Investment: At-home wine drinking fuels confidence

Big companies are making moves that highlight their expectations for growth in online and the off-trade. Sonya Hook reports

We are still in a period of uncertainty but confidence in the future of wine sold via the UK’s off-trade continues, as is made clear by two big stories from the first quarter of 2021: the news that Virgin Wines has made a move to float on the London Stock Exchange’s AIM market; and a rumour that Pernod Ricard might bid for Treasury Wine Estates.

Last month online retailer Virgin Wines announced its admission to AIM, in a move which reportedly values the group at around £100 million.

The strategy is in response to a sharp rise in demand triggered by the coronavirus crisis as consumers sought out online channels for at-home wine consumption.

Before Covid, revenues at Virgin Wines increased 6.4% to £42.5 million (year to June 28, 2019) and in the year that followed this grew 33% to £56.6 million (year to June 30, 2020).

This accelerated in the second half of 2020, growing by 55% to £40.6 million in six months, leading to revenues of £71 million for 2020.

NEW CHAPTER

The growth reflects the Covid-driven trend in online alcohol purchasing with 52% more households now opting to buy alcohol online, according to Kantar).

Jay Wright, chief executive, said: “Our successful IPO and admission to AIM represents a significant new chapter in the group’s long-term development.”

Virgin, which predominantly offers wines through two subscription schemes – Wine Bank and Wine Plan – has around 169,000 active customers in the UK. Some of these are pay-as-you-go customers but the subscription services accounts for 73% of turnover.

Wright said: “We have enjoyed strong, consistent growth leading to the group delivering more than 1 million cases of wine to our customers during 2020.

“We have a clear strategy to continue this growth over the coming years, which is underpinned by the strength of our customer proposition as well as the benefit of many positive consumer trends.”

Another big shift in the wine market was hinted at this month with the story that Pernod Ricard is rumoured to be considering a £5 billion bid for TWE.

The move would see TWE’s wine brands, such as Penfold’s, Wolf Blass, Blossom Hill, 19 Crimes and Lindeman’s, join Pernod’s wine portfolio, which currently includes the Australian Jacob’s Creek, New Zealand brands Brancott Estate and Stoneleigh, and Spain’s Campo Viejo.

Some in the industry are sceptical about Pernod’s interest in TWE because it goes against the French company’s strategy in some of its markets, notably North America where it has a focus on increasing its share in spirits. This March Pernod acquired a majority stake in ultra-premium rum brand La Hechicera, for example.

SHIFT IN FOCUS

But Pernod has made no secret in the past of its shift in focus in the UK to tap into wine trends. The spirits giant revealed in September 2020 that it planned to ramp up its focus on the UK wine sector, as a result of trends that developed during the initial coronavirus lockdown.

The company’s existing wine portfolio gives it a 3.7% share of the UK wine market and its wine sales are concentrated in the off-trade.

In 2020, UK managing director David Haworth told Drinks Retailing: “When you look at the development of wine, you can see recently that there have been very few sales in the on-trade, so the off-trade wine category has boomed.

“We have a new focus on wine, we have a new portfolio director in Lucy Bearman and we have a lot of innovation in the pipeline.

“The wine opportunity for us has changed quite dramatically. We were looking at our wine strategy, given that Jacob’s Creek has declined dramatically over the past three years – on purpose – but there is now money to be made in wine, and in particular the off-trade and ecommerce.

“That value proposition is increasing, because we don’t sell very much wine in the on-trade. As that has moved to the off-trade, we can now play the wine card as well at Pernod Ricard.”

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