Shelf squeeze: what range rationalisation means for the drinks trade

17 August, 2015

Drinks companies are fighting hard to keep their products on supermarket shelves as grocers refocus on brands that are core to consumers in the BWS aisle.

Alcohol is the latest category to come under scrutiny as supermarkets implement a fundamental range review across their stores to fight back against the discounters.

Tesco boss Dave Lewis feels shoppers are a little confused by having up to 90,000 products available to them.

When it comes to BWS, Tesco potentially wants to reduce the number of wines it stocks by as much as 30%, whereas at Morrisons the reduction is nearer 10%. Whatever the figure, the drinks trade can expect cuts to beers and spirits ranges so brands need to understand the potential risks and opportunities.

Supermarkets are following an aggressive range optimisation strategy as they try to move away from relying on promotions. The irony is that BWS has been incredibly deal-led in recent years to tempt people into stores.

The pressure coming from the discounters, such as Aldi and Lidl, has prompted this change in tactics.

The retailers are convinced they can boost their margins if they have a better understanding of which drinks shoppers want to buy and how often. Products shouldn’t gather dust on the shelves if consumers have less choice.

For producers, this move is both challenging and a cause for concern.

They will have to work much harder to justify why their brands should appear on shelves rather than their rivals’ products.

Yet, this is also a tricky category for retailers to get right. They must find the most efficient range assortment, while balancing the choice for shoppers, without killing off any sector growth.

The supermarkets are therefore taking a more analytical approach when assessing and balancing in-store space constraints and consumer demand.

BWS is a specific category because it is so diverse. There are few real brand leaders in wine, for instance, so knowing which lines to cut is difficult.

Drinks producers need to work proactively and closely with their supermarket stockists on joint business planning. By using their own detailed category analysis, the producers can demonstrate clearly that stocking a particular brand will benefit everyone, including shoppers.

The danger, however, is that the supermarkets could upset some of their loyal customers if they remove too many drinks brands, even if the ones that go are not prolific sellers.

They need to realise there remains an important place on their shelves for more niche drinks aimed at a particular target market. Some customers are loyal to particular brands and will expect to see them or may go elsewhere to find them – taking their total basket spend with them.

Among the products likely to be most affected are those in fragmented markets such as craft ales. Yet craft ales have actually driven category growth over the past 12 months as shoppers have switched from traditional lagers.

Ranging analysis of the whole BWS market and not just one segment will be crucial.

A craft beer producer, such as Brewdog, is no longer competing for shelf space just with other craft brewers, or even just other beers. It is also competing with wines and spirits. The whole category is under scrutiny as the space allocated is reduced in many branches to make way for more profitable non-food lines.

The supermarkets will use their own detailed analysis and suppliers’ data to ensure they stock drinks that are in fashion and remove those that are no longer popular.

In the current range-cutting climate this is certainly a good time to be in vogue.

Prosecco has been the glamour category of BWS over the past couple of years, with strong volume and value growth. British consumers have latched on to it as a fashionable drink, not only instead of Champagne when celebrating, but as a drink of choice when going out.

Fruit varieties of beers and ciders have also increased in popularity.

In reality, many decisions on range will come down to how much promotional support drinks manufacturers are prepared to give their brands, both in-store and above the line.

If producers want their brands to remain on the shelves it could end up costing them a considerable amount of additional marketing budget, so understanding and optimising the marketing mix is essential for brands to deliver the best return on investment.

There will still be plenty of deals in this category but they will support a smaller number of brands. The stores will want to see what value the suppliers themselves are adding.

There will also be more pressure on producers’ NPD strategies. They will need to show clearly that any new product will add value to the BWS category. What is its appeal and, crucially, how will it attract shoppers not currently catered for?

It is important drinks companies avoid innovation for innovation’s sake in the hunt for a place on the shelf. There is always a danger that innovation can erode the equity the core brand has built up over many years, so there has to be a balance.

This focus on range rationalisation is also a by-product of the supermarkets’ decision to move away from larger stores to focus on the growing segments of convenience and smaller store formats. It will mean the range of drinks, in terms of varieties and pack sizes, will be different within the grocers’ convenience outlets to meet the needs of the shopper mission.

A less comprehensive BWS category within the supermarkets could be good news for some specialist off-licences that might want to stress in their own marketing that they stock the more niche products.

If retailers get their range assortment right it should be a win-win situation for them, drinks producers and shoppers because the products on the shelves are the ones people want to buy on a regular basis. However, manufacturers risk being squeezed further between the needs of the retailers and the needs of consumers.

The winners will be producers that can gain competitive advantage through a proactive approach to fully understand the category, how their brand meets the needs of the shopper and consumer, how they add value and then optimise their marketing and trade investment to maximise the returns.

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