Ch 5 - Retail Sector (free market) Flashcards
(17 cards)
Retail sector (free market)
How is “retail/retailer” defined vs “retail sector?”
○ Retail/retailer - selling wine to the end user for consumption, either in retail or hosp (vs selling to another part of the wine trade - distrib, WS, etc)
○ Retail sector - selling wine in shops or via internet to end-user in contrast to hosp sector - sold to cons for consumption, or wine sold for investment to be re-sold at later date.
Retail sector (free market)
What are 8 main retail options for getting wine to end consumer?
○ Supermarkets
○ Deep discounters
○ Convenience stores
○ Specialty wine shops
○ Hybrids
○ Online retail
○ Global retail travel
○ Wine investment companies
Retail sector (free market)
What are supermarkets?
What role do they play in wine trade?
Examples?
○ General purpose stores that represent majority of wine sales in US, UK and France - one stop shopping
§ Walmart, Costco, Woolworths (SA), Carrefour (France), Tesco (UK)
○ Premium markets (Whole Foods) - focus more on artisan/smaller producers, bought in smaller qty -> appeal to more knowledgeable customers
○ Attractive for producers who want to sell large vol of wine
○ Stock well known brands w/ broad appeal, as well as private labels -> high vol sales potential
§ In wine prod countries - range can be dominated by local wines
§ Appeal to cons w/ little wine knowledge
§ Large, well known brands attract consumers - Jacob’s Creek (Australia), Barefoot, Oyster Bay -> but cons can compare prices across other outlets so do not promote loyalty
Retail sector (free market)
What are private labels and why are they created?
What are 2 approaches?
Supermarkets
- developed to create loyalty as they are exclusive to that supermarket-> large known brands attract customers, but do not promote loyalty
- Increasing importance in recent years
Approaches
* Supermarket creates the brand, the name of the market not on label (Walmart, Costco, Marks and Spencer)
* Supermarket brand features their name (Sainsbury)
Retail Sector (free market)
What are adv and disadv of supermarket channel for producers?
Adv for prod
* Usually sourced from large prod -> need to be avail in large volumes
* Good for large producers looking for high levels of exposure, sometimes in multiple countries
* Supermarkets usually buy direct - no intermediary costs
* Many supermarkets consult on production/quality control - access to expertise can help wine sold elsewhere
Disadv for prod
* Supermarkets have major negotiating power on P -> prod may receive ↓P than other channels
□ producers fight for shelf space - more demand from prod than can accommodate
* Prod pays fees to supermarket for stocking and promo, producers pay for price promotion
* Producers can be stuck with unsold wine
□ Contracts very strict on QC, time/manner of delivery, labeling, packaging -> if not met, wine rejected
□ Products can be dropped if not selling
Retail sector (free market)
What are deep discounters?
What role do they play in wine market?
Examples?
○ Similar to supermarkets, but sell at lower P
○ Examples - Aldi, Trader Joes -> important in Germany for a long time, increasing in other countries
○ Business model - offer permanently low prices - rarely do price promos; being adopted by supermarkets
○ Adjust assortment in affluent areas - stock small lots of prem wine -> attract enthusiasts and build loyalty/repeat purchase
§ UK - drinkers buying from deep discounters up 37% 2012 -2018
Retail sector (free market)
How do deep discounters keep P low?
How do producers benefit?
Keep P low:
○ Take lower π margin than trad supermarkets
○ Lower costs - shops not fancy and less expensive real estate
○ Limited prod range - less exp to maintain - sell only one brand of a prod (2 buck chuck) -> oppty for producers to work with retailer to develop the brand
○ Avoid major brands - more exp due to overhead/marketing - work w/smaller prod and buy whats avail - when sold, its gone -> appeal to prod w/ surplus wine
○ Buy direct from prod - avoid intermediary costs and don’t charge prod for stocking prods
Producer benefits
○ Sell direct to retailer -> higher π due to no intermediary
○ Fewer fees - don’t have to pay stocking fees/pay for price promo
○ Oppty to develop brands w/ partners
○ Oppty to sell surplus wine
Retail sector (free market)
What are convenience retailers?
What role in the market?
○ Located closer to where people live, longer hours often 24 hrs
○ Can be indep owned (India) or franchises of bigger business (Spar); supermarkets moving into this space too
○ Stock brands popular to local customers - similar range to supermarkets - but smaller; a few do private label (7-11)
○ More expensive than supermarkets, but cons willing to pay more for convenience
○ Higher per unit op costs than supermarkets - smaller size means higher cost, higher staffing, not optimized for wine; franchise fees
Retail sector (free market)
What are specialist wine retailers?
Who do they focus on?
Key features?
What are adv/disadv for producers?
○ Retail outlets that specialize in wine, sometimes also prem beer/spirits, also some higher end food
○ Most independent or small chain
○ Can have specialty - region, style (OV/BV), super-prem (Berry Bros & Rudd, Hedonism in UK)
○ Curated selection, higher P - focus on wines of smaller prod - don’t have buying power of bigger retail
○ Focus on high involvement cons - emphasize personal service and advice, knowledgeable staff
Adv/disadv
○ Oppty for smaller producers - less retailer purch power -> focus on wines of smaller producers
○ Higher P and margin vs supermarkets/discounters - high involve cons spend more/btl
○ Retailer (and brands) can build relat w/loyal customers
○ High reliance on distributors for niche/distinct prod - adds distributor cost for producers
Retail sector (free market)
What are retail hybrids?
