While the gates have been opened for a deepened private-label presence in the wine category, pricing and branding programs are still being ironed out as retailers plot their come-to-market strategies.
"The conditions are ready for private-label wine in the U.S.," said Brian Sharoff, president of the New York-based Private Label Manufacturers Association, pointing to market shares in Europe of 40% and higher.
"With over 2,000 separate brands offered and larger producers trying to consolidate wine into a branded business, marketers are no longer focusing on appellations and chateaus as a selling point. These are all strong preconditions for private-label growth."
Retailers, wanting to seize the power of private label, stand poised to knock away thousands of stockkeeping units on the shelf, said Sharoff. "Brands create a branded marketplace," he said. "Retailers are quietly shifting to controlled-label items. Besides, the identification of the growing regions, vintage years and producing chateau all are a source of confusion for consumers who are not wine aficionados. It's time to take the wine out of the cellar and bring it to where people can understand and enjoy it," he said.
Despite the challenges of economic uncertainty, consolidation and oversupply, the wine category flourishes in the 33 states in which wine is currently being sold in supermarkets. Market research firm Information Resources Inc., Chicago, points out that wine stands to bring significant growth to supermarkets. Already enjoying $3.6 billion in supermarket sales last year, for the 18 months ended in June 2001, and generating $826 million in new revenue, only bottled water has grown at a faster pace, claiming $973 million in sales gain for all 50 states.
In general, consumer habits bode well for the wine category in supermarkets. According to IRI, grocery outlets have a clear advantage, not only in penetration, which is 23%, but also in purchase frequency, that of 4.8 times per year. The closest channel competitors are the drug chains with 3% penetration and 3.4 purchases per year.
In building a program, experts recommend retailers look at best-sellers Chardonnay, Cabernet Sauvignon, Merlot and White Zinfandel, which comprise the bulk of the business. The San Francisco-based Wine Institute concurs that these four varietals claim 52% of supermarket volume with everyday wines, priced at $7 per bottle, capturing 74% of total wine sales.
Premium segments are currently driving category growth, with $7-$10 bottles posting a 22% lift, and those in the $10-$14 range growing 23%, according to the Wine Institute. Presentations at last summer's Annual World Wine Market Exhibition, held in San Francisco, pointed out that wines retailing for over $15 per bottle now account for 33% of dollar volume sales.
While retailers' early forays into the private-label wine category have fallen flat, key retailers are now working on a second generation of higher-quality wine offerings. Rather than focusing on price points in the $5-$9.99-per-bottle range, they are exploring $10-$20 bottles.
"Wine is a growing part of the private-label assortment," said Sharoff. "Plus, retailers are big enough to make their own brands a dominant label in the country. Retailers offering a good variety of private-label wine stand a good chance of making excellent inroads into the category."
Specialty retailers are not taking a back seat when it comes to store-branded wine offerings.
Whole Foods Market, Austin, Texas, is one operator that has taken its "365" brand into the wine department. National wine buyer Marc Jonna and his team seek "items of exceptional flavor and extraordinary value," according to the company Web site, which focuses on two domestic and two imported select offerings.
Likewise, Trader Joe's, a 160-unit specialty chain based in Pasadena, Calif., offers its Trader Joe's French Market brand in addition to the chain's own labeled bottles.
Yet, experts said supermarket operators are focusing more on controlled labels than on custom, private-label programs in the wine category. Operators, including savvy independents seeking to position their wine knowledge as a point of distinction, either buy up an entire production of a particular bottling from a winery, or select a producer's particular offering penning an exclusive agreement in their marketing area.
"The category is growing," said John Peterson, operations manager, Coastal Brands, Graton, Calif. "More producers are interested in these types of programs with the current abundance of wine. For retailers there is a pricing attraction and, if priced reasonably, these offerings give retailers something consumers will not see anywhere else. It's nice for the chains to make the extra margin."
Alternatively, those operators who are offering a more traditional, store-brand program are creating cache by providing an umbrella name for items in the category. Much like Pleasanton, Calif.-based Safeway's creation of the Primo Taglio label for deli meats and cheeses, or Verdi for refrigerated pastas and frozen pizza, operators, including Safeway, are presenting wine lines under brand names not intended to reflect the store's trading name.
Wal-Mart Stores, Bentonville, Ark., has introduced its Alcott Ridge wine line. The retailer said it has teamed with E. & J. Gallo Winery, Modesto, Calif., to present the line of Cabernet Sauvignon, Chardonnay, Merlot and White Zinfandel in 750-milliliter sizes. Price per bottle averages $6. The wine selections are available in Wal-Mart and Neighborhood Markets units that sell wine and SAM's Clubs outside the United States, as well as international retail outlets.
"Many of our customers are demanding a greater selection of wine products at prices they can afford," said John Ryan, senior vice president of Wal-Mart global sourcing, in a prepared statement. "We believe that Alcott Vineyards will help us meet that demand."
Other supermarket giants, including Cincinnati, Ohio-based Kroger and Boise, Idaho-based Albertsons, are creating category brands for their private-label wine selections. Albertsons' Timberwood line of 750-milliliter bottles include Chardonnay, Merlot and Cabernet Sauvignon offered at $5.99 with a Bonus Buy offer, saving $3 per bottle at units visited by SN recently.
The exclusive-brand method retailers are taking with wine not only affords operators better margins, but also allows retailers to build their own name recognition with consumers.
"The exclusivity of the product adds to the romance in consumer's mind," said Cheri Wright, western regional manager at Coastal Brands. "The small production wines and control-label paths retailers are exploring certainly adds interest to the category."
"There are a lot of door-opening qualities to gourmet foods, upmarket produce and deli items," said Sharoff. "These categories compliment the wine category very well."
As a result, the PLMA has coupled wine with gourmet and specialty foods and perishables along with the International Pavilions on a separate mezzanine level hall at its upcoming exposition.
"Just as retailers expanded their private-label programs to include premium private label, gourmet lines and perishables, now wines are attracting serious attention," said Sharoff.
