibrant independent market or simply doing whatever they can to cut costs and middlemen.
“Traditional agency models are becoming a thing of the past because of the costs in the middle and the squeeze on margins,” says Kim Wilson, whose North South Wines is 48%-owned by producers De Bortoli, Waimea and The Wine People, with the remaining 52% split between its three UK directors.
As well as its shareholders’ products, North South distributes wines from more than 20 agencies around the world, with a strong focus on cash and carries and convenience. “Wineries want more control over UK distribution,” says Wilson. “[Our structure] gives an element of control over the market and more exposure for them, and keeps us very lean as a company.”
Stefano Girelli, owner of North South stakeholder The Wine People, says: “My whole idea for The Wine People after I left the Casa Girelli Group was that I wanted to do something different. At my Santa Tresa estate in Sicily I try to link production to the market and cut out all the middle people, so I do have a lot of contact with growers.
“It means that, because we know what the market demands, we are really focused on styles that the market requests.
“What we really want to do is deliver a better revenue to the grower. We need growers to make some kind of money, otherwise we are going to lose our heritage.
“Sometimes growers make so little money they lose their passion, and the new generation doesn’t stay in the vineyard. That is something we should try to avoid by any means.”
“Negotiations have been harder than ever in the past two years,” says Tim North, UK director for Les Grands Chais de France. “Retailers are looking to work with people who are producers rather than just agents, such as Les Grands Chais de France.
“There are some big producers who don’t have the expertise to handle the UK market but may produce the best value wine, such as the co-ops in France, so there is still a role for some agencies but it is a much-reduced role. In the past a major retailer would have bought French wines from at least a dozen agency companies, but this is now reduced to a handful. Agencies have become the exception rather than the rule.”
South Africa specialist Raisin Social was hard hit a few years ago when a number of lucrative own-label contracts with supermarkets were cancelled around the same time.
“We have changed our business model quite a lot and we are still trading after 27 years,” managing director Simon Halliday tells OLN. “We have turned the business around and will make money this year.
“I’ve always thought producers should have a vested interest and a strong influence over brands, not just be suppliers of juice and liquid. We don’t have a role to play unless we are producing products and getting them delivered cost-effectively.”
As well as developing its own brands such as Savi, offering UK bottling, own-labels and tertiary products, Raisin Social is growing its duty-paid business and focusing on cash and carries, small off-licences and corner shops.
Halliday says: “It is more and more difficult for producers to get an equitable return on investment with their vineyards. There are no more subsidies for wine producers, and suppliers have been given such a kicking by retailers because of the pressure on them for shelf space and to reduce SKUs.
“Our business model has changed as a result of all those factors. We have had to look at what works for us and for our customers and be better at doing that to provide more of a service.
“We are a manufacturing distributor whose role is to work on behalf of brand owners but at the same time offer selection and choice within our category, which can fill each sector of the market.”
Buckingham Schenk changed its name from Buckingham Vintners in 2007 after the Swiss Schenk Group, which had been investing in the company since 1994, increased its stake from 25% to 75%, allowing the agency to double its sales force. Agency founder Cliff Roberson sold the company his remaining 25% holding in 2012.
Like North South Wines, Buckingham Schenk supplies agency brands as well as Schenk’s own.
Managing director Craig Durham says being a wine producer rather than an agency puts the company in a much better position when it comes to negotiating with retailers.
He says: “Supermarket rationalisations mean they are likely to tighten their supply base. They could look at an agency getting Spanish wines in for them and think, why don’t we go direct? But we are actually wine producers.
“Schenk allows us to do what we want to do in the marketplace we know.
“It is a wine expert but it leaves each country to run its own wines, because it doesn’t know the UK like we do.”
Marc Patch has built his business on keeping costs to a minimum and being as agile and reactive as he can. His agency, GM Drinks, supplies wines including Navarra-based Marqués del Atrio, and he has a particular focus on the cash and carry market.
He says: “The wine agency business is successful but needs to be modernised and tweaked.
“My model is simple: if you can sell the best possible wine at the best possible price it doesn’t matter if you have got a big office in central London or, like me, you work out of a garage. The consumer doesn’t see or understand that.
“My customers like the fact that there is a contact in the UK that can deliver them decent wines. More of my customers will happily go direct, but having that person in the UK means they can deal with one person for six wines rather than six wineries.”
Others have switched their focus to independents, hundreds of which have risen, with varying degrees of success, from the ashes of collapsed chains Unwins, Threshers and the old Oddbins.
In response, lots of agencies switched their focus or set up new businesses targeting this burgeoning sector – the latest being Bibendum PLB, which recently launched Walker & Wodehouse as its new independent wing.
But with only around 500 stores recognised as vibrant and exciting wine specialists – making them the key target market for 71% of suppliers polled in OLN’s Wine Report – is there enough business to go round?
Walker & Wodehouse managing director Gareth Groves says yes.
“There is definite headroom. Although Bibendum and PLB are both sizeable companies the independent business they did was relatively small, with neither business wholly focused on it,” he says.
“All the statistics show the independent market is growing. There is real positivity because it is one of the few sectors of the market where you can really actively engage with the consumer to introduce them to something new, exciting and different. That is important for the trade and can make it more profitable for everyone in the supply chain.”
Connoisseur Estates director Andrew Steel is also targeting independents – but says it is not his bread and butter, which comes from the volume side of his business.
He tells OLN: “As a standalone wine agent without a volume business and two or three strings to your bow you won’t survive. You can’t live. I don’t make enough on these people to survive on the agency side, but it is what I want to do. You need the volume side to pay the bills and the agency wines to give you a flagship.”
As more big companies, such as Walker & Wodehouse, Hatch Mansfield and Ehrmanns, target the market, Steel believes there won’t be enough business to go around.
“But that is where relationships come in,” he says. “The independents are key for us going forward, but so is the on-trade because you can build a brand in the on-trade.
“We work very hard to get distribution for the wines in regional wholesalers because they then end up in restaurants around the country and you start a buzz. Restaurant listings make a big difference.”
Steel predicts that the biggest, most successful independent wine merchants – “the ones I would describe as the more noisy ones” – will band together to buy wines collectively.
“They know the strength and power of what they have got and are going to start flexing,” he says.
Discounters Aldi and Lidl continue to grow in popularity, and as consumers vote with their feet for their compact, negotiable wine ranges, the established supermarkets are likely to continue to cut even more listings.
There is plenty of praise for the culls, which have been dubbed necessary and overdue, especially by critics of the intimidating “wine wall”.
But these changes will continue to have wide- ranging knock-on effects for suppliers, who need to adapt to survive.