What are their key features?
Adv/disadv?
○ Specialist retailers also offer bar area to sample wines, also sell food -> promoted experiential wine buying
Adv - cons can try before buy, stim additional purch, enc purch of less known wines/regions, enhances cons confidence via experience
Disadv - high staffing and op cost - stay open later, need more staff, complexity of managing dual functions (alc and food)
Retail sector (free market)
What is online retailing?
What types are there?
What are key features?
What are consumer benefits?
Summary
○ Offering wine directly to end consumer online
○ Increasingly impt channel - 20% in china, 2% in US
○ Offered by bricks and mortar and online-only
- increasing # of wine only online (China - wine9.com; US - wine.com)
- multi-category online too (Amazon)
- Online clubs - newspapers, etc - often require subscription/min annual purch
Mobile apps inc important - China
Consumer benefit ○ Offer extensive prod range, often not avail in phys stores ○ Offer conv of online shopping and delivery
Retail sector (free market)
What are adv/disadv for online retailers?
Implic for producers?
Adv
* less overhead and staffing - no need for physical shop and store wine in less exp real estate
* can stock large range vs bricks and mortar -> oppty for smaller/niche producers
* large customer base
* Bricks and mortar can reduce delivery cost w/ in-store pickup for customers
Disadv
* delivery expense - wine is heavy/fragile - high cost; may or may not pass on full delivery cost
- retailer retains risk of damage/spoilage during delivery; advances in delivery have reduce delivery time to meet cons expectations
* Critical to have easy to use, up-to-date website - expensive to design and maintain
- distinctive experience/convey brand
- ongoing tech support costs
- customer service staffing
- content development capability - descriptions, storytelling, ratings, food/wine pairing, customer reviews key as cons may not have tried before
* may need to have mobile app - additional development/management investment
Retail sector (free market) - strategic summary
Analyze how online shopping has impacted traditonal wine sales channels?
Expanded market access and product diversity
* allows prod to reach global audience
* large ranges of online retailers - niche and unique products not able to be carried in phys stores
Logsitical challenges
* retailer has to have reliable shipping for perishable prod
* high delivery costs (esp int’l) can erode profits
Shifting cons expectations and prefs
* online redefining how cons want to interact w/ wine brands in other channels
* challenges trad retailers to re-think in-store experience: detailed prod desc, ratings/reviews at POS (QR codes in stores)
Retail sector (free market)
What is global retail travel?
How has it evolved?
Key features?
Adv/Disadv?
○ Retailing wine where people travel bet countries (airports, seaports and intl train stations)
○ Focus on prem wines and gift packaging
○ Targets affluent travelers - time to shop before boarding, convenience for cust of not packing
Key shift - duty free nationals taxes not charged on goods sold for pers use in another country
§ Trad - cons looked for low prices
§ Now - free trade zones have eliminated some x-border duties - focus on prem goods not avail in home market
Adv - oppty to sell high margin, super prem wine, signif cons traffic - awareness/volume
Disadv - expensive channel - retail space cost high some is passed on to prod, operational complexity, dependence on global travel trends
Retail sector (free market)
What are wine investment companies?
Key features?
Adv/disadv?
○ Companies that specialize in sourcing and selling invest-grade wine for investment (secondary market)
§ Bord Premier Cru Classés, Burg GCs, top Napa Valley
- appeal to collectors and investors
○ Some are specialized in provenance and valuation, have access to small allocs of best wines which they can re-sell
○ Some act as brokers - cust tell what wines they want and company finds them source for a commission
Adv - provides secondary market access for prem wine, pot for very high returns in good market cond
Disadv - Risk of fraud, dependent on strict provenance validation processes
Retail sector (free market)
What is fine wine?
What role does wine investment play in wine trade?
What types of businesses involved?
○ Inc important driven by Bord en primeur, growth in china
○ No clear def of “fine wine” - wines for which there is a secondary market § dominated by Bordeaux until 2010, now incl Burg, Napa, Piemonte, Tuscany, Champ ○ Investment wines are usually bought en primeur - from producer or via retailer - or on release via allocation from producer ○ Trad focused in London, increasingly in China/Hong Kong ○ Business types - § some retailers have wine invest arm (Cult Wines UK); § Trading exchanges - liv-ex § Portfolio managers - manage clients wine portfolios, sourcing new and selling § Auction houses - added expense of provenance validation, fraud/counterfeit risks ○ Issues - risk of provenance and condition, risk of fraud (across all wine levels) § Producers developing anti-counterfeiting techniques
Retail sector (free market) - strategic summary
What are key trends and considerations for retail sector?
Emerging trends, Market-specific considerations
Emerging Trends
* online sales and subscription svcs shaping retail channels
* Hybrid sales models gaining popularity
Market-specific considerations
* retail channel strategies vary based on local cons beh, econ conditions, competition levels
* Prod must balance vol, profit margin, brand positioning to choose most effective retail mix
