IBWSS San Francisco: private label and value are key to rise in bulk wine in the US
By Katie Canfield
The increasingly global nature of bulk wine and private label business was particularly apparent in San Francisco last month, where the US edition of the International Bulk Wine and Spirits Show hosted over 110 exhibitors from more than 15 countries looking to grow their bulk and private label business in the US market.
While suppliers and buyers connected on the expo floor, the conference sessions honed in on the state of private labels in the US – where retailer-owned brands are seeing significant growth – and best practices to foster effective and profitable private label strategies that will allow businesses to take full advantage of the rising tide. Though suggestions and perspectives were varied, three points of guidance echoed throughout: never lose sight of the consumer, create value, and learn to effectively interpret and apply data.
The rise of private label
According to Nielsen April 2019, private label sales have increased 17% to $7.9 billion across brick and mortar stores over the past three years in the US. Despite substantial growth, total market share of private label is still small by global standards, and “we still have a long way to go.”
This was the view of Mari Kelly, vice president, private label wine sales and business strategy for Terressentia Corporation in the US, who attributed private label as an opportunity for retailers, distributors, and suppliers to escape the “race to the bottom” when it comes to price and margins. Whether private label or retail-owned exclusive, these brands take back margin at all stages of the supply chain, giving end-consumers a better price and removing the opportunity for cost comparison, which, in the age of mobile phones, all consumers have instant access to, she claimed.
This upward trend shows no signs of slowing. Beyond margin, there are substantial benefits private label offers to both suppliers and buyers. With global consumption flat and production up, suppliers around the world are looking for ways to sell excess supply. Likewise, for on- and off-premise accounts striving to provide something unique to their consumers in a competitive beverage alcohol landscape, private label offers the solution – as long as it’s done right.
The customer behind the curtain
One of the most important considerations for a supplier setting up a private label programme is the consumer. According to Kurt Lorenzi, vice president of global sourcing for WX Brands (Winery Exchange), this means looking at certain criteria such as what differentiates them from other retailers, including their points of distribution and the level of service they expect from suppliers.
National and regional retailers have diverse profiles and the supplier must cater to their specific needs and wants. For Liquors Plus chain, margin enhancement and being able to bring their customers exclusive products are the two principal considerations. “We are dedicated to looking to bring our customers something special, something they can’t get somewhere else,” said senior wine buyer Bill Abrahamson.
Kelly emphasised that in addition to the retail customer, suppliers must also consider the end-user. “You have to know your customer and who you are marketing to – your end-user, demographics, disposable income. It doesn’t matter what you like, it matters what your end-consumer likes,” said Kelly.
While this may seem to be a simple concept, it is challenging in the face of an ever more discerning consumer.
Riding the wave of premiumisation
Today’s global market has pushed bulk wine quality levels up, to the point that standards are higher than ever for retail customers and end-consumers alike. For Lorenzi, it’s no longer sufficient to offer “great wine” and price shouldn’t be the only consideration. “Premiumisation is happening and retailers are looking to react,” he said. “It needs to be value, something better than the adjacent brands on the shelf.”
Creating value for the consumer is more than a ratio of quality to price; the product must also be perceived as good value – translated to the consumer through marketing and brand building.
A successful private label brand will also carry value through to different levels and tiers of pricing for the retail costumer, ensuring that the offering is broad enough to accommodate multiple consumer demographics.
Using data to get ahead of the curb
For Lorenzi, a thorough understanding of the market such as trends, pricing, and national benchmark equivalents, is the only way to stay competitive in the private label game, and that requires attention to data.
Kelly agreed that trends are fleeting and being able to effectively navigate the shifting landscape will ensure longevity for a private label brand. She noted vodka in the US as an example, which enjoyed tremendous growth and popularity in recent years and is now the number one discontinued product among her customers, being replaced by a craze for botanicals. “You need to continue to recreate yourself. You have to know your end-consumer but they may change,” said Kelly.
On pricing, Lorenzi underlined that the primary reason for private label is to achieve higher margin. To maintain a competitive advantage, suppliers need to know what pricing competitors are leading with. While this information may not be made easily accessible by individual accounts, suppliers can look at national trends to give them a base for negotiation with potential or existing customers.
Data can also help private label brands survey the competition, including identifying and comparing against price points and national benchmark equivalents. Identifying the top brands in the category and then tasting products against them will ensure that suppliers are able to meet expectations.
Understanding the competition allows one to generate a point of difference – charity partnership, an award, creating an experience – that will continue to keep a brand relevant and stand out on the shelf, stressed Lorenzi.
Other considerations
Establishing a new business relationship for private label is just the beginning, and to ensure a long and fruitful private label partnership there are important factors that should be continually addressed including packaging and design, supply, and timing.
Often lacking a story about a vineyard or a winery that other wine brands enjoy, private label brands rely on their packaging to set themselves apart in front of consumers. Compelling labels are therefore an instant point of differentiation.
Still, when working with retail customers, it’s important to make sure all needs are being met. According to Lorenzi, some requirements can be very extreme. Again, consistency comes into play – whatever packaging was initially approved by the retailer should be maintained throughout.
Behind the scenes, the source of supply and timing of delivery are two especially sensitive points that can make or break a private label business relationship. It goes without saying that a supplier should guarantee product for the buyer; however, it is worth looking one step further to determine if the stock is scalable as the brand grows.
Lorenzi suggested that to best manage customer expectations, suppliers should work closely with distributors to ensure that the retail or restaurant outlet has access to stock. “Inventories is a dicey piece,” he said. “Retailers don’t want to sign up for specific inventory.”
Abrahamson agreed that as a private label buyer, “the onus is on us” – managing orders, inventory levels, etc. can be daunting and it’s up to the supplier to make that piece as straightforward as possible for the customer.
Prompt delivery of supply is paramount. With bulk wine being shipped from around the globe to create private labels plus the inevitable delays due to federal and state by state regulations and the US three-tier distribution system, this is not always straightforward.
Kelly said it was important to always stay on top of the laws, as compliance is often a moving target: “Laws change daily, licenses, TTB, COLA, direct ship, duty free – it’s even worse than with the tobacco industry.” However, successful private label suppliers should always be on top of logistical issues.
Abrahamson’s closing piece of advice addressed both suppliers and buyers in the audience: “Don’t do anything unless you’re absolutely confident that you love the wine, and then promote it. Make sure you’re always front and centre with it so that [the product] goes from being something foreign to part of the [outlet’s] weekly wine regimen. It can be done and hopefully we get to do a lot more of it.”
* The IBWSS 2019 conference and trade show – also hosted in London (16-17 March 2021) and Shanghai (5-6 November 2019) by organisers Beverage Trade Network – took place July 23-24 at the South San Francisco Conference Center